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122 Cards in this Set
- Front
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How many days do landlords have under current California law to return the unused portion of a security deposit?
A) It must be returned immediately. B) It must be returned within ten days. C) They have twenty-one days. D) They have thirty days. |
The correct answer is "C - They have twenty-one days. " Deductions may be taken only be for actual damages, not normal wear and tear such as carpet stains. Further, all deductions must be include "line item" details.
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Who enforces the California State Housing Act?
A) The FHA and the VA. B) Local officials regulating the issuance of building permits. C) The Real Estate Commissioner. D) Local health officers. |
The correct answer is "B - Local officials regulating the issuance of building permits. " This act pertains largely to discrimination based on physical handicaps. It is administered by those who control building permits since that is often the quickest means of correcting problems of non-compliance.
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Which of the following is generally considered the best choice as a hedge against inflation?
A) Equity assets such as housing. B) Government-backed trust deeds on mortgages. C) Long-term government bonds. D) Savings accounts. |
The correct answer is "A - Equity assets such as housing. " Inflation results when the value of money decreases relative to the things people want to buy -- with the effect being that prices go up. The kinds of investments generally viewed as the best hedges against inflation are durable assets of high perceived value… with houses, gold and investment-grade diamonds among the traditional favorites. For most people, housing is far and away the best of those options, since successful hedging with gold and diamonds generally requires specialized expertise.
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What is the opposite of "alienation?"
A) Acquisition. B) Subrogation. C) Hypothecation. D) Subordination. |
The correct answer is "A - Acquisition. " Acquisition means just what you think -- to acquire or receive something. The legal definition of "alienation," however, is to transfer. Thus, "alienation of affection" in divorce proceedings doesn't mean a person has caused one spouse to dislike the other (though often a result), but rather to transfer his or her affection away from their partner to another party.
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The city wishes to use property owned by Pacific Coast Construction to accommodate an airport expansion. All the studies have been completed, the project is "green lighted" to move forward, and the city makes an offer to Pacific Coast. However, the company does not want to sell. What other method may the city use acquire the property?
A) Adverse possession. B) Eminent domain. C) Police power. D) Presumptive right to acquire. |
The correct answer is "B - Eminent domain. " Eminent domain involves a jurisdiction condemning or otherwise expropriating private property in the name of the public good. Usually that means major projects such as airport expansions, highways, schools and such… though there have been cases of using eminent domain to condemn well-ordered middle-class neighborhoods to make way for high-end developments that will provide a higher tax base. In most cases, the federal, state or local jurisdiction is required to pay the owner fair market value for their property.
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Which of the following "plats" is the least economical plan for building a new subdivision?
A) Cul-de-sac designs. B) Long blocks. C) Short blocks. D) Left-turn access onto a primary exit artery. |
The correct answer is "C - Short blocks. " Short blocks increase many expenses, including those for additional roads, intersections, sewer connections, traffic control devices and lighting.
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Which of these acts provides for punitive action against businesses accused of discrimination based on sex, color, religion, ancestry or national origin?
A) The Rumford Act. B) The Civil Rights Act of 1968. C) The Unruh Act. D) The Civil Rights Act of 1996. |
The correct answer is "C - The Unruh Act. " Named for Jesse Unruh, author of the 1959 act, it provides for specific remedies against hotels, restaurants, hospitals -- virtually any public business or organization -- for discriminating on the basis of sex, race, color or other personal characteristic.
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Paul Stonington is a broker who has been found guilty of violating the Unruh Act. What penalty or penalties is he subject to?
A) Payment to the victim for actual damages he or she incurred. B) Payment of exemplary damages to the victim. C) Neither a nor b. D) Both a and b. |
The correct answer is "D - Both a and b. " In addition to actual and exemplary (or punitive) damages, Paul may also be ordered to pay emotional damages and served with a cease and desist order.
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Which act allows the California Department of Fair Employment and Housing to take action against public or private housing entities that discriminate?
A) The Rumford Act. B) The Civil Rights Act of 1968. C) The Unruh Act. D) The Civil Rights Act of 1996. |
The correct answer is "A - The Rumford Act. " While the Unruh act provides protection against discrimination by businesses, this act provides protection against discrimination in housing by landlords, apartment owners, housing developers, mortgage companies and real estate firms.
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Which of the following tends to happen to conventional mortgages in tight money markets?
A) Because of increased competition among lenders, buyers pay lower origination fees. B) Buyers pay more in upfront costs such as origination fees and points as well as higher interest rates. C) Because of competition among lenders, interest rates drop. D) Origination and borrowing costs remain stable but qualifying becomes more difficult. |
The correct answer is "B - Buyers pay more in upfront costs such as origination fees and points as well as higher interest rates. " "Tight money" means there is less available to lend, so the costs of borrowing tend to rise and qualifying standards get tougher.
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Of the following statements, which one best describes the term, "complete" escrow?
A) The full set of closing documents have been properly completed and are ready for final signatures. B) All costs of home ownership, including principal, interest, taxes and insurance are to be paid by the escrow company. C) All services of the escrow company have been used in preparation for the closing. D) The closing process has been successfully completed. |
The correct answer is "A - The full set of closing documents have been properly completed and are ready for final signatures. " The word "escrow" means holding in trust... and is often used to describe two very different parts of the real estate purchase and ownership process. "Complete escrow" refers only to closing. However, the single word "escrow" can mean documents and funding preparations are still underway for closing ("the house is in escrow"), or the process of collecting and disbursing funds for insurance and taxes. In the first case, the tasks are generally performed by a real estate licensee and an escrow company; in the second by a department within the lending firm or institution.
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Which of the following would be considered a "promotional note?"
A) A discounted loan to buyers of a new home in the first phase of construction. B) A short-term loan that allows buyers to purchase a property in a new development while they sell their current home. C) A loan to a developer secured by unimproved property. D) Builder-supplied financing, with interest or closing costs below market to attract buyers to a new development |
The correct answer is "C - A loan to a developer secured by unimproved property. " Promotional loans of up to thirty-six months are given to developers who are building or plan to build new homes but have not yet completed the first transaction.
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Golden State is a life insurance company that also makes real estate loans. If a buyer was interested in obtaining a Golden State mortgage, who would that person generally contact?
A) The VA, if that person was a veteran or the FHA if not. B) A mortgage broker or banker. C) A chartered Savings & Loan institution. D) A local bank. |
The correct answer is "B - A mortgage broker or banker. " Mortgage loans are available from three primary sources: 1) government agencies, such as the VA and FHA… 2) banks, S&Ls and other direct lenders who sell only their own products… 3) everyone else. "Everyone else" includes private investors and institutions such as insurance companies and pension funds. The best source for these loans are mortgage brokers and bankers since they handle a variety of products from many different lenders.
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What is a "homestead" right?
A) The right to acquire government land through a bidding or other process. B) The right to use water that is adjacent to or under one's own property. C) A form of title or ownership. D) The right to have certain protections to any equity one has in one's principal residence. |
The correct answer is "D - The right to have certain protections to any equity one has in one's principal residence. " However, there are a number of terms and conditions… the protection does not cover all creditors… and there is a limit to the amount of equity that can be protected.
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For homestead to be effective, when must a homeowner assert those rights?
A) Before any bankruptcy proceedings begin. B) Before any lawsuits are filed by creditors. C) Before any court judgments are recorded. D) Before any court judgments are rendered. |
The correct answer is "C - Before any court judgments are recorded. " In bankruptcy proceedings, a judgment is first "rendered" before it is "recorded" and made final. Homestead rights may be asserted up to that last moment.
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Which of the following would be paid before any homestead exemption is applied?
A) Property taxes. B) A deed of trust and any mechanics' liens. C) Neither a nor b. D) Both a and b. |
The correct answer is "D - Both a and b. " These are all "secured liens" or specific liens that must be paid before any remaining equity reverts to the homeowner. However, a homeowner's equity (within varying limits depending on a number of circumstances) would be protected against unsecured debt such as credit cards, personal loans, debts for services not involving mechanics liens and so forth.
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The court orders that the property of Cliff Dimsdale be sold to satisfy creditors. What document will they issue ordering this judgment?
A) A writ of execution. B) An attachment. C) A bench warrant. D) A "true bill." |
The correct answer is "A - A writ of execution. " A "writ" is a judicial order and a "writ of execution" is a written command to carry out a sentence or procedure in accordance with the judgment of the court.
