Real Estate Principles Study Guide

1. . Which of the following rights are included within the owner's "bundle of rights"? A. The right to use the property with absolute authority B. The right to take title to adjacent property through adverse possession C. The right to use, will, or sell property, subject to encumbrances and public restrictions D. All of the above

Question 1. . Answer: C Explanation: While the "bundle of rights" includes the right to possess, use, will, and sell property, these rights are always subject to the interests of the government and other parties.

10. . A conveyance or encumbrance of community real property: A. requires the signatures of both spouses or domestic partners B. requires the signature of only one spouse or domestic partner C. must be executed by an attorney in fact D. is invalid unless notarized and recorded

Question 10. . Answer: A Explanation: In California, when real property that is owned as community property is conveyed or encumbered, both spouses (or both domestic partners) must sign the documents.

11. . Carol is a real estate salesperson. Her contract with her broker specifies that Carol is an independent contractor, not an employee. Asa result, the broker: A. cannot require Carol to follow company procedures or perform scheduled tasks B. is not required to comply with tax withholding rules in regard to Carol's compensation C. cannot be held liable for Carol's mistakes or misconduct D. All of the above

Question 11. . Answer: B Explanation: If a real estate salesperson qualifies as an independent contractor, the broker is not required to withhold funds for social security or income taxes when paying the salesperson's commissions. But the broker still can require the salesperson to follow certainprocedures and perform scheduled tasks (such as floor duty). And the broker is always required to supervise the salesperson, and canalways be held liable for her actions in the course of her work.

12. . If a salesperson is considered to be an independent contractor for purposes of income taxation, which of the following is true? A. The broker will still be liable for the misconduct of the salesperson B. The broker will withhold taxes and social security C. The salesperson must be paid a regular salary D. The broker will give the salesperson detailed instructions for marketing each property

Question 12. . Answer: A Explanation: Even if a salesperson is an independent contractor rather than an employee, the salesperson's broker still has supervisory responsibility and liability for any misconduct by the salesperson.

13. . In California, a real estate salesperson must: A. have a written contract with the broker he is affiliated with B. be regarded as an independent contractor rather than an employee C. purchase unemployment insurance coverage D. be paid entirely by commission rather than by the hour

Question 13. . Answer: A Explanation: A real estate salesperson in California must have a written contract with his broker, signed by both parties. If the salesperson is going to be treated as an independent contractor, that must be stated in the contract, and the salesperson's compensation must be based on commission rather than hours worked. However, there's no requirement that a salesperson be paid by commission or be treated as an independent contractor at all.

17. . A seller accepted a proper offer in writing to purchase his property. He then refused to complete the transaction. If the buyer were tobring suit for failure to perform the contract, under the statute of limitations he would need to do so within: A. 1 year B. 2 years C. 3 years D. 4 years

Question 17. . Answer: D Explanation: In California, the statute of limitations for written contracts is four years. A lawsuit regarding breach of a written contractmust be filed within this four-year period.

18. . The term "laches" refers to: A. a deficiency judgment B. a contract whose contents cannot be proven in court C. a court that does not have jurisdiction to decide a question D. an inexcusable delay in pursuing a legal right

Question 18. . Answer: D Explanation: Laches is a delay in pursuing a legal right. Even if a lawsuit was filed before the deadline set by the statute of limitations, ifthe plaintiff unnecessarily delayed taking legal action and the delay prejudiced the defendant's position, the court might decide to rejectthe plaintiff's claim.

19. . Two parties entered into a contract. One of the parties had previously been adjudged incompetent, but the other party did not knowthis. The contract is: A. valid B. voidable C. unenforceable D. void

Question 19. . Answer: D Explanation: Any contract signed by a person who has been declared incompetent is void, even if there was no coercion and the competent party was unaware of the other party's incompetence.

2. . Victor sold land to Greg by a deed which provided, "Seller retains rights to all minerals and materials of the earth under this land."Shortly thereafter, while Greg was preparing his land for cultivation, Victor appeared with oil drilling equipment. Greg refused to allowhim on the land. Victor sued Greg. In this case, the judge's decision should be: A. Victor has the right to enter on Greg's land to drill for oil. B. Victor has no right of entry on Greg's land because the deed did not provide for it. C. Victor may drill below Greg's land but must do so from outside its boundaries. D. Victor may enter Greg's land only from beneath the surface.

Question 2. . Answer: A Explanation: When ownership of mineral rights (which here clearly includes oil and gas rights) is separated from ownership of the land, there is an implied grant of easement which will allow the holder of the rights to enter the property to extract the solid minerals, oil, and/or gas.

20. . In a contract, the meeting of the minds between buyer and seller is evidenced by: A. consideration B. acknowledgment C. performance D. offer and acceptance

Question 20. . Answer: D Explanation: Offer and acceptance demonstrates a meeting of the minds between buyer and seller, indicating that a contract has been formed.

21. . A farm's southern boundary runs for 7,920 feet along an east-west road. Its western boundary extends northward for 7,920 feet fromthe road. Its eastern boundary extends northward for 3,960 feet from the road. The northern boundary is an irrigation canal that connectsthe open sides. How many acres is this farm? A. 270 acres B. 540 acres C. 1,080 acres D. 1,440 acres

Question 21. . Answer: C Explanation: Because one of the edges of the farm is a diagonal line, we'll need to break the farm down into component shapes to solve this problem. There should be a triangle that is 3,960 feet high and 7,920 feet wide, and below that should be a rectangle that is 3,960feet high and 7,920 feet wide. First, calculate the area of the triangle (1/2 × 3,960 feet × 7,920 feet = 15,681,600 square feet). Next,calculate the area of the rectangle (3,960 feet × 7,920 feet = 31,363,200 square feet). Add the two areas together (15,681,600 square feet+ 31,363,200 square feet = 47,044,800 square feet) and divide into acres (47,044,800 square feet ÷ 43,560 square feet per acre = 1,080acres).

