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41 Cards in this Set
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Which of the following does not describe excess land? a. Land which does not add to the total value of the property. b. Land in excess of that used by comparable properties. c. Land that is not sufficiently utilized by the improvements on it. d. Land that is used to store unused property fixtures. |
d. Land that is used to store unused property fixtures. (All of the answer selections correctly describe the condition of excess land except answer selection D, as the land is being used for a practical purpose, i.e., storage.) |
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A bank loans Lauren $850,000. Part of the loan agreement calls for Lauren to keep $20,000 of the loan funds on deposit with the bank for the life of the loan. This is an example of: a. prepaid charges. b. yield enhancement. c. risk management. d. compensating balance. |
d. compensating balance. This question illustrates the need to select the best answer available. The correct term for what the bank has required is a compensating balance – leaving enough money with the bank to offset potential foreclosure costs. It can also be said to improve the yield and reduce the lender's risk. |
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The term "highest and best use" can best be defined as: a. the use that produces the biggest building. b. the use that produces the highest building. c. the use that produces the greatest gross income. d. the use that creates the greatest net return. |
d. the use that creates the greatest net return. (Once again, net results are the most relevant. The maximum productivity that generates the greatest net return is the highest and best use.) |
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Which of the following is the best example of functional obsolescence? a. The close proximity of noxious fumes generated by a neighboring property. b. Adverse zoning within the adjoining neighborhood. c. No air conditioning in a building located in an arid, desert environment. d. Rotted eaves. |
c. No air conditioning in a building located in an arid, desert environment. (Functional obsolescence is a loss of value due to adverse factors within the structure which affect the utility of the structure, and thus its value and marketability. Only choice C. no air conditioning in a building located in an arid, desert environment fits this definition. Answer choice D refers to physical deterioration. Answer choices A and B are located off the property and are out of the control of the owner, both being examples of economic obsolescence.) |
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When the due-on clause in a trust deed is triggered, the lender may recast or call the loan, also known as: a. subordination. b. waiver by proxy. c. reconciliation. d. acceleration.
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d. acceleration. (The due-on clause accelerates the payoff of the loan. Only answer choice A also pertains to loans, but it allows a new loan to become senior to an existing mortgage.) |
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To be valid, restrictions in a grant deed need to: a. be contained in a deed or a written agreement. b. be less restrictive than existing zoning requirements. c. run with the land. d. be posted on a sign in a conspicuous spot on the property. |
a. be contained in a deed or a written agreement. (Restrictions, such as conditions, covenants and restrictions (CC&Rs) for a subdivision need to be recorded as a statement on the deed or as a reference to another recorded document such as the subdivision restrictions.) |
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Property improvements that do not become part of the underlying real estate at the end of a lease term include: a. a stairwell. b. a wall. c. attached carpeting. d. large pieces of furniture.
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d. large pieces of furniture. (When personal property is attached to land, it becomes real estate. This includes carpeting, stairwells and walls.) |
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Easements which restrict an owner's ability to maintain or construct improvements interfering with a neighbor's solar energy system are known as ___________easements. a. airborne b. solar c. galactic d. greenway |
b. solar (Solar panels are generally located on the roof of a structure. A solar easement prohibits the blocking of those panels from exposure to the sun.) |
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When comparing a small house with a large house of similar quality, which of the following is true? a. A small house costs more per square foot. b. A large house costs more per square foot. c. Large homes sell better. d. Size doesn't matter. |
a. A small house costs more per square foot. (The overall value of the property includes the land it is situated on. Thus, when the house is smaller, the price per square foot will be higher since the cost of the underlying land is divided into fewer square feet.) |
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The capitalization method of the income approach determines: a. the value of a property based on its net operating income (NOI). b. the effective interest rate on the debt encumbering the property. c. the value of the property based on its gross operating income. d. the property owner's net worth. |
a. the value of a property based on its net operating income (NOI). (The capitalization method uses an income-producing property's net operating income (NOI). The gross rent multiplier (GRM) method uses the gross rent generated by an income producing property.) |
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Which of the following is not a lien? a. Conditions, covenants and restrictions (CC&Rs). b. Property taxes. c. Trust deeds and notes. d. Judgments. |
a. Conditions, covenants and restrictions (CC&Rs). (This is a NOT question. All liens have a specific dollar value. Of the answer choices, only A. conditions, covenants, and restrictions (CC&Rs) has no dollar value.) |
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If a principal no longer wants to employ a broker to act on their behalf after entering into an exclusive right to sell listing, they may: a. switch the listing to a different broker without the consent of the original broker. b. revoke the listing contract and not be liable for damages. c. choose not to cooperate in the marketing effort and risk liability for damages. d. sue the broker for damages if the home didn't sell.