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Stephanie Hollingsworth is a real estate salesperson employed by Pacific Coast Properties. She sells a home listed by another broker, Island View Realty. After escrow was opened, but before closing, she asks the Island View broker for a $1,000 advance against her commission. What happens if the Island View broker agrees?
A) Nothing, it's simply an advance against earnings between two real estate professionals. B) The Island View broker can advance the money to Stephanie's broker who can then give her the advance. C) It will be a violation of real estate law. D) It will be viewed as unprofessional, but not illegal. |
The correct answer is "C - It will be a violation of real estate law. " If the Island View broker acted as Stephanie asked, it would, in fact, be a violation of the law on two counts. First, a licensee can only accept compensation from his or her employing broker. Second, no commission is earned until closing, so an "advance" against a specific sale can never take place.
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Rhonda was the listing agent for a property that Dennis, a salesperson from another brokerage, found a buyer for. At closing, Dennis' commission is for less than what he believes was agreed to and a dispute arises. According to the Code of Ethics of the National Association of REALTORS(R) how will they settle this matter?
A) Arbitration. B) Litigation. C) Estoppel. D) Mandamus. |
The correct answer is "A - Arbitration. " The purpose of arbitration is to settle disputes as quickly, as simply and as cost-effectively as possible. In a sense, it's the opposite of litigation which involves attorneys, courts, high costs and drawn-out procedures. However, while the Code of Ethics mandates arbitration as the first step, it does not deny a plaintive the right to sue later if agreement cannot be reached or one party fails to live up to the agreement.
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What is the definition of "dual agency" in California?
A) One firm represents both the buyer and the seller equally. B) One firm represents the seller and another represents the buyer in the same transaction. C) One firm represents both the buyer and the seller, but owes primary loyalty to seller. D) One firm represents both the buyer and the seller, but owes primary loyalty to the buyer. |
The correct answer is "A - One firm represents both the buyer and the seller equally. " Dual agency is legal in California, but requires a written agreement signed by all parties that includes compensation details. Further, licensees must represent the interests both parties in the transaction equally.
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When must licensees give prospective buyers the written mortgage disclosure statement?
A) As soon as they express interest. B) Within three business days of receiving a completed loan application. C) Before the borrower becomes obligated to accept the note. D) b or c. |
The correct answer is "D - b or c. " Whichever comes first.
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Who may make withdrawals from a broker's trust account?
A) Only the broker who maintains the account. B) Only the broker in charge of the office. C) The broker or a designated other. D) The office manager. |
The correct answer is "C - The broker or a designated other. " As long as the person has the broker's written authorization, a licensed salesperson or broker may make withdrawals. Additional, an unlicensed employee of the firm may also make withdrawals if he or she has a fidelity bond at least equal to the maximum amount to which that person has access.
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What is a "liquidated damages" clause in a contract and is it legal?
A) It is a clause that specifies a certain dollar amount that will be paid in "damages" if a party breaches a contract. It is legal. B) A legal insurance clause that protects the buyer in case a property becomes damaged before escrow closes and he or she can take possession. C) An amount over and above the amount due on a mortgage that a lender may collect as additional damages if a borrower defaults on a loan. It is not legal. D) An amount the buyer of a new home may collect from a builder if a dwelling is not ready for occupancy within thirty days of the agree-upon closing date. It is legal, but not generally enforceable except in cases of gross failure to perform as promised. |
The correct answer is "A - It is a clause that specifies a certain dollar amount that will be paid in "damages" if a party breaches a contract. It is legal. " Although legal, liquidated damages clauses aren't viewed with much favor by California courts because of the inherent vagueness about the true costs of "damages" and a tendency towards abuse.
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What is the maximum amount that can be paid from the Real Estate Education, Research and Recovery Account on behalf of a licensee in a judicial action?
A) $20,000 B) $40,000 C) $50,000 D) $100,000 |
The correct answer is "D - $100,000 " Intended as a last resort, the Recovery Fund reimburses consumers for losses suffered because of fraud or other acts of misconduct committed by a licensee. It's important to note that the ceiling is $20,000 per transaction, up to a combined total of $100,000 per household.
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A neighborhood is overwhelmingly white while an adjoining neighborhood has recently experienced an influx of homeowners from another ethnic group. A real estate salesperson begins canvassing the white neighborhood telling people they should sell now because the minorities will soon be moving in and property values could drop. Which of the following violations is that person guilty of?
A) "Panic peddling." B) Blockbusting. C) Steering. D) Both a and b. |
The correct answer is "D - Both a and b. " The terms mean the same thing and refer to attempts to create and exploit fear about property values based on racial, religious or other prejudices.
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In one of her weekly sales meetings, broker Elizabeth Johnson made the following two statements to her sales staff: (1) "We're going to solicit listings in the Rancho Los Cabos neighborhood because a large number of black and Asian buyers are moving in." (2) "Only speak to the white homeowners, because the others have only recently moved in and won't be interested in selling." Which, if either, of these statements is legal?
A) #1 is illegal, but #2 is legal. B) Both #1 and #2 are legal if part of a conversations kept within the firm and not discussed publicly. C) Both #1 and #2 are illegal. D) #1 is legal, but #2 is illegal. |
The correct answer is "C - Both #1 and #2 are illegal. " The first statement is another example of attempted "blockbusting." The second is a form of "steering" -- encouraging people of a particular group to buy in one community or avoid another.
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Allan is a homeowner who has had an attachment lien placed on his house by a creditor. Which of the following will NOT release the lien.
A) A written release by the creditor. B) A satisfied judgment in favor of the plaintiffs. C) Allan's death. D) A court order. |
The correct answer is "C - Allan's death. " By definition, "attachment" means a person's property is placed in the custody of the courts pending outcome of a suit. Therefore, only resolution of the case, not the defendant's death, can remove the lien.
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Allison has just qualified for her salesperson's license. How much time does she have to file her application to practice?
A) Two years from the date she passed the exam. B) One year from the date she passed the exam. C) Two years from the date she was notified she had passed the exam. D) One year from the date she was notified she passed the exam. |
The correct answer is "B - One year from the date she passed the exam. " Although most people who pass the exam are anxious to get their license and begin practicing real estate, the rules do allow up to one year to make the application.
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Palisades Construction is completing a new home and must back-fill. What is back-fill?
A) Dirt, usually left over from excavation, that is used to fill in space around a foundation or other structure. B) Dirt from an excavation that must be hauled off a property. C) Dirt or topsoil that is used to berm and create landscaping interest. D) None of the above |
The correct answer is "A - Dirt, usually left over from excavation, that is used to fill in space around a foundation or other structure. " Backfill has no negative connotations, it's simply that excavations for foundations and such must be wider than the structural elements to permit space to work. Once complete and cured, this space must be filled in again for stability and drainage.
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What is the maximum distance allowed between wall studs in most building codes?
A) twenty-four inches on center. B) Sixteen inches on center. C) Twelve inches on center. D) Six inches on center. |
The correct answer is "B - Sixteen inches on center. " Wall studs form the vertical wood framing members to which dry wall or other material is attached to form the interior walls and exterior sheathing. "On center" means the distance from the center of one vertical stud to the center of the next. Sixteen inches is the accepted standard because it balances the need for strength and rigidity with cost and ease of workability for electrical and HVAC systems.
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Marjorie Post died intestate, leaving a large estate and no heirs. What is the most likely disposition of her property?
A) It will be held in escrow until a will is located. B) It will "escheat" to the state if no claims are made by possible heirs within five years. C) It will be sold for any back taxes, with the remainder going to the state. D) It will be sold, all taxes and debts settled, with the remainder going into trust for possible heirs. |
Marjorie Post died intestate, leaving a large estate and no heirs. What is the most likely disposition of her property?
A) It will be held in escrow until a will is located. B) It will "escheat" to the state if no claims are made by possible heirs within five years. C) It will be sold for any back taxes, with the remainder going to the state. D) It will be sold, all taxes and debts settled, with the remainder going into trust for possible heirs. |
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Which of these changes would be LEAST LIKELY to affect interest rates?
A) Fluctuating policies by the Federal Reserve System. B) Erratic spending patterns by government, businesses and consumers. C) New government loan programs aimed at low income housing in urban areas. D) Rapidly rising wages. |
The correct answer is "C - New government loan programs aimed at low income housing in urban areas. " The three main drivers of changing interest rates are loan demand by consumers, business and government... uncertainty... and what percent of the population is impacted by the changes. Targeted loan programs are least likely to affect overall interest rates because they're focused at a relatively narrow segment of the economy.