22. . A rectangular lot is 900 square yards in area. It has a 45-foot frontage. How deep is the lot? A. 6.66 feet B. 20 feet C. 60 feet D. 180 feet

Question 22. . Answer: D Explanation: First, convert the area of the lot from square yards to square feet (900 square yards × 9 square feet per square yard = 8,100square feet). Then, divide the square footage by the frontage to determine the depth (8,100 square feet ÷ 45 feet = 180 feet).

23. . The NE quarter of the NW quarter of the SE quarter of Section 23 is for sale. The listing price is $3,500 per acre. A prospectivebuyer offers to buy the property by paying $30,500 plus the 10% broker's commission on the sale. What is the difference between thelisting price and the total amount that the buyer is offering to pay? A. $1,450 B. $2,900 C. $3,350 D. $7,550

Question 23. . Answer: A Explanation: First, calculate the acreage of the property; there are 640 acres in a section (640 acres ÷ 4 ÷ 4 ÷ 4 = 10 acres). Calculate thelisting price (10 acres × $3,500 per acre = $35,000). Next, determine the amount of the broker's commission, which is based on thepurchase price rather than the listing price ($30,500 × .1 = $3,050), and add that to the purchase price ($30,500 + $3,050 = $33,550).Subtract the buyer's offer from the listing price ($35,000 - $33,550 = $1,450).

25. . Javier purchased a property for $412,500. He paid a $9,000 deposit, and obtained a loan for 80% of the selling price. In an entirelyseparate transaction, he sold a note and deed of trust with a $48,000 balance at a 30% discount, and applied this toward the purchase ofthe new property. If the seller agreed to carry back a second mortgage for the balance of the purchase price, what would be the loanamount for the second mortgage? A. $39,900 B. $48,900 C. $57,900 D. $64,100

Question 25. . Answer: AExplanation: First, calculate the amount of the loan ($412,500 × .8 = $330,000). Calculate Javier's proceeds from the discounted sale ofthe deed of trust ($48,000 × .30 = $14,400) ($48,000 - $14,400 = $33,600). Add the amounts of the deposit, the loan, and the proceedsfrom the sale ($9,000 + $330,000 + $33,600 = $372,600). Subtract this from the purchase price to determine how much more needs to befinanced in order to cover the entire purchase price ($412,500 - $372,600 = $39,990).

26. . Which of the following statements regarding quitclaim deeds is correct?A. A quitclaim deed conveys after-acquired title B. A quitclaim deed warrants that the grantor has not previously conveyed title to anyone else C. A quitclaim deed has no expressed or implied warranties D. A quitclaim deed warrants there are no undisclosed encumbrances on the property

Question 26. . Answer: C Explanation: A quitclaim deed warrants (guarantees) nothing; it conveys only the interest the grantor has at the time the deed is executed.

27. . Which of the following problems would cause a deed to be void? A. The grantor's name on the deed is different from her legal name B. The grantor has recently taken a new married name C. The grantee is not adequately identified D. The grantee's name is spelled differently

Question 27. . Answer: C Explanation: The parties to a deed must be identified in the document. While the grantee's name isn't absolutely necessary, a descriptionthat makes it possible to identify the grantee without question is necessary.

28. . A woman executes a grant deed for a parcel of real property, naming her son as the grantee. She gives the deed to her attorney,telling him not to record the deed until her death. The transfer of property might be invalidated at which of the following steps? A. Acknowledgment B. Delivery C. Recording D. Consideration

Question 28. . Answer: B Explanation: Delivery must take place during the grantor's lifetime in order to be effective. (If the deed were delivered before the grantor's death but recorded after her death, it could still be valid.)

29. . If a buyer fails to examine public records relating to a property, the buyer is still considered to have: A. actual notice B. constructive notice C. conditional notice D. contingent notice

Question 29. . Answer: B Explanation: Recording a document provides constructive notice to the world of its existence. A person has constructive notice of a factif he should know the fact, whether or not he actually knows it.

3. . Which of the following is not considered to be appurtenant to land?A. WatercoursesB. FencesC. DwellingsD. Trade fixtures

Question 3. . Answer: D Explanation: Trade fixtures (items installed by a tenant for use in a trade or business) are not appurtenant to land. The tenant is presumedto have installed them with the intention of removing them at the end of the lease, so they remain the tenant's personal property.

30. . The holder of a standard 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 30. . Answer: C Explanation: Standard coverage title policies insure against matters of record overlooked by the title searcher and against hidden problems in recorded documents, such as forged signatures. They don't insure against problems that would only be discovered in aproperty inspection, such as unrecorded liens and parties in possession. And no title insurance policy covers problems that the insuredknew about and failed to disclose to the title insurance company.

31. . Which of the following would involve a grandfather clause? A. Continuation of a nonconforming use B. Inheritance of real property C. Allowing a racially restrictive covenant to continue D. Allowing an easement to lapse for nonuse over time

Question 31. . Answer: A Explanation: A provision in a zoning law concerning nonconforming uses may be referred to as a grandfather clause, since it allows anold use (one predating the current zoning law) to continue.

34. . A parcel of real property would be reassessed in which of the following situations? A. Only if the improvements have been destroyed and rebuilt B. If the county is projecting a budget shortfall and needs additional revenue C. Every time the property is sold D. Every five years

Question 34. . Answer: C Explanation: A property is reassessed every time it is sold, unless an exemption applies to the transaction.