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c. choose not to cooperate in the marketing effort and risk liability for damages. (When a property owner no longer wants to work with a broker after signing an exclusive right to sell listing, they can either unilaterally revoke the listing or refuse to cooperate in the marketing effort. However, in either case, they will risk being liable for money losses to the broker.) |
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A real estate agent may not represent all principals in a transaction when: a. they have obtained the consent of all parties to this dual agency relationship. b. they have informed all principals they are the agent of each principal. c. they are collecting commissions from each principal with the knowledge of the others. d. they fail to disclose their dual agency status the moment it arises. |
d. they fail to disclose their dual agency status the moment it arises. (In order to represent both principals in a transaction as a dual agent, the agent's dual agency status must be disclosed as soon as possible.) |
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Which of the following is an illegal activity for a broker under agency law? a. Accepting commissions from both the buyer and the seller. b. Acting as an escrow. c. Selling their own property without disclosing their license status. d. Depositing additional personal funds into a client's trust account. |
d. Depositing additional personal funds into a client's trust account. (Depositing personal funds into a client's trust account is an example of improper commingling.) |
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A(n) __________ may be made to an offer received consisting of terms different from those of the offer rejected. a. waiver. b. counteroffer. c. ratification. d. novation. |
b. counteroffer. (A counteroffer is an offer which differs from the original offer. Any change from the original offer causes the original offer to be void.) |
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In an escrow statement, the term "recurring costs" is in reference to: a. title insurance fees. b. insurance prorations. c. impound account items. d. recording fees. |
c. impound account items. ("Recurring" means costs that will repeat. In this question, only impounds are recurring.) |
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Broker Juan lists a house for 11 months without selling it. Broker Juan is aware the building needs major structural repairs and is listed at 10% above its fair market value. Broker Juan runs an advertisement in a newspaper stating, "Three bedroom, Adobe. The price will amaze! Move-in ready and turnkey condition. Call Broker Juan today!" This advertisement is improper since: a. the property is overpriced. b. the advertisement is not also published online. c. Broker Juan knows the property needs major repairs and thus, phrases like "move-in ready" and "turnkey" are deceptive and misleading. d. the advertisement misstates significant financial facts about the property. |
c. Broker Juan knows the property needs major repairs and thus, phrases like "move-in ready" and "turnkey" are deceptive and misleading. (Such intentional misrepresentations regarding the condition of the property may lead to disciplinary action by the Department of Real Estate (DRE) or even civil and criminal penalties if the buyer accepted these misleading statements as fact.) |
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A real estate broker acts from a position of trust for the seller or buyer they have been contracted to represent. This relationship is legally described as a(n): a. attorney-in-fact. b. ostensible agent. c. fiduciary relationship. d. independent contractor relationship. |
c. fiduciary relationship. (The name of the agency relationship between the broker and the client is called fiduciary.) |
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The Agency Law Disclosure form is mandated to be presented to all parties when listing, selling, buying or entering into a long-term lease for property containing: a. five or more residential units. b. land with an attached mobile home. c. Both a. and b. d. Neither a. nor b. |
b. land with an attached mobile home. (The only properties not covered by the Agency Law Disclosure rules are residential properties of five units or more and mobilehomes that are not on a foundation, considered personal property.) |
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When a real estate license expires, how long is the agent's grace period in which they may reinstate their license? a. One year. b. Two years. c. Three years. d. Four years. |
b. Two years. (A grace period lasts two years in which a licensee by process of a late-renewal may reinstate their license.) |
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The value of unimproved property is best estimated by which of the following appraisal approaches? a. The income approach. b. The sales comparison approach. c. The cost approach. d. Capitalization rate (cap rate). |
b. The sales comparison approach. (The sales comparison is always the preferred appraisal approach when comparable sales are available. For unimproved property, the cost approach is not possible as the property does not contain existing improvements. Answer choices A and D both require a rental income stream which is not stated in the question and unlikely for an unimproved property.) |
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Randy recently bought a 12-unit apartment building. What is the minimum number of years in which he may depreciate the building for federal income tax purposes? a. 27.5 b. 39 c. 40.5 d. 50 |
a. 27.5 (The depreciation minimum is 27.5 years regardless of the number of units or property usage, as long as it is held as rental property for investment purposes.) |
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Broker Gerry sold a property to Sarah that was marketed "as is." Broker Gerry knew that the property's plumbing was in a major state of disrepair but did not tell Sarah. The problem with the plumbing is not apparent to an ordinary, prudent person. If Sarah sued the seller for damages, the court action would likely be: a. successful since the duty to disclose a material fact cannot be avoided by an "as is" provision under the stated circumstances. b. successful since "as is" refers only to obvious defects. c. unsuccessful since the buyer agreed to buy the property in its current condition. d. unsuccessful since the "as is" status of the sale shows there is a mutual understanding of possible defects. |