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For a licensee acting on behalf of a mobile home owner, which of the following would NOT be a violation of license law?
A) Not providing the certificate of ownership or title to the buyer. B) Advertising the home as new. C) Submitting a check to cover fees for a dishonored check to the Department of Housing and Community Development. D) Selling a mobile home that has been registered with HCD |
The correct answer is "D - Selling a mobile home that has been registered with HCD " Mobile homes registered with the department of Housing and Community Development meet certain standards for size and habitability and are affixed to "permanent" foundations. As such, they may be sold much like any other property by licensees.
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What are the rights of a borrower who falls two months behind in making his or her trust deed payments?
A) He or she has the right of redemption. B) He or she has the right of reinstatement. C) He or she has the right of refinance. D) He or she has no rights and will lose the property. |
The correct answer is "B - He or she has the right of reinstatement. " Once back payments and fees are paid, reinstatement means that the loan will continue as if the borrower had never been late.
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Jill applied for a mortgage, but was denied because of information on her credit report. She asked the credit reporting agency for access to her report, but was denied. What are Jill's rights under California law?
A) She may recover actual damages. B) She may recover punitive damages. C) She may recover attorney fees. D) All of the above. |
The correct answer is "D - All of the above. " Good credit is one of a person's most valuable financial assets… and the accurate maintenance and reporting of that information is a key responsibility of credit bureaus. If credit is listed as a factor in denying a loan, charge card or other credit instrument, the agencies are obligated to provide a detailed copy of a person's report upon request. To help ensure compliance and good faith efforts, the penalties for failing to do so can be significant.
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A veteran purchases a home under the Cal-Vet program. In such transactions, to whom is the deed issued?
A) The purchasing veteran. B) The veteran, who in turn assigns it to the California Department of Veteran's Affairs. C) To California VA. D) None of the above. |
The correct answer is "C - To California VA. " Under the Cal-Vet program, funded through bond sales, the department of Veteran's Affairs pays cash to the seller and receives a grant deed in return. The department then sells the property to the approved veteran using a land sales contract.
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Which of the following is NOT required for a contract to be legally binding?
A) A "proper writing." B) A lawful object. C) Mutual consent. D) Capacity. |
The correct answer is "A - A "proper writing." " Not all contracts need to be in writing to be legal and enforceable. However, certain types of contracts -- including those for real estate transactions -- do need to be in writing. In part because of the amounts typically involved, but more importantly to maintain clear, documented title history.
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Broker Alice Wilson sold Todd Baker a small "starter" home. During the closing process it was discovered that Todd was not nineteen as he claimed, but a seventeen year old unemancipated minor. What is the status of the contract?
A) It's enforceable since an offer was made and accepted. B) Todd's parents can be forced to complete the transaction. C) The contract is voidable. D) The contract is void. |
The correct answer is "C - The contract is voidable. " If a minor contracts to buy a house, the contract can be voided by the minor because of lack of sufficient age. If, however, the minor elects to enforce the contract, the contract is valid and the other party cannot assert the minor's lack of age as a defense. The contract is "Voidable" by the minor but not by the other party.
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Janice Riceland is shown a home by her agent, Richard. She makes an offer and gives Richard a check. At what point does her offer become an enforceable contract to buy?
A) As soon as Richard receives her offer and her check. B) As soon as the seller receives the offer and the check. C) When Janice is notified the seller accepts the offer. D) When the deposit check clears. |
The correct answer is "C - When Janice is notified the seller accepts the offer. " Offers are serious business. Once accepted, they cannot be withdrawn without penalty, such as loss of the deposit.
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Which of the following title insurance policies provides protection against all possible defects in the condition of a title?
A) American Land Title Association Extended Coverage. B) California Land Title Association Standard Coverage. C) California Land Title Association Extended Coverage. D) None of the above. |
The correct answer is "D - None of the above. " No policy protects against all possible losses.
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Which of the following is a protection granted lenders with ALTA title insurance?
A) Easements created during the term of the loan. B) Loss due to unrecorded mechanic's liens. C) Loss due to unrecorded easements. D) All of the above. |
The correct answer is "D - All of the above. " There are two basic kinds of title insurance: CLTA (California Land Title Association) and the more comprehensive ALTA (American Land Title Association). However, even though ALTA offers additional protections such as unrecorded mechanic's liens, individual policies often include a number of specific deletions.
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What is the main duty of a county assessor?
A) Determine the amount of tax to be paid by property owners. B) Determine the percentage of assessed value that property owners will pay in taxes. C) Determine the tax rate that will be assessed property owners. D) Assign parcel numbers to new developments for the purposes of assessing and recording property taxes. |
The correct answer is "A - Determine the amount of tax to be paid by property owners. " The assessor calculates the amount of taxes owed but does not determine the manner in which they're assessed. The current levy system is based on an assessment of 1% of the cash value of the home at time of last sale. Reassessments may occur if the homeowner makes structural additions. In addition, other local taxes may be added and the rate may increase by up to 2% per year.
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What is the owner of a leasehold estate called?
A) The lessor. B) The lessee. C) A remainderman. D) A reversioner. |
The correct answer is "B - The lessee. " More commonly called tenants, owners of leasehold estates are people who rent a piece of property -- often as a mobile home site -- for a specified period of time. Remainderman and reversioner are terms for certain kinds of beneficiaries in a will.
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Robert is applying for a mortgage at a broker's office and is asked to complete a questionnaire which includes questions about his race and marital status. Are these questions appropriate?
A) No, they are prohibited by various anti-discrimination statutes. B) No, they are specifically excluded by the California Fair Housing Act. C) Yes, because they're needed to verify his employment and credit history. D) Yes, but he is not obligated to provide the information. |
The correct answer is "D - Yes, but he is not obligated to provide the information. " It is not legal to make any lending or other housing decision based on personal characteristics, including race or marital status and Robert is well within his rights not to answer. However, such information is routinely gathered on a voluntary basis for a variety of reasons, including to spot trends of over or under-representation in housing among various groups.
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How is a condition different from a covenant?
A) They mean essentially the same thing. B) Only a covenant is requirement for the sale of a property and conveyance of ownership. C) Only a condition is requirement for the sale of a property and conveyance of ownership. D) A condition describes the state of a property while conveyance describes how it may be used. |
The correct answer is "C - Only a condition is requirement for the sale of a property and conveyance of ownership. " Conditions define the set of circumstances and possible future events under which title to a property is transferred from one owner to another. For example, "I will sell you my watch for $100 if you pay me $10 on the first of every month for 10 months. However, if you fail to pay me by the 15th of any month, I have the right to take back my watch and keep any money you've paid me." Covenants are agreements about how a property will be used, for example a promise to build a house in a particular architectural style of a minimum square footage.
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On what date must property be sold for defaulted taxes ?
A) On or before January 1. B) On or before March 15. C) On or before June 30. D) On or before July 30. |
The correct answer is "C - On or before June 30. " However, it should be noted the state uses its sale for taxes power only as a course of last resort. From the point that taxes go into default, which is a step after delinquent, the property owner has five years to make arrangements with the state to settle the bill.
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Tom Drysdale is a licensed broker and RJ Balkan is a client who's selling his home. Tom finds a "ready, willing and able" buyer who makes an offer that RJ accepts in writing. However, RJ later has a change of heart, decides to withdraw his home from the market and cancels the sale. Which of the following statements is TRUE regarding RJ's action?
A) Tom is entitled to his full commission based on the accepted offer. B) Tom is not entitled to his commission since the transaction never closed. C) Tom is entitled to 50% of his commission even though the property did not sell and may sue RJ if necessary. D) Tom is entitled to keep the buyer's deposit. |
The correct answer is "A - Tom is entitled to his full commission based on the accepted offer. " Although it is generally true that no commission is earned until a transaction closes, this is an exception. Once a licensee finds a "ready, willing and able" buyer and an offer is made and accepted, a contract exists and Tom has fulfilled his role to the seller.
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Betty Eisenbach is a broker with a client who wants to sell his home. In addition, she has a buyer's agency agreement with Peter Benchman who wants to purchase that home. Under what, if any, circumstances, may Betty represent both parties in this transaction?