35. . A city passes a bond issue to improve streets in a particular neighborhood. The properties in that area will be burdened: A. according to the value of the property B. according to the size of the lot C. in proportion to the benefits that the land will receive D. identically

Question 35. . Answer: C Explanation: While general real estate taxes are levied based on the value of the taxed properties, special assessments are levied according to the amount each property will benefit from the improvement.

36. . Rotting garbage in a neighbor's backyard is an example of: A. an encroachment B. an easement in gross C. a private nuisance D. a public nuisance

Question 36. . Answer: C Explanation: An activity or condition on neighboring property that has a negative impact on a property owner's use or enjoyment of his own property is called a nuisance. A nuisance that affects a relatively small number of properties, such as rotting garbage, is a privatenuisance. (One that affects a large number of properties, such as noise from jet overflights near an airport, is a public nuisance.)

37. . A money judgment issued by a court creates a lien: A. throughout the state where the lawsuit was brought B. only in the county where the lawsuit occurred C. in any county where an abstract of judgment is recorded D. anywhere in the United States

Question 37. . Answer: C Explanation: To create a judgment lien, the judgment creditor records an abstract of judgment. The lien will attach to all real propertyowned by the judgment debtor in any county where an abstract is recorded.

38. . A subcontractor installed hardwood floors in a home under construction, but the owner refused to pay for the work. If thesubcontractor filed a mechanic's lien, the date of the lien would be the date that: A. work on the house began B. work on the house was completed C. work on the floor began D. work on the floor was completed

Question 38. . Answer: A Explanation: The priority of a mechanic's lien is determined by the date any work on the project began (including delivery of materials to the site), a date which is often earlier than when the work of a particular lien claimant began.

39. . An easement created by express grant: A. must be put into writing and signed by the grantor B. can be created either orally or in writing C. can be revoked by the grantor at any time D. must be an easement in gross rather than an easement appurtenant

Question 39. . Answer: A Explanation: An easement created by express grant (or by express reservation) is binding only if it is created in a written, signed document. It may be either an easement in gross or an easement appurtenant. Easements are irrevocable.

40. . When real estate taxes remain unpaid, they constitute a lien that is: A. inferior to any liens held by a private party B. superior to a mortgage lien C. concurrent with any mortgage lien D. inferior to a mortgage lien

Question 40. . Answer: B Explanation: Real property tax and special assessment liens are superior to all other liens against a property, including those that attached earlier (such as a previously recorded mortgage or deed of trust).

41. . A contract that provides for a commission for the broker regardless of who finds a buyer is a/an: A. exclusive agency listing B. exclusive right to sell listing C. net listing D. open listing

Question 41. . Answer: B Explanation: Under an exclusive right to sell listing, the broker is entitled to the commission if the property sells during the listing period, regardless of who actually arranged the sale.

42. . Under California law, a buyer representation agreement must: A. be in writing and signed by the buyer B. include a legal description of the property C. expire no later than 90 days after it was signed D. All of the above

Question 42. . Answer: A Explanation: California's statute of frauds requires a buyer representation agreement to be put into writing and signed by the buyer to been forceable.

44. . A prospect calls a broker and asks about a farm property that he wishes to buy. The broker says he does not have a listing on thatproperty, but that he will check into it. He calls the owner of the farm and says that he has an interested buyer. However, the owner of thefarm says the property is not for sale. One week later, the broker learns that the owner of the farm sold the property to the prospect. The broker: A. is entitled to a reasonable commission from the buyer B. may sue the seller for a reasonable commission C. is entitled to a reasonable commission from the seller D. is not entitled to a commission

Question 44. . Answer: D Explanation: The broker is not entitled to a commission, since he did not have a written listing agreement for the property and did not arrange the sale of the property to the buyer.

45. . An exclusive listing agreement is: A. a bilateral executory contract B. an employment contract C. a promise for a promise D. All of the above

Question 45. . Answer: D Explanation: An exclusive listing agreement contains a promise for a promise, which means that it is a bilateral contract. It is executory-- in the process of being performed -- until a buyer is found and the sale closes. A listing agreement may be regarded as a contract inwhich a seller employs a broker to find a buyer (although for taxation purposes, the broker is an independent contractor, not the seller'semployee).

46. . A promissory note that is secured by real property is: A. used as security for a deed of trust B. used in all real estate transactions C. evidence of the debt D. considered real property

Question 46. . Answer: C Explanation: A promissory note is evidence that the maker of the note owes money to a lender. The promissory note is secured by a deedof trust or a mortgage, not vice versa. (A promissory note is used in virtually all real estate loan transactions, but not in all real estatetransactions. For example, a promissory note is not used in a land contract sale.)

49. . All of the following statements regarding security instruments are true, except: A. A mortgage creates a lien on real property without transferring title B. A promissory note is security for a deed of trust C. The lender who makes a loan for a purchase of real property to be secured by a deed of trust is a beneficiary D. The owner of property that is collateralized by a mortgage is a mortgagor

Question 49. . Answer: B Explanation: The opposite of that statement is true: a deed of trust is security for a promissory note.

5. . How many acres are in a property that is described as the "S 1/2 of the NW 1/4 of the NE 1/4 of the NE 1/4 of Section 23"? A. 5 B. 10 C. 20 D. 40

Question 5. . Answer: A Explanation: To solve this problem, start with the size of a section (640 acres) and work backwards. 640 ÷ 4 = 160. 160 ÷ 4 = 40. 40 ÷ 4= 10. 10 ÷ 2 = 5.