A) If both buyer and seller give Betty written permission. B) If either the buyer or the seller gives Betty written permission. C) If the buyer and seller give written permission and agree to split the commission. D) Betty may not represent both parties since that would constitute an illegal form of dual agency. |
The correct answer is "A - If both buyer and seller give Betty written permission. " Dual agency is perfectly legal in California and all that is required is that both buyer and seller give their informed, mutual consent. Commission agreements must also be in writing, but are an issue separate and apart from representation.
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Linda Reilly has a buyer's agency agreement with Cathy Maybach. Linda is also the listing broker for a property Cathy is interested in purchasing. Which of these is the TRUE statement?
A) Linda must inform both parties of the respective relationships and obtain their written agreement that she may represent both as a dual agent. B) Linda should refer Cathy to another associate within her firm to negotiate the sale and complete the transaction. C) Linda should have another salesperson in her firm act as a subagent to negotiate terms of the sale but she may participate in completing the transaction. D) Since Cathy has already signed a buyer's agency agreement no further actions or disclosures are necessary. |
The correct answer is "A - Linda must inform both parties of the respective relationships and obtain their written agreement that she may represent both as a dual agent. " As long as licensees fully disclose all relationships they may have in a transaction and obtain appropriate permissions, they may represent either or both parties. In addition, the amount of commission and who pays what portion (100% by either party or some sort of share arrangement), are open to negotiation.
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Which of these is a duty of licensees set forth by both the DRE and the rules of fiduciary responsibility?
A) To keep all information provided by sellers confidential. B) To keep all information provided by both buyers and sellers confidential. C) To disclose all facts that might affect the sale. D) To disclose material information that might affect the price and/or sale of the property, even if the buyer does not ask for it. |
The correct answer is "D - To disclose material information that might affect the price and/or sale of the property, even if the buyer does not ask for it. " Confidential information must be respected, but not all information is confidential. Moreover, confidential information sometimes may be disclosed on a "need to know" basis with permission. However, material information such as a faulty foundation or leaky roof must be disclosed even if potential buyers never raise the issue.
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Legally, what is the nature of agency relationships between brokers and principals?
A) General agency. B) Specific agency. C) Universal agency. D) Limited power of attorney. |
The correct answer is "B - Specific agency. " "Specific agency" means that a licensee may act on a principal's behalf only in limited ways for a limited time. For example, an agent can show a potential buyer a client's property, but he cannot make the decision to accept an offer.
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Who administers license law in California?
A) The real estate commissioner. B) The California Department of Real Estate. C) The Attorney General. D) HUD |
The correct answer is "A - The real estate commissioner. " The commission is the chief executive officer of the California Department of Real Estate and, as such, is responsible for administering the rules and regulations governing real estate practices. It should be noted that while the commission does not pass laws, per se (that's the responsibility of the legislature), his or her rulings have the effect of law.
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How is the commissioner selected?
A) He or she is elected by the Real Estate Commission. B) He or she is appointed by the governor. C) He or she is elected by the Senate. D) He or she is elected by the California Association of Realtors® |
The correct answer is "B - He or she is appointed by the governor. " The governor appoints the commissioner, who in turn appoints the ten member Real Estate Advisory Board.
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Who sits on the Real Estate Advisory Board?
A) They are selected from the state senate. B) They are real estate professionals selected from the California Association of Realtors® C) They are a combination of real estate professionals and public members. D) They are attorneys specializing in real estate law. |
The correct answer is "C - They are a combination of real estate professionals and public members. " The advisory board is comprised of six brokers and four public members appointed, as mentioned, at the discretion of the commissioner. The board and commissioner meet at least four times a year with the aim of achieving maximum protection for consumers as well as serving the industry.
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While Nick Thomas was completing the course work for his real estate license, his neighbor asked him for help selling his house and offered a 5% commission. Nick agreed, found a buyer and the transaction was completed two days after he received his license. However, the neighbor now refuses to pay the agreed-upon commission. Can Nick sue?
A) No, only recognized brokerage firms can sue individuals for commissions. B) No, Nick had to have been licensed at the time of the agreement to win any compensation. C) Yes, although he was not licensed at the time of the agreement, Nick's neighbor made an unsolicited offer which he accepted and it is enforceable under contract, but not real estate law. D) Yes, because Nick was licensed when the transaction closed. |
The correct answer is "B - No, Nick had to have been licensed at the time of the agreement to win any compensation. " A person must hold a valid license before he or she undertakes any real estate activity on behalf of a third party for compensation.
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Which of the following would NOT result in a possible fine, suspension or revocation of a broker's license?
A) Agreeing with a seller to list a property with a higher than normal commission rate. B) Being convicted of a felony. C) Being over four months delinquent in child support payments. D) Depositing escrow funds into a personal checking account. |
The correct answer is "A - Agreeing with a seller to list a property with a higher than normal commission rate. " Real estate commissions are negotiated on a case-by-case basis and may be whatever both parties agree to. In the case of child support, the licensee will remain on suspension until the delinquency is satisfied.
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Which of these is a duty of licensees under both commission rules and fiduciary responsibility?
A) To keep all information provided by sellers confidential. B) To keep all information provided by both buyers and sellers confidential. C) To disclose all facts that might affect the sale. D) To disclose material information that might affect the price and/or sale of the property, even if the buyer does not ask for it. |
The correct answer is "D - To disclose material information that might affect the price and/or sale of the property, even if the buyer does not ask for it. " Confidential information must be respected, but not all information qualifies as confidential. Moreover, in certain circumstances, confidential information may be disclosed, with permission, on a "need to know" basis. However, material information such as a faulty foundation or plans calling for a new shopping center to be constructed immediately behind the property must be disclosed even if potential buyers never raise the issue.
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Which of these is a duty of licensees under both commission rules and fiduciary responsibility?
A) To keep all information provided by sellers confidential. B) To keep all information provided by both buyers and sellers confidential. C) To disclose all facts that might affect the sale. D) To disclose material information that might affect the price and/or sale of the property, even if the buyer does not ask for it. |
The correct answer is "D - To disclose material information that might affect the price and/or sale of the property, even if the buyer does not ask for it. " Confidential information must be respected, but not all information qualifies as confidential. Moreover, in certain circumstances, confidential information may be disclosed, with permission, on a "need to know" basis. However, material information such as a faulty foundation or plans calling for a new shopping center to be constructed immediately behind the property must be disclosed even if potential buyers never raise the issue.
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Which of the following would NOT violate the California Fair Housing Law.
A) The owner of a single-family residence refuses to sell to a couple because they are unmarried. B) The owner of a duplex refuses to rent a unit to a couple because they are black. C) The owner of a single-family residence refuses to rent a room in their house because of a person's religion. D) The owner of an apartment complex refuses to rent to a gay couple because all the other tenants are married with children. |
The correct answer is "C - The owner of a single-family residence refuses to rent a room in their house because of a person's religion. " The owner of a single-family residence renting to only one person who will live with the owner is not bound by California fair housing laws.
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Lisa purchased an apartment building for $200,000 with a $50,000 down payment and a $150,000 mortgage. One year later, the apartment building is worth $220,000. Which term best describes this situation?
A) Depreciation. B) Liquidity. C) Equity. D) Appreciation. |
The correct answer is "D - Appreciation. " Lisa was able to increase her equity in the property from $50,000 to $70,000 (an increase of 40%) while the property as a whole appreciated by 10%. However, equity is the interest or value remaining in property after payment of all liens or other charges on the property. Lisa is not selling the property so the best answer here is appreciation.
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A couple purchased a property and the lender required that they take out an ALTA title insurance policy. When the house was purchased, it included a large brick patio on one side of the house that came within 10 feet of the property line. After the title had passed to the new owners, it was discovered the terrace violated a city code calling for setbacks of at least 15 feet for all structures, patios, terraces, or other permanent improvement. Based on this information, which of the following remedies would be covered under the ALTA policy?
A) The cost to remove, but not replace the terrace. B) The cost to correct the problem. C) The cost to remove the terrace plus the difference between the home's purchase price and its now reduced value. D) Compensation to the affected neighbors for encroachment plus any fees to the town for obtaining a variance. |
The correct answer is "B - The cost to correct the problem. " In this case, that would mean reducing the size of the patio five feet so it was in compliance. Whether the lost square footage would be added elsewhere would depend on the property and the policy. Remember, even though ALTA policies are generally more comprehensive than CLTA, individual policies often have unique characteristics.