50. . A deed of trust includes an alienation clause. As a result of this provision: A. the loan cannot be assumed by a buyer without the lender's consent B. the loan cannot be repaid before its maturity date without the lender's consent C. the property cannot be sold without the lender's consent D. the property cannot be sold unless a buyer agrees to assume the loan

Question 50. . Answer: A Explanation: An alienation clause gives the lender the power to require the borrower to pay off the loan if the property is sold. This effectively means that the property buyer can't assume the loan unless the lender consents to the assumption. The lender can't preventthe property from being sold; the borrower will simply have to pay off the loan when the sale closes.

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

Question 51. . Answer: C Explanation: A lower loan-to-value ratio indicates that the borrower has a greater equity interest in the property. For instance, with an80% loan on a $100,000 property, the borrower's equity is $20,000; with a 70% loan on the same property, the borrower's equity wouldbe $30,000.

52. . If the monthly payments on an adjustable-rate mortgage are insufficient to cover the interest due, the result is: A. a lengthened loan term B. additional principal payments C. negative amortization D. a lower loan-to-value ratio

Question 52. . Answer: C Explanation: Negative amortization occurs when the monthly payment isn't sufficient to pay all the interest due on a loan and the unpaid interest is added to the principal balance, causing the balance to go up instead of down.

53. . A lender will charge discount points when issuing a new loan in order to: A. increase the effective yield on the loan B. close the gap between market interest rates and the rate being charged on the loan C. pay for administrative costs in originating the loan D. Both A and B

Question 53. . Answer: D Explanation: When discount points are paid at closing, the upfront payment increases the effective yield (essentially, the lender's profit)on the loan. And a lender offering a below-market interest rate in order to attract borrowers will typically charge discount points to makeup for the difference between the market rate and the rate the borrowers will pay. (Administrative costs incurred in originating the loanare covered by the origination fee, not by discount points.)

54. . The principal of a mortgage loan may be insured by: A. the VA or the FNMA B. the lender C. the FHA or a private mortgage insurer D. the FHLMC and the GNMA

Question 54. . Answer: C Explanation: The two most common sources of mortgage insurance are the FHA (which insures all FHA loans) and private insurers(which insure conventional loans with loan-to-value ratios higher than 80%).

55. . Which of the following types of loans is least likely to require a downpayment from a borrower? A. Conventional loan B. FHA-insured loan C. VA-guaranteed loanD. Cal-Vet loan

Question 55. . Answer: C Explanation: A VA loan usually does not require a downpayment from the borrower. (A downpayment is required in some transactionsbecause the loan amount is large or because the price exceeds the appraised value.)

56. . The basic principle underlying the market data approach to appraisal is:A. anticipation B. conformity C. supply and demand D. substitution

Question 56. . Answer: D Explanation: According to the principle of substitution, a property's value is equivalent to the cost of obtaining an equally desirable property. This principle is the basis for all three of the main methods of real property appraisal, including the market data approach (alsocalled the sales comparison approach).

57. . For market data appraisal purposes, what date is most important to the appraiser? A. When escrow closed B. When the purchase agreement was signed C. When financing was obtained D. When the deed was signed

Question 57. . Answer: B Explanation: The date the purchase agreement was signed is the date that the sales price was determined. For market data (salescomparison) appraisal purposes, this is the most important date.

59. . Which of the following would be an example of external obsolescence? A. Unattractive floor plan B. Outdated architectural style C. Adverse rezoning D. Lack of proper maintenance

Question 59. . Answer: C Explanation: Adverse zoning changes would be an example of external obsolescence (also called economic obsolescence), which is caused by factors external to the property. An unattractive floor plan or an outdated architectural style would be functional obsolescence.Lack of proper maintenance would be physical deterioration.

60. . Capitalization is used to: A. determine net worth B. balance assets and liabilities C. find an asset's value using its net income and a desired rate of return D. None of the above

Question 60. . Answer: C Explanation: Capitalization is the process of determining a property's current value. This is accomplished by dividing its net income bythe desired rate of return.

61. . In northern California, escrow services are usually: A. part of the services that are provided by the title company B. provided by independent escrow companies C. non-negotiable D. All of the above

Question 61. . Answer: A Explanation: In northern California, escrow services are usually part of the services that are provided by the title company that is insuring the property that was sold. This is why escrow services are usually less expensive in the north than in the south.

62. . On a buyer's closing statement, which of the following would appear as a debit? A. Interest owed on an assumed loan B. Unpaid property taxes C. Documentary transfer tax D. Purchase price

Question 62. . Answer: D Explanation: The purchase price will always be entered as a debit for the buyer.

68. . Which of the following is not a capital expenditure and therefore can't be added to the cost basis for a property? A. Installation of a lawn sprinkler system B. Cost of new water-efficient toilets C. Lawn maintenance contract D. Addition of a heat pump

Question 68. . Answer: C Explanation: Maintenance costs are not capital expenditures and can't be added to basis.

69. . Kathy and John, a married couple, purchase a home for $250,000. After living in it for six years, they sell it for $282,000. On whatamount will they have to pay capital gains taxes? A. $32,000 B. $250,000 C. $282,000 D. Nothing

Question 69. . Answer: D Explanation: Since Kathy and John lived in the house for over two years, they qualify for the exclusion of a gain from the sale of a principal residence. Married couples can exclude a gain of up to $500,000, so Kathy and John won't have to pay any taxes on this $32,000 gain.

77. . Buying a home offers all of the following advantages EXCEPT: A. freedom from restrictions on changes to the interior of the dwelling B. emotional security C. tax deductions D. highest rate of return on investment

Question 77. . Answer: D Explanation: Historically, real estate appreciates faster than the rate of inflation; generally, however, more speculative investments offer a higher rate of return.

79. . An investor wishing to apply the principle of leverage should invest using: A. as much of his personal funds as possible B. a mix of personal and borrowed funds C. borrowed funds as much as possible D. funds borrowed only from family and friends

Question 79. . Answer: C Explanation: An investor applying the principle of leverage would use as much borrowed money as possible and as little of his own money as possible.

8. . Two people own a house as joint tenants. One co-tenant executes a promissory note secured by a deed of trust against her interest inthe house. Which of the following statements is true? A. This defeats one of the unities required for joint tenancy. B. This invalidates the promissory note because the co-tenant only had a partial interest in the property. C. This places the beneficiary in a precarious position, since the lien created by the deed of trust will be extinguished upon the deathof the borrower. D. This creates a security interest in all other properties owned by the borrower.

Question 8. . Answer: C Explanation: A lien or other creditor's claim against one co-tenant's interest in a property held in joint tenancy will terminate upon the death of that co-tenant. A valid promissory note may be secured by a deed of trust against one person's interest in a joint tenancy, but it'sunlikely that a lender would agree to that arrangement, since the lender's security interest would terminate if the borrower died.

81. . When a real estate licensee employs a non-licensee, the licensee must be careful to make sure that: A. activities requiring a real estate license are performed only by the licensee B. the employee's activities are limited to those permitted by the Real Estate Guide to Non-licensee Activities C. the non-licensee only discusses available properties but does not negotiate with parties D. the non-licensee accepts only advance fees, rather than commissions

Question 81. . Answer: A Explanation: An unlicensed employee of a real estate licensee may not perform or be compensated for activities for which a real estate license is required. The correct name of the guide is Guidelines for Unlicensed Activities; they are guidelines only and not a complete list of permitted activities.

83. . A licensee is sanctioned for committing conversion, which means she: A. failed to make a full disclosure of material facts B. misrepresented information C. commingled trust funds and broker funds D. misappropriated client funds

Question 83. . Answer: D Explanation: Conversion refers to the misappropriation of property or funds held in trust. This is not the same thing as commingling, which is a failure to keep trust funds separate from the broker's own funds.

84. . Hoping to sell her property quickly, an owner pays her agent a fee for special marketing and advertising. This "advance fee": A. is illegal B. is permitted as long as it does not exceed $500 C. may be deposited into the agent's general operating account D. must be deposited into a trust account

Question 84. . Answer: D Explanation: A broker may collect advance fees to cover unusual marketing and advertising expenses, or as an upfront fee for services not yet provided. Advance fees must be held in a trust account.

99. . Chou acted as an agent for Hastings without having the authority to do so, but Hastings later approved of Chou's actions. This is anexample of: A. agency created by express agreement B. agency created by ratification C. agency created by estoppel D. ostensible agency

Question 99. . Answer: B Explanation: An agency is created by ratification if the principal gives approval to acts that weren't authorized at the time they were performed.

100. . Greta gave George a deed that said it conveyed Lot 6 to him, but Greta did not own Lot 6 at the time the deed was executed. Threeweeks later, however, Greta acquired title to Lot 6. Which of the following is true? A. If the deed Greta gave George was a grant deed, George now owns Lot 6 B. If the deed Greta gave George was a quitclaim deed, George now owns Lot 6 C. No matter what type of deed Greta gave George, George now owns Lot 6 D. No matter what type of deed Greta gave George, Greta still owns Lot 6

Question 100. . Answer: A Explanation: A grant deed conveys after-acquired title; a quitclaim deed does not. So if the deed that Greta gave George was a grant deed, then when Greta acquired title to Lot 6, her title passed to George and he became the owner. (If the deed that Greta gave George was a quitclaim deed, however, Greta still owns Lot 6.)

14. . Under the Real Estate Law in California, a salesperson is usually an: A. independent contractor, because he is paid on a commission basis only B. employee, because he is working under the license of his supervising broker C. independent contractor, because his broker will closely supervise how the salesperson works D. employee, because taxes will be withheld from his paycheck

Question 14. . Answer: AExplanation: A salesperson is customarily an independent contractor. He is ordinarily paid only on a commission basis, and taxes aren'twithheld from his earnings. Although his broker has supervisory responsibility for the salesperson's professional activities, the brokerdoes not closely direct those activities.

15. . Which of the following persons would be responsible to her employer for results only? A. Employee B. Independent contractor C. Principal D. Stockholder

Question 15. . Answer: B Explanation: An independent contractor is a person who sets her own schedule, works with little supervision, and is paid for each task accomplished, often by commission.

16. . A voidable contract is one that: A. would be valid but cannot be proven in a court B. has no legal effect, since it was never a valid contract C. may be enforced or rescinded by one of the parties D. contains all four legal elements necessary for validity

Question 16. . Answer: C Explanation: A contract is voidable if one party's consent was obtained through fraud, duress, or undue influence, or if one party is a minor and the contract does not involve real property. A voidable contract may be either rescinded or enforced by the victimized party.

24. . A house sold for $575,000 and the listing broker received a 6% commission. The listing broker and selling broker agreed to split thecommission 50/50. The selling salesperson received 70% of the selling office's commission. What amount did the selling salespersonreceive? A. $5,175 B. $8,625 C. $12,075 D. $16,905

Question 24. . Answer: C Explanation: First, determine the amount of the commission ($575,000 × .06 = $34,500). Next, determine how much of the commissionthe selling broker receives ($34,500 × .5 = $17,250). Finally, determine how much of the commission the selling salesperson receives($17,250 × .7 = $12,075).