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Which phrase best describes a broker's duty to keep a principal fully informed?
A) Code of ethics. B) Professional standards. C) Fiduciary obligation. D) Standards and practices. |
The correct answer is "C - Fiduciary obligation. " Fiduciary obligation or responsibility means operating from a position of trust and sharing information fully and completely is one of its hallmarks.
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Jason owns a property in Bel Air and enters into an exclusive right-to-sell contract with Beverly, a licensed broker. As part of the agreement, Beverly agrees to advertise the home in a special properties catalog at a cost of $250, which Jason agrees to pay. How must Beverly handle Jason's check?
A) Place it into her business account until it comes time to pay for the ad. B) Send it immediately to the publication where the ad will appear. C) Place it in her trust account and draw against it only to pay actual advertising expenses. D) As an "incidental" sum, it requires no special treatment, but must be accounted for. |
The correct answer is "C - Place it in her trust account and draw against it only to pay actual advertising expenses. " Any money given by a client to a salesperson or broker must be deposited into the broker's trust account.
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Which of the following are legal activities for California licensees?
A) Negotiating in California for the sale of a property located in Nevada. B) Selling a business. C) Negotiating the sale of a note and receiving compensation. D) All of the above. |
The correct answer is "D - All of the above. " In certain situations, California offers licensees more leeway than some other states. For example, licensees can negotiate the sale of out-of-state properties, as long as the negotiations take place in California. Also, though not real estate transactions in the strictest sense of the word, selling notes or business is also permissible.
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Which of the following applies to sale of new subdivided land to residents of California under the Subdivided Lands Act?
A) All subdivisions, regardless of location, are subject to the Act's regulations. B) Only subdivisions located within California are subject to the regulations. C) Only unimproved property is subject to the regulations. D) Only out-of-state recreational property is subject to the California Subdivided Lands Act. |
The correct answer is "A - All subdivisions, regardless of location, are subject to the Act's regulations. " The Subdivision Map Act regulates the division of property, requiring a subdivision's design and improvements to be consistent with the local general plan. The Map Act spells out the subdivider's duties as well as the requirements that a city or county must follow when reviewing and approving a proposed subdivision. The Subdivided Lands Act is a consumer protection law that regulates the sale of subdivisions and ensures public disclosures.
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Beth is a real estate developer and wants to purchase an undeveloped 10-acre parcel. However, the price is $100,000 and she won't have the cash-flow to support the purchase for another six months. Accordingly, she contacts an investor named Richard who agrees to purchase the property for $100,000, and sell it back to Beth for $115,000 in six months. Is this kind of agreement legal?
A) Yes, but not enforceable. B) No it's constitutes misrepresentation, since Beth is the intended buyer. C) Yes, it's both legal and ethical. D) Yes, it's legal but considered an unethical practice. |
The correct answer is "C - Yes, it's both legal and ethical. " The purpose of this transaction is for a lawful purpose (addressing a cash flow issue). Since there is no intent to defraud or misrepresent it's perfectly acceptable.
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Max purchased a new mobile home and had it placed on a lot he'd purchased in a mobile home park. He now wishes to sell the home and sell or lease the lot and asked real estate broker Toni Robertson to handle the listing. Is this a listing Toni may accept?
A) No, mobile homes are considered personal property, not real property. B) Yes, but only if she also has a license to sell mobile homes and lots. C) She may list the lot, but not the mobile home. D) Yes, she may sell both the home and the lot. |
The correct answer is "D - Yes, she may sell both the home and the lot. " Licensees may sell mobile homes like any other property, so long as they are affixed to a foundation and have been registered with the Department of Housing and Community Development which ensures the unit is a "fit and habitable" dwelling.
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In construction plans for a new home, in what section would the following terms appear: footing, pier, mudsill and floor joists?
A) Flooring plans. B) Foundation plans. C) Framing plans. D) Elevation plans. |
The correct answer is "B - Foundation plans. " From the bottom up: footings are 8" - 10" slabs of concrete that support foundation walls; piers or caissons are round concrete structures sunk 3 or 4 feet into bedrock to support foundations or cantilevered decks, rooms or other structures; mudsills are the bottom member of a wall system that rests on the foundation and floor joists form the support for the interior flooring.
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Broker Callie O'Donnell received an offer on a house she was listing and presented it to the owners, who requested 24 hours to consider it. Later that day, a salesperson in Callie's office received another, but much lower offer on the same property. Callie is certain that the second offer will be rejected. What action should she take?
A) She must present the second offer as well. B) She should tell the owners about the second offer, but doesn't need to present it formally. C) She should wait until the owners decide about the first offer before presenting the second. D) Since the second offer came in after the first and is also lower, she does not need to present it. |
The correct answer is "A - She must present the second offer as well. " Licensees are obligated to present all offers as soon as possible, no matter how likely it may be that they will be rejected. Licensees may advise and counsel clients on real estate matters, but they may never make a decision on their behalf.
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Which of the following statements is NOT TRUE about properties with riparian rights?
A) A owner may sell a portion of the property and transfer the riparian rights even if the parcel is not adjacent to the watercourse. B) An owner may sell a part of the land, but not include the riparian rights if that parcel is not adjacent to the watercourse. C) Riparian may be lost through non-use. D) An owner may sell a parcel of the property adjacent to the watercourse and include riparian rights. |
The correct answer is "C - Riparian may be lost through non-use. " California's riparian rights practices are based on English common law (with a few variations left over from the days when gold miners invented their own rules). Basically, they hold that riparian rights can be sold separate from a property and that they are not lost through non-use or claims of a "senior" right.
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Thomas Bainbridge owns a "fee simple" parcel of land. Which of the following actions would convert his ownership to a status of less than "freehold estate?"
A) Selling the mineral rights to a third party. B) Converting the parcel to that of a life estate. C) Negotiating a sale-leaseback arrangement with a third party. D) Leasing the land for agricultural use. |
The correct answer is "C - Negotiating a sale-leaseback arrangement with a third party. " Fee simple means that a property is owned outright. A freehold estate is one in which a person's interest in a property is for an indeterminate period of time... while life estate means that person's interest is for his or her natural life. Leasing the property or selling mineral rights does nothing to alter these forms of ownership. However, a sale-leaseback, usually for the purpose of creating cash flow, transfers ownership to another party while the original owner continues to occupy and/or use the land.
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When would a real estate broker most commonly receive a commission from more than one party?
A) When he or she is negotiating a real estate exchange. B) When he or she is negotiating a long-term lease. C) When selling a business. D) When he or she holds an open listing agreement. |
The correct answer is "A - When he or she is negotiating a real estate exchange. " Although a commission from more than one party in a transaction is possible (by written agreement) in any of these situations… it is typical in an exchange since more than one property is being transferred.
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With the boom in second homes and so many work-related transfers, many subdivisions are advertising across a number of states, not just locally. How long must developers give purchasers of properties offered for sale across state lines a right of rescission?
A) Ten days. B) Seven days. C) Five days. D) Three days. |
The correct answer is "B - Seven days. " However, this applies only subdivisions offering twenty-five or more lots for sale across state lines. The rule is by federal statue under the Interstate Land Sales Full Disclosure Act.
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The federal government obtained a lien against a Margot for failing to report a portion of income from a rental property she owns. How would that lien be classified?
A) A specific lien. B) A general lien. C) A trust deed lien. D) A statutory lien. |
The correct answer is "D - A statutory lien. " A statutory lien is one imposed by government statute, especially a tax lien, and applies to all property a person owns, not just real estate. A general lien is much the same, but is usually filed by a creditor rather than the government. A specific lien applies only to a particular property or portion of a property... while a trust deed lien is what secures a mortgage.
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California Coast Homes, Inc. is just opening up a new-home subdivision. To whom must they give copies of the public report?
A) Prospective buyers who make a deposit on a home or parcel. B) Prospective buyers who indicate a strong likelihood of purchasing. C) Every prospective buyer. D) All local newspapers for publication. |
The correct answer is "C - Every prospective buyer. " All subdividers selling homes or lots in California must obtain a public report from the Department of Real Estate. It ensures that the developer is in compliance with all laws and regulations... has made full and proper disclosure of all material facts... and proves that all improvements and representations either have been or will be made.
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California Coast Homes, Inc. is just opening up a new-home subdivision. To whom must they give copies of the public report?
A) Prospective buyers who make a deposit on a home or parcel. B) Prospective buyers who indicate a strong likelihood of purchasing. C) Every prospective buyer. D) All local newspapers for publication. |
The correct answer is "C - Every prospective buyer. " All subdividers selling homes or lots in California must obtain a public report from the Department of Real Estate. It ensures that the developer is in compliance with all laws and regulations... has made full and proper disclosure of all material facts... and proves that all improvements and representations either have been or will be made.
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How long is a subdivision's preliminary public report valid for?
A) Until a material change in the subdivision occurs. B) Until one year after the date of issuance. C) When the final public report is issued. D) All of the above. |
The correct answer is "D - All of the above. " Preliminary public reports are intended for subdivisions in the early stages of development. They allow lots or sites to be advertised and reservation deposits accepted. However, any funds received by the developer must be fully refundable.
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What options are open to the real estate commissioner if he or she believes a subdivision developer is making fraudulent statements?
A) The commissioner may issue a desist and refrain order. B) The commissioner may revoke the public report. C) The commissioner may issue a restraining order. D) All of the above. |
The correct answer is "A - The commissioner may issue a desist and refrain order. " A desist and refrain order is similar to a restraining order in that it immediately halts the action or actions in question. However, the "desist" order may be issued directly by the commissioner whereas a restraining order typically goes through the courts.
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Which of these documents would be the LEAST RELIABLE in searching for the legal description of a property.
A) A preliminary title report. B) A title insurance policy. C) A tax assessor's bill. D) A deed. |
The correct answer is "C - A tax assessor's bill. " Tax bills only include the assessor's parcel number, not property details. Those details, included in a legal description, cover all aspects of a property necessary to fully and completely define it, including plats, maps and survey information.
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Regarding the sale of subdivision properties governed by the public report regulations, which of these would be of most concern to the Real Estate Commissioner?
A) Sewers. B) Financing of the project and common areas. C) Streets, stop lights and traffic patterns. D) All of the above. |
The correct answer is "B - Financing of the project and common areas. " Streets, sewers, traffic issues and the impact of the subdivision on the community come under the control of local municipalities. It is the intent and willingness of the developer to fulfill all representations made to consumers that's of key importance to the commissioner. Almost always, this boils down to issues of financing.
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Bill and Laura Dunne bought their home for $275,000 three years ago. After adding a pool and patio, they recently sold it for $369,000. In calculating the amount of capital gains, how may they adjust their original "cost basis" to minimize any tax obligations?
A) They may depreciate the pool and patio, plus any other additions. B) They may add the cost of the pool and patio, plus any other improvements, to their original purchase price. C) They may deduct any interest payments for financing the pool, patio and any other improvements. D) They may deduct any interest for financing improvements as well as any mortgage interest. |
The correct answer is "B - They may add the cost of the pool and patio, plus any other improvements, to their original purchase price. " This is a bit of a trick question. Bill and Laura may, of course, deduct any interest associated with owning and improving their home. However, that has nothing to do with the capital gains issue… which is calculated by subtracting the price Bill and Laura originally paid for their home from its selling price. For example, if they'd made no improvements, their capital gain would have been $369,000 minus $275,000, or $94,000. However, if the pool and patio cost $45,000, they're entitled to add that to the original price they paid for the home, bringing their "cost basis" up to $320,000 and thus reducing their capital gain exposure.
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Which of these terms BEST describes a transaction whereby possession of real estate is transferred to another party without transferring ownership?
A) Riparian right. B) Sublease. C) Sale-leaseback. D) Torrens rights. |
The correct answer is "B - Sublease. " Whether to the original tenant or subleased to another, leasing is the most common form of transferring property without transferring ownership. A sale-leaseback works in reverse… ownership is transferred while the original owner continues to occupy the property. Riparian rights, as mentioned previously are water rights, while "Torrens" is an old form of registering land ownership.
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When an owner is selling his or her home, to whom would they give a copy of a structural pest control report?
A) Their broker, at the time of listing. B) To the brokers or salespeople representing potential buyers. C) To the escrow company. D) To the buyer, if requested. |
The correct answer is "D - To the buyer, if requested. " Structural pest inspections and reports are not required by law, but are often a condition of the buyer, the contract or the lender. When requested, the reports must be delivered by the seller or seller's agent before closing.
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David and Paula Alverez take out a mortgage with an acceleration clause. What does this mean?
A) David and Paula's mortgage will be paid off in less time. B) David and Paula's mortgage will be "fast tracked" for quicker approval. C) Their entire mortgage could become due if they fail to make payments. D) Their mortgage will have a balloon payment at the end of five years. |
The correct answer is "C - Their entire mortgage could become due if they fail to make payments. " "Acceleration clauses" are stipulations that if certain events occur, such as not making payments, the entire amount of the mortgage can become due. Most typically, this is seen in "due on sale" clauses that require the mortgage balance be paid in full at the time the house is sold.
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Jake and Tina McIntyre hire PV Pools to install a new spa and deck at the back of their home. However, just after the project is complete, Jake looses his job and refuses to pay for the work to preserve his cash. What recourse does PV Pools have to collect the money they're owed?
A) They may file a specific lien. B) They may file a general lien. C) They can file an attachment. D) The can file a notice of default. |
The correct answer is "A - They may file a specific lien. " A "specific lien" is filed against a specific piece of property, in this case the McIntyre's home. A general lien is one filed against any and all property, including homes, cars, boats, collections and so forth. Attachments and default notices are instruments used by lenders, not fee for service providers such as contractors.
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Nancy Cohen purchased a property with a highly desirable view, which included an easement. Which of these terms best describes an easement?
A) An encroachment. B) An encumbrance. C) Another name for adverse possession. D) An appurtenance. |
The correct answer is "B - An encumbrance. " An encumbrance is something pertaining to a property that might diminish its value… such as an easement which grants rights of use or access. For example, an electric company might have a fifteen-foot easement running across the back of a property for servicing underground lines, which means the homeowner could not build a pool, patio, terrace or other permanent structure in that area.
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If a city develops a plan to control its future growth and development, how does it implement that plan?
A) Through zoning. B) Through variances. C) Through eminent domain. D) Through business and construction permits. |
The correct answer is "A - Through zoning. " Zoning details the specific uses and conditions for areas within a municipality's control. For example: only retail businesses and offices allowed on Main Street... no manufacturing within city limits… apartments and condos in one part of town and only single family homes of a minimum size in another.
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Which of these agencies controls the "Subdivision Map Act?"
A) The real estate commissioner. B) Local government. C) The Department of Real Estate. D) The Department of Housing and Community Development. |
The correct answer is "B - Local government. " The point of the "Map Act" is to allow local governments to control the physical aspects of a subdivision and how they may affect adjoining or nearby properties and the community as a whole.
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What is "deregulation?"
A) Inter-state banking. B) Airline industry consolidation. C) The elimination of government controls. D) The gradual loosening of government controls. |
The correct answer is "D - The gradual loosening of government controls. " The aim of deregulation is to bring increased competition to segments of the economy where varying states of "monopoly" used to exist. For example, with the loosening of restrictions on interstate banking, a Californian can now get a mortgage with Chase Manhattan, while a New York resident can bank with Wells Fargo.
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Why would a new home developer order a "percolation" test?
A) To determine the level of ground-water contaminants. B) To determine soil density for foundation construction. C) To determine suitability for waste disposal. D) To determine geological hazards such as fault lines. |
The correct answer is "C - To determine suitability for waste disposal. " Percolation, or "perk" tests are performed to test how well the soil absorbs fluids and are usually performed in connection with septic systems.
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Marty is a real estate broker and Becky is a minority buyer who tells him she is interested in a particular Palo Alto neighborhood. What assumption can Marty make?
A) That Becky knows the neighborhood, wants to buy there and can afford the typical price. B) That Becky is testing him. C) That Becky doesn't know the neighborhood is predominantly white. D) That Becky might like the neighborhood, but probably can't afford to buy there. |
The correct answer is "A - That Becky knows the neighborhood, wants to buy there and can afford the typical price. " As a matter of courtesy as well as a matter of law, real estate licensees must assume that a person's interest in a particular area is genuine.
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What is the intent of the Financial Discrimination Act of 1977?