32. . A property owner who wants to subdivide a large parcel would have to comply with the Subdivision Map Act if he divided theparcel into how many lots? A. One or more B. Two or more C. Three or more D. Five or more

Question 32. . Answer: B Explanation: Division of a parcel into two or more lots constitutes a subdivision for purposes of the Subdivision Map Act. The act's mostimportant provisions apply only to divisions of five or more lots, though.

33. . CERCLA is a federal law that concerns: A. liability for environmental cleanup costs B. minimum residential construction standards C. natural disaster preparedness D. transportation infrastructure

Question 33. . Answer: A Explanation: CERCLA, the Comprehensive Environmental Response, Compensation, and Liability Act, concerns liability for environmental cleanup costs.

4. . Which of the following statements regarding the government survey method is correct? A. Ranges are numbered north and south from the base line B. Township lines run east-west C. Township lines are numbered based on a principal meridian D. Range lines run east-west

Question 4. . Answer: B Explanation: Township lines are east-west; range lines are north-south. Township lines are based on a base line, while range lines arebased on a principal meridian.

43. . In the sale of an owner-occupied home for $400,000, the broker received a $25,000 deposit from the buyer. The buyer breached thecontract, and the seller claimed that the buyer had forfeited the deposit. If the liquidated damages provision in the purchase agreementwas initialed, in this situation the seller: A. may not retain any of the deposit B. may retain no more than 3% of the sales price as liquidated damages C. could deduct any actual damages caused by the breach from the deposit D. may retain the entire deposit

Question 43. . Answer: B Explanation: Since this is the sale of an owner-occupied home and the parties initialed the liquidated damages provision, the buyer's breach of contract entitles the seller to keep no more than 3% of the property's sales price as liquidated damages.

47. . A person who purchases a promissory note for value and without knowledge of any defects is a/an: A. endorser in blank B. holder in due course C. special endorsee D. qualified endorsee

Question 47. . Answer: B Explanation: A holder in due course is a third party who purchases a promissory note for value and without knowledge of defects, and therefore is entitled to payment even if there are defenses that the maker could have used against the original payee.

48. . A lender loans a borrower $25,000, requiring the borrower to sign a promissory note but not a security instrument. If the borrower fails to repay the loan, the lender: A. is not entitled to sue to enforce the note B. can sue on the note and obtain a judgment against the borrower C. can foreclose on the borrower's home D. has no recourse against the borrower

Question 48. . Answer: B Explanation: When no security instrument has been signed, the lender can still sue to enforce the note, obtaining a judgment against the borrower. If the borrower owns real property, the lender can create a judgment lien against that property, and ultimately can foreclose ifnecessary. But collecting the debt would have been easier and more certain if the lender had established a security interest in the borrower's property at the time the loan was made.

58. . 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 58. . Answer: C Explanation: In the market data approach (the sales comparison approach), the value of a feature that the subject property lacks is subtracted from the comparable's sales price (the value of the comparable) so that the adjusted price more closely approximates the value of the subject.

6. . If several people own property as tenants in common, each tenant in common: A. can exclude the other tenants from possession or use of the property B. must be mentioned in one single title instrument (one will or deed) C. has the right to possession of all the property D. must receive title at the same time

Question 6. . Answer: C Explanation: A tenant in common has the right to possession of the entire property; none of the tenants in common can exclude any of the others from possession or use. Tenants in common do not need to receive their interests at the same time or in the same titleinstrument.

63. . Which of the following items is typically prorated in escrow? A. Documentary transfer tax B. Rent C. Structural pest control report and corrective work D. Escrow fees

Question 63. . Answer: B Explanation: Rent is prorated, meaning that rent tenants paid to cover the period before closing goes to the seller, and rent tenants paid to cover the period after closing goes to the buyer.

64. . California's tax withholding law generally requires a certain amount to be withheld from the sales price of real estate. Which of thefollowing statements is NOT true concerning the law? A. Withheld funds are sent to the Franchise Tax Board B. Withheld funds are sent to the Department of Real Estate C. Amount withheld is generally 3.33% D. Withholding requirement doesn't apply to sales under $100,000

Question 64. . Answer: B Explanation: The buyer or the escrow agent must withhold a percentage of the sales price and send it to the state's Franchise Tax Board.

65. . RESPA prohibits sellers from: A. asking to use a particular escrow company B. insisting on a particular title insurance company C. Both of the above D. None of the above

Question 65. . Answer: B Explanation: Under RESPA, a seller is not allowed to require a buyer to use a particular title insurer.

66. . The marginal tax rate in income taxation is: A. the amount of tax paid to the state and city governments B. a tax on any property owned C. the tax rate that applies to the last dollar of taxable income earned D. a surcharge, or surtax, paid to the federal government

Question 66. . Answer: C Explanation: The marginal tax rate is the rate applicable to the last dollar of taxable income that a taxpayer earned.

67. . For income tax purposes, on which of the following might one take a capital gain or loss? A. Receiving liquidated damages B. Mortgaging a single-family residence C. Sale of a property after a change in market value D. Leasing properties at rates lower than market rates

Question 67. . Answer: C Explanation: When property is sold, if its market value has changed, the owner may take a capital gain or a capital loss. The otherchoices do not involve sale of a capital asset.