A) To provide equal access to mortgage money regardless of income. B) To end the practice of "redlining." C) To allow equal access to rental properties. D) To end the practice of restrictive covenants. |
The correct answer is "B - To end the practice of "redlining." " "Redlining" was the practice by lenders of refusing to write mortgages for properties in certain areas. The act covers single family residences as well as multi-family homes of up to four units.
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What do you own if you have an undivided interest in common areas and a separate interest in a certain unit of an industrial, commercial or residential building?
A) A cooperative apartment. B) A limited partnership. C) A community apartment project. D) A condominium. |
The correct answer is "D - A condominium. " "Undivided interest" means that a person owns a share of property that can't be separated from the whole. In other words, if a condominium project has fifty owners, each unit owns one-fiftieth of the common property.. but the owners of, say, unit A, can't decide to sell their share so they can go on a trip. Although usually associated with residential living, some industrial and commercial complexes also use the condominium structure.
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Which of these activities may a California real estate licensee engage in?
A) Selling a business. B) Negotiating the sale of a Nevada ranch in California. C) Negotiating the sale of a note for compensation. D) All of the above. |
The correct answer is "D - All of the above. " Unlike many other states which restrict licensees to the literal buying and selling of properties, California agents may also engage in allied activities, including the sale of notes and businesses as well as out-of-state properties, so long as the negotiations for such properties occur in-state.
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What does the California Subdivided Lands Act control?
A) The sale of improved building lots in the state of California. B) The sale of unimproved lots within the state. C) Any parcel in a subdivision, whether within California or out-of-state. D) The sale of improved building lots outside of California. |
The correct answer is "C - Any parcel in a subdivision, whether within California or out-of-state. " The Subdivided Lands Act, intended to ensure full disclosure, truthful representations and compliance with codes and laws, applies to any property offered for sale to California residents, regardless of where the property is actually located.
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A grant deed has been issued to Richard Bowtree that reads, "Richard Bowtree, et ux." What does "et ux" mean?
A) And others. B) And wife. C) And without further warranties. D) And, without further encumbrances. |
The correct answer is "B - And wife. " An old term usually found on deeds, tax records and such, it has been supplanted by more modern forms such as tenancy in common and community property that recognize husband and wife as individuals.
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John has purchased a just completed, high-end, fifty-unit rental building. He plans on three year leases at an average rental of $2,000 per month with the first and last month's rent due in advance. For tax purposes, he treats the receipts for the first month's rent (50 units x $2,000 = $100,000) as income for this year, but doesn't declare the portion representing the last month because its technically income that won't be recognized for three years. Is acceptable under IRS guidelines?
A) Yes, under the rules it's considered deferred revenue. B) Yes, the IRS would view it as tax-deferred recapture. C) He has to declare the portion representing the last month, but can defer paying the tax on it. D) No, any rental income is due in the year it's received. |
The correct answer is "D - No, any rental income is due in the year it's received. " Rental income is ordinary income. And, while expenses associated with running and maintaining the building can be deducted, there are no special provisions or treatments regarding cash flow from rental units.
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Which of these investment structures is considered the best and most popular form of real estate syndication?
A) A limited partnership. B) A joint venture. C) A real estate investment trust. D) A corporation. |
The correct answer is "A - A limited partnership. " A limited partnership consists of "general partners" who actually run the business and are responsible for its actions and liabilities and "limited partners" who share in profits and tax benefits but incur no liabilities beyond their initial investment. Thus, it combines the profit and tax advantages of real estate development with limited risk.
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Rebecca owns a commercial lot of 16,500 square feet and a 150 depth on each side. She wants to expand her store and two identical lots are available on either side of her property. Each of these lots is also 150 feet in depth, but contain a total square footage of 4,950 square feet each. If Rebecca buys both lots and combines them with her original, how many linear of frontage will she have?
A) 143 linear feet. B) 159 linear feet. C) 176 linear feet. D) Not enough information is provided to make the calculation? |
The correct answer is "C - 176 linear feet. " First, arrive at the frontage for Rebecca's original parcel. Since length times width equals square footage… square footage divided by one know side equals the length of the other. In this case, 16,500 divided by 150 = 110. Since the other two lots also have a depth of 150 feet, their frontage equals 4,950 divided by 150 or 33 feet each. 110 plus two times 33 = 176.
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What is the "gross rent multiplier" formula?
A) A property's gross rental income divided by its market value. B) The sale price of a property divided by its gross rental income C) A property's gross rents divided by its sale price. D) None of the above. |
The correct answer is "B - The sale price of a property divided by its gross rental income " This is used as a quick, short-hand guestimate for a property's approximate value. Sometimes this calculation produces a positive cash flow, other times a negative one... and one is not necessarily better than the other. Far more detailed calculations are necessary to determine a property's real market value and attractiveness as an investment.
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Which of the following activities requires a real estate license in California?
A) A person selling his or her own home. B) A trustee overseeing the sale of a foreclosed property. C) A real estate secretary who hosts open house weekends. D) A person who manages the apartment complex he or she lives in. |
The correct answer is "C - A real estate secretary who hosts open house weekends. " As a general rule, what creates the need for a real estate licenses is engaging in any part of the real estate transaction processes for third parties for compensation.
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Which of the following is a duty of the real estate commissioner?
A) Investigating complaints filed by the public against a licensee. B) Approving or disapproving public reports for subdivisions. C) Qualifying applicants for real estate licenses. D) All of the above. |
The correct answer is "D - All of the above. " The Department of Real Estate exists to ensure the public is protected and well-served by all segments of the real estate industry. Accordingly, assuring professionalism among licensees through screening and testing... providing an open channel for filing complaints... and making sure builders and developers offer products that meet code and live up to representations form the department's and commissioner's essential mission.
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What is the main responsibility of a county tax assessor?
A) Establish the tax rate. B) Adjust the tax rate. C) Estimate the value of properties for tax purposes. D) Estimate total tax revenue for the county. |
The correct answer is "C - Estimate the value of properties for tax purposes. " In many states, the tax assessor must make a number of sometimes subjective judgments about properties to establish value for tax purposes, including "curb appeal." In California, it's more cut and dried, with a maximum increase of 2% a year, except for structural modifications which will trigger a re-assessment.
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Which of these principles states that "a person will not pay more for one property than he or she would for another that's equally desirable?"
A) The principle of substitution. B) The principle of price conformity. C) The principle of fair distribution. D) The principle of liaise-faire. |
The correct answer is "A - The principle of substitution. " The principle of substitution is at the heart of real estate pricing and competitive market analysis.
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What is RESPA?
A) A standard for closing procedures. B) A federal anti-discrimination statute. C) A low-income housing program. D) A standard for access and accommodation for persons with disabilities. |
The correct answer is "A - A standard for closing procedures. " The intent of RESPA -- the federal Real Estate Settlement Procedures Act -- is to make borrowers more aware of costs and charges.
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Which of the following transaction types would appear on a RESPA statement?
A) A finder's fee. B) An appraisal fee. C) Fees paid for the preparation of the statement. D) Real estate sales commissions. |
The correct answer is "B - An appraisal fee. " To emphasize, the point of RESPA is to disclose costs and discourage the use of "junk fees." Accordingly only legitimate costs such as an appraiser's fee are included. Commissions are not fees and are covered under separate agreements... a legitimate finder's fee is a cost borne by licensees and/or others on the "professional services" side of the transaction... and fees for preparing the RESPA document are specifically prohibited.
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Brad is a salesperson showing a home to first-time buyers. He tells them builder's grade kitchen counters are, "custom, hand-painted Mexican tile"… that the cooktop is a "$2,500 restaurant grade" appliance when it's actually a low-priced knock-off and other such exaggerations. Is this just good salesmanship?
A) Yes. B) Yes, as long as Brad is not knowingly misrepresenting facts. C) No, it's a form of, "puffery." D) No, it's fraud. |
The correct answer is "C - No, it's a form of, "puffery." " Brad is treading on dangerous ground. It's not quite fraud or misrepresentation, because Brad could claim he thought he was describing the features accurately… though given the price of the house, a practiced eye and professional diligence, he should have known better. Moreover, if the couple bought the house on the basis of Brad's assertions, he could be open to discipline because, first-time buyers can be considered "unsophisticated" and thus victims by the courts. Rule of thumb: don't make specific or comparative claims like Brad's without verifying their accuracy.
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Which of the following are ways to acquire title in California?
A) By deed. B) By succession. C) By occupancy. D) All of the above. |
The correct answer is "D - All of the above. " Typically, a person acquires title through "succession" when a relative dies without a will and he or she is granted possession through California's intestate laws. Title can, of course, also be gained by inheritance through a will... and by occupancy, whether by adverse possession or because the property appears to be unclaimed by anyone.
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Which of the following is NOT necessary for acquiring title to a property by adverse possession?
A) Occupying the property for at least five years. B) "Open and notorious use." C) Residing on the property. D) A claim of right. |
The correct answer is "C - Residing on the property. " Occupancy and residency are not necessarily the same thing. A "claim of right" or "color of title" means that the occupier must have some evidence, though not a clear title, that he or she has a right to the property.
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Which of the following IS an additional requirement for adverse possession?
A) Paying taxes on the property. B) "Exclusive and hostile" occupation. C) Neither a nor b. D) Both a and b. |
The correct answer is "D - Both a and b. " The occupier must pay taxes on the property during the entire term of his or her occupancy. In addition, the occupation must be exclusive with no other party attempting to gain possession and of such conspicuousness as to serve reasonable notice on the rightful owner of the intent to gain possession.
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Of the following types of real estate syndicates or "group investments," which requires participation by at least 100 investors?
A) A general partnership. B) A limited partnership. C) A REIT, or Real Estate Investment Trust. D) A Corporation. |
The correct answer is "C - A REIT, or Real Estate Investment Trust. " REITS own, and in most cases, manage income-producing properties such as apartment buildings and shopping centers. Like securities, their shares are freely traded on stock exchanges. Like limited partnerships, an investor's risk is limited to his or her investment. However, unlike partnerships a REIT cannot pass tax losses on to its investors... while shares in a limited partnership are not traded like stocks and are therefore not as liquid.
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Who establishes, "successor's liability?"
A) The real estate commissioner. B) The Franchise Tax Board. C) The Department of Commerce. D) The State Board of Equalization. |
The correct answer is "D - The State Board of Equalization. " Successor's liability refers to unpaid taxes owed by a business owner prior to he or she selling that business to a third party. Unless disclosed and reflected in the selling price, those taxes become the liability of the new owner. That's why it's wise for business buyers to obtain a "clearance receipt" from the Board of Equalization prior to closing.
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Which of the following types of real estate investment structures is under the control of the California commission of corporations rather than the real estate commissioner?
A) Limited partnerships. B) Blind pools. C) Real estate investment trusts (or REITS) D) All of the above |
The correct answer is "D - All of the above " Corporations, syndications and so forth, whether they invest in real estate or auto dealerships, are organizations serving investors rather than the public and, therefore, are not part of the DRE's or commissioners oversight responsibilities.
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Sara Straun is a newly licensed broker and has just opened her own office. How long must she keep transaction records?
A) One year. B) Two years. C) Three years. D) Five years. |
The correct answer is "C - Three years. " Those records must include not only closing documents, but trust fund information, all listings, all deposit clips and cancelled checks and all other documents executed by Sara in connection with her real estate practice.
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How should Sara handle the trust account portion of her record-keeping.
A) In columnar form, with separate records for each beneficiary in each transaction. B) By retaining all banking records for trust accounts. C) By retaining banking records organized by fiscal year. D) In the same form as her other business accounts for consistency. |
The correct answer is "A - In columnar form, with separate records for each beneficiary in each transaction. " Banking records are not sufficient for maintaining trust fund records. The DRE has a specific, columnar form that must be followed with required fields of information that include the date funds were received, the form of the trust funds, the amount received, a description of the property, the person from whom the funds were received and other detailed information relevant to the transaction.
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Sara's previous firm was headed by her friend, Phyllis Morris, who operated under the fictitious name of Palm Coast Realty. Although she correctly registered the name when she opened the office, she was recently sited for improperly operating under a fictitious name. Why might that be?
A) Since the name was correctly registered when she opened the office, the citation was in error. B) Her broker's license may have expired and the fictitious name with it. C) The right to use fictitious names must be renewed separately from the license renewal. D) Another company, Palm Coast Fashion was using the "Palm Coast" name first and lodged a complaint against Phyllis which she ignored. |
The correct answer is "B - Her broker's license may have expired and the fictitious name with it. " Even if a license is renewed one day after expiration, any fictitious name associated with it will not renew unless the broker includes it on the back of the new license. It's a common oversight, so licensees should check with the DRE periodically to make sure their licenses bear any fictitious dba names.
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What actions are required of agents regarding "material facts?"
A) They are deemed confidential between the agent and client and should be protected. B) They should generally be disclosed to the public although in some instances they may be considered minor or confidential and need not be disclosed. C) Must always be disclosed. D) Should be disclosed to serious buyers. |
The correct answer is "C - Must always be disclosed. " Material facts -- those dealing with a property's physical structure or the ability of parties to perform as promised -- must always be disclosed when the agent knows or should have known about them.
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Fawn Hathaway is a broker who has just been made an officer of her large, multi-office real estate firm. Her increase in pay came with an increase in responsibility and one of her salespeople has recently been the subject of a civil rights investigation. What, if any, potential liability does Fawn face in this matter?
A) None, unless the salesperson committed the violation under her direction. B) None, unless the salesperson committed the violation under her direct supervision. C) She can be reprimanded by the DRE, but not disciplined. D) She is subject to DRE discipline. |
The correct answer is "D - She is subject to DRE discipline. " While promotions and increased responsibilities are something most people welcome, brokers must also be mindful of the fact that they are directly responsible for the actions of those working in their offices. Failure to properly supervise exposes a broker not only to disciplinary action, but the possibility of a civil lawsuit.
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Caroline Martin assures real estate salesperson, Abby Benton, that the home she's selling has hardwood floors throughout. This appears to be true, since it is exposed in all rooms but two of the bedrooms which have wall-to-wall carpeting. Alison passes these assurances on to buyers who later discover that neither of the bedrooms has hardwood. What, if anything, is Abby guilty of.
A) She's not guilty of anything since she relied on the owner's assurance. B) She's guilty of omission. C) She's guilty of misrepresentation. D) She's guilty of fraud. |
The correct answer is "C - She's guilty of misrepresentation. " Alison is guilty of misrepresentation because she made a false assertion based on facts she should have verified. She could have avoided the violation by lifting a corner of the carpet to inspect the flooring or making a written disclosure to the buyers such as, although the seller believes hardwood is under the carpet, she does not know and cannot guarantee that to be true.
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Madison owns a smaller, older home she wants to sell to move into a more contemporary property that's just come on the market. Although she doesn't know it and hasn't experienced any problems, the pipes in her plumbing system are seriously corroded and will soon need to be replaced. What are the disclosure responsibilities of her and her agent?
A) They should indicate problems may exist. B) They should answer "unknown" to any questions about plumbing. C) They should indicate that there are known plumbing problems. D) They should note the fact that it's an older system and potential buyers should have it professionally examined. |
The correct answer is "B - They should answer "unknown" to any questions about plumbing. " Since plumbing systems are hidden and neither an owner nor a licensee can not be reasonably expected to know of potential problems without some outward sign of failure, it's appropriate for Madison and her agent to indicate that there are no known problems.
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For which of the following actions is a broker NOT liable to have his or her license suspended or revoked?
A) Having been declared mentally incompetent by a recognized agency or authority. B) Helping a third party cheat on a licensing examination. C) Placing a "For Sale" sign on a neighbor's property he or she has been told is going on the market before obtaining the owner's consent. D) Accepting earnest money from a buyer and depositing it directly into a trust account. |
The correct answer is "D - Accepting earnest money from a buyer and depositing it directly into a trust account. " Placing earnest money directly into a trust account is not only legal, it is required.
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As long as it is specified as part of his or her duties, is it legal for an unlicensed salaried assistant to solicit listings for the broker?
A) Yes, if it is part of a written job description. B) No, soliciting listings is the exclusive responsibility of the broker. C) Yes, because she is being paid a salary, not commissions. D) No, active participation in real estate transactions requires a license. |
The correct answer is "D - No, active participation in real estate transactions requires a license. " Tasks such as answering phones or making copies are considered support and don't require any licensing or course work. However, activities such as soliciting listings or providing information about a property are part of the transaction process and may be handled only by licensed real estate professionals.
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