7. . Al willed his property to his three children (Barry, Chris, and Dara) as joint tenants. Barry then died, leaving behind a will stating thathis share of the property would pass to his daughter Mary. Dara then sold her portion of the property to her friend Vera. At this point, howis the property owned? A. Mary and Chris own it as joint tenants B. Vera and Chris own it as tenants in common C. Mary, Vera, and Chris own it as tenants in common D. Mary and Chris own their shares as joint tenants, while Vera owns her share as a tenant in common

Question 7. . Answer: B Explanation: When Barry died, his attempt to pass his share to Mary failed. A joint tenant may not will his interest. Therefore, Chris andDara were left as joint tenants. When Dara sold her share of the property, that terminated the joint tenancy between Dara and Chris.Chris and Vera continue to own the property together, but as tenants in common.

70. . Which of the following personal residence expenses may be claimed as deductions on a federal income tax return? A. Mortgage payments and property taxes B. Mortgage payments, fire insurance, and broker's commission C. Prepayment penalty and broker's commission D. Mortgage interest payments, prepayment penalty, and property taxes

Question 70. . Answer: D Explanation: Mortgage interest, a mortgage prepayment penalty, and property taxes are all deductible expenses for a personal residence. Note that only payments of mortgage interest, not mortgage principal, are deductible.

71. . Mary is renting one of the units in a duplex she owns. She will be exempt from the Federal Fair Housing Act unless: A. she does not occupy one of the units in the duplex B. she hires a real estate agent to help rent the unit C. she places a classified ad stating that the unit is available to Christians only D. Any of the above conditions would prevent Mary from being exempted from the Federal Fair Housing Act

Question 71. . Answer: D Explanation: Under the "Mrs. Murphy exception," the Federal Fair Housing Act does not apply to rental of a unit or room in a dwelling of up to four units, so long as the owner occupies one of the units, a real estate broker is not employed, and no discriminatory advertising is used.

72. . A broker is approached by a seller with a home for sale. The seller tells the broker that he does not wish to sell to a minority buyer.What should the broker do? A. Promise the seller not to show the property to minority buyers B. Take the listing and suggest pricing the listing higher than market value C. Take the listing but show the property to minority buyers anyway D. Refuse the listing

Question 72. . Answer: D Explanation: A real estate licensee is not permitted to assist anyone in violating the Fair Housing Act. If a client instructs a licensee to discriminate, the licensee must refuse to cooperate.

73. . A licensee persuades several families to list their homes for sale by telling them that neighborhood values are declining due to arecent influx of minority residents. This tactic is called: A. good business practices B. racial steering C. blockbusting D. blind advertising

Question 73. . Answer: C Explanation: This licensee is engaging in "blockbusting," also called "panic selling." This practice is unlawful under the Fair Housing Act.

74. . Channeling prospective renters into specific neighborhoods based on race is an example of: A. steering B. blockbusting C. redlining D. None of the above

Question 74. . Answer: A Explanation: Steering is the channeling of prospective buyers or renters to or away from specific neighborhoods, based on race or other protected characteristics.

75. . The 1988 amendments to the Fair Housing Act extended protection to persons with a/an: A. addiction to controlled substances B. credit history that prevents them from obtaining a residential loan C. mental impairment that substantially limits one or more major life activities D. criminal record

Question 75. . Answer: C Explanation: In 1988, the Fair Housing Act was amended to include the categories of familial status and handicap (which includes mental impairment as well as physical or sensory disability).

76. . Renting offers all of the following advantages EXCEPT: A. mobility B. lower investment C. less responsibility for repairs D. tax deductions

Question 76. . Answer: D Explanation: The tax code allows deductions for mortgage interest and property taxes; this benefit isn't available to renters.

78. . All of the following are generally regarded as design deficiencies in a home, except: A. Front door opens directly into the living room B. Dining room is not easily accessible from the kitchen C. Bedrooms are separated by a bathroom or a closet D. Family room is not visible from the kitchen

Question 78. . Answer: C Explanation: It's good to have bedrooms separated from one another by a bathroom or a closet, since that provides soundproofing.

80. . Mary, a fee simple owner, enters into a transaction that converts her interest in her property into a less-than-freehold estate. Thistransaction is a: A. grant of a life estate B. sale of mineral rights C. short-term lease of the property D. sale-leaseback

Question 80. . Answer: D Explanation: In a sale-leaseback transaction, the owner sells the property and then leases it back from the buyer. In this way, she converts her fee simple interest into a leasehold interest.

82. . What recourse does a licensee have if he fails to renew his license before it expires? A. He must renew it within one year by paying all fees and penalties B. He must renew it within two years by paying all fees and penalties C. He must renew it within three years by paying all fees and penalties D. He must retake the exam and apply for a new license

Question 82. . Answer: B Explanation: During the two-year period after a license expires, it can still be renewed if the licensee pays a late renewal penalty in addition to all fees that are owed. Once the two-year period ends, if the former licensee wants to work as a real estate agent again, he must retake and pass the license exam and apply for a new license.

85. . After a salesperson's affiliation is terminated, for how long must the broker keep a copy of their written agreement? A. Six months B. One year C. Two years D. Three years

Question 85. . Answer: D Explanation: A broker-salesperson agreement should be kept by the broker for three years after termination of the salesperson's affiliation with the broker.

Three years86. . The Sherman Act is a federal law that prohibits: A. blockbusting B. restraint of trade C. commingling D. inverse condemnation

Question 86. . Answer: B Explanation: The Sherman Act prohibits any agreement that has the effect of restraining trade. In real estate the prohibited acts include price fixing, group boycotts, and tie-in arrangements.

87. . An example of illegal market allocation would be: A. An individual broker assigning different farms to her affiliated licensees B. Two competing brokers agreeing to stay out of each other's geographic areas C. A brokerage in which one agent specializes in selling luxury homes D. A broker focusing on sales of commercial property

Question 87. . Answer: B Explanation: Market allocation is illegal if there is group action involved. Individual brokerages are free to specialize and to assign clients to agents as seems appropriate (although they should be careful about other considerations, such as potential civil rights law violations).

88. . The Culebras purchased a home for $190,080. Their broker tells them that it will cost 12% of the selling price to sell the property,assuming all other variables remain constant. How much will the property need to have appreciated in order for the Culebras to resell itwithout a loss? A. 6.8% B. 12% C. $22,809.60 D. $25,920

Question 88. . Answer: D Explanation: If the selling costs will total 12% of the selling price, then the remaining 88% of the selling price must be equal to the home's original price for the Culebras to avoid a loss. So 88% × selling price = $190,080. Find the selling price by dividing $190,080 by 88% (.88) to get $216,000. Subtract $190,080 (original price) from $216,000 (current price) to find the amount of appreciation: $25,920.

89. . A property was sold on May 1st. The real property taxes for the current fiscal year had already been paid, and amounted to $2,760for the year. The buyer is responsible for the day of closing. How much did the buyer have to pay in escrow for his share of the taxes? A. $230 B. $460 C. $920 D. $1,840

Question 89. . Answer: B Explanation: Don't forget that in California, the fiscal year for real property taxes begins on July 1 and ends on June 30. Therefore, the buyer is responsible for the period between May 1 and June 30. Since this is two full months, we can simplify the problem by calculating a per month rate instead of a per diem rate. First, calculate the per month share of the taxes ($2,760 ÷ 12 months = $230). Then multiply the per month rate by the number of months ($230 × 2 months = $460).

9. . Which of the following concepts is most closely related to "time, title, interest, and possession"? A. Survivorship B. Tenancy in common C. Severalty D. Partnership

Question 9. . Answer: A Explanation: Survivorship is a feature of joint tenancy, and joint tenancy requires the unities of time, title, interest, and possession.

90. . A property was purchased for $150,000; the buyer made a $37,500 downpayment. If the property increased in value by 10%, bywhat percent would the buyer's equity increase? A. 10% B. 20% C. 25% D. 40%

Question 90. . Answer: D Explanation: First, calculate the amount of the increase in value of the property ($150,000 × .1 = $15,000). In order to calculate the percentage increase in the value of the equity, divide the increase in equity by the original equity ($15,000 ÷ $37,500 = .4, or 40%).

91. . Adam leased a property from Casey for a five-year term. Casey died, at which point Adam found out that Casey had only a life estatein the property, with Casey's life as the measuring life. The lease is: A. valid for the remaining five years B. valid until invalidated by the executor of Casey's estate C. valid only during the life of Casey D. invalid since it is fraudulent and illegal to lease a life estate

Question 91. . Answer: C Explanation: A person with a life estate may lease the property to another person, but the lease is effective only until the end of the measuring life. At that point, the property will either revert back to the grantor or pass to a third party holding an estate in remainder.

92. . Which of the following items would be considered a part of a condominium unit in a residential building, instead of a commonelement? A. Bearing walls B. Building's central heating system C. Elevator D. None of the above

Question 92. . Answer: D Explanation: None of these items is considered part of a condominium unit. The unit owner's separate property includes only items thatare inside the unit's boundaries. All of the listed items are part of the condominium building itself, so they are common elements, ownedby all of the unit owners as tenants in common.

93. . Andrew conveys his property "to my mother Belle for life, and then to my brother Carl." Carl: A. has a life estate B. has a reversionary interest C. is a remainderman D. is the measuring life

Question 93. . Answer: C Explanation: Andrew specified that the property will go to a third party (Carl) when the life estate ends, rather than back to Andrew or to Andrew's heirs. Thus, Carl holds an estate in remainder (as opposed to an estate in reversion), and he is called the remainderman. (The mother, Belle, has a life estate, and she is also the measuring life. Belle's life estate will end when Belle herself dies.)

94. . A possessory interest in real property that has an indeterminable duration is called: A. an estate B. a freehold estate C. a leasehold estate D. a future interest

Question 94. . Answer: B Explanation: A possessory interest in real property is an estate, and if it has an indeterminable duration, it's a freehold estate. (Aleasehold estate has a limited duration.)

95. . In a dual agency relationship, the agent owes fiduciary duties to both the buyer and the seller. Therefore, a dual agency ispermissible: A. under no circumstances B. if the buyer consents C. if the seller consents D. if both the buyer and seller consent

Question 95. . Answer: D Explanation: A dual agency is lawful only if both the buyer and the seller have been informed of the situation and have consented to it.

96. . If a broker receives an offer accompanied by a $500 deposit check made out to the brokerage, she: A. must cash the check immediately and hold the money for the seller B. may hold the check uncashed without notifying the buyer or seller that she is doing so C. should deposit the check into a trust account within three days D. must deposit the check into an operating account within three days

Question 96. . Answer: C Explanation: Trust funds generally must be deposited into trust accounts within three days of receipt of the funds. However, deposit checks may be held uncashed until acceptance of the offer, provided that both the buyer and seller are made aware of this fact.

97. . Which of the following is the best definition of encumbrance? A. The degree, nature, quantity, and extent of interest that a person has in real property B. The use of property by a debtor as security for a debt C. Any action taken in relation to real property except for acquiring title D. Anything that limits or affects the title to real property

Question 97. . Answer: D Explanation: An encumbrance is a nonpossessory interest in real property, such as a lien or an easement. Encumbrances burden or limit the property owner's title.

98. . Which of the following "runs with the land"? A. Easements appurtenant B. Covenants C. Stock in a mutual water company D. All of the above

Question 98. . Answer: D Explanation: Easements appurtenant, covenants, and stock in a mutual water company all run with the land.