a. successful since the duty to disclose a material fact cannot be avoided by an "as is" provision under the stated circumstances. (An “as is” defense by the seller requires full disclosure of all material facts known about a property. “As is” is not synonymous with “no disclosure required.”) |
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One year after his real estate license expired, Claude renewed the license. Which of the following is a true statement? a. Claude can operate under a restricted license during his suspension. b. Claude has to retake the license examination. c. Until the license was renewed, Claude was not allowed to participate in anything that required a license. d. Claude is no longer eligible for a license. |
c. Until the license was renewed, Claude was not allowed to participate in anything that required a license. (Licensees are granted a two-year grace period in which to renew their license after it has expired. A fee for a late renewal is higher than an on-time renewal. However, a licensee may not act in any capacity requiring a license during the suspension period prior to renewal.) |
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The act of restricting a person from seeking to buy a residential property in a community and redirecting them to other housing is known as: a. steering. b. driving. c. redlining. d. panic peddling. |
a. steering. (This is a Fair Housing question. Envision a sales agent "steering" the potential buyer away from neighborhoods the buyer might wish to see.) |
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Riparian rights: a. grant ownership of adjacent water ways to a neighboring real estate owner. b. include the right to reasonably appropriate water from a river, stream or brook as needed. c. need to be expressed in the mortgage or note and trust deed. d. may be discovered through a thorough examination of public records. |
b. include the right to reasonably appropriate water from a river, stream or brook as needed. (Riparian rights have to do with water and include an owner's reasonable appropriation of water from a stream or river contiguous to their land.) |
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What must an appraiser do when they are hired to appraise a property owned by a corporation in which the appraiser owns a share? a. Refuse the assignment. b. Disclose their ownership interest in the property and accept the assignment. c. Disclose their ownership interest in the property and reduce their fee in equal proportion to their ownership share in the corporation. d. Ignore the issue unless they hold a majority interest in the property. |
b. Disclose their ownership interest in the property and accept the assignment. (Disclosure is the necessary action as it provides the client the opportunity to select a different appraiser if they feel the appraiser’s interest in the property is too significant, even after the appraiser accepts the assignment. Here, the choice of whether to retain the appraiser is left to the client.) |
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The real estate disclosure law which became effective on January 1, 1988 refers to: a. agency relationships. b. people who arrange credit. c. disclosures made by sellers. d. the Truth-in-Lending Act (TILA). |
a. agency relationships. (The agency disclosure law governing agency relationships became effective January 1, 1988.) |
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When ordinary repairs are made to broken equipment in an income-producing property, these repairs are classified as: a. deferred maintenance. b. preventive maintenance. c. corrective maintenance. d. property upgrades. |
c. corrective maintenance. (Corrective maintenance is done when equipment in an income-producing property is broken. Alternatively, answer selection A. deferred maintenance is the habit of postponing the implementation of maintenance. Answer selection B. preventive maintenance is maintenance performed in advance of equipment breaking down.) |
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An appraiser describes "replacement cost" as: a. the original cost to build the structure. b. the current cost to build a replica of the original structure. c. the current cost to build a structure of similar utility using modern methods and materials. d. the current cost to build a structure representing the highest and best use of the site. |
c. the current cost to build a structure of similar utility using modern methods and materials. (Replacement cost is the cost to build a structure of a similar size and utility using modern methods and materials. Reproduction cost is creating something as similar as possible to the original. Both use current costs in the calculation.) |
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Agency relationships may not be solely created by: a. voluntary offer by the agent. b. implied contract. c. ratification. d. necessity or emergency. |
a. voluntary offer by the agent. (This is a NOT question. An agency relationship cannot be created solely by the voluntary act of only the agent. The formation of an agency relationship requires a written or oral agreement between both the principal and the agent. Both an implied agency and agency created by emergency needs to be ratified by the principal.) |
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Mineral and water rights are included in the __________ which are transferred with the sale of a property. a. tenant rights b. government rights c. bundle of rights d. emblements |
c. bundle of rights (Mineral and water rights are transferred with the sale of a property.) |
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The purpose of the Real Estate Law is to: a. prevent fraud. b. protect the public. c. keep track of all real estate transactions. d. limit competition. |
b. protect the public. (Most laws and regulations are designed to protect the public. Preventing fraud may be part of the goal, but the total reach of the Real Estate Law is far broader than that.) |
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A "seasoned" loan is a(n): a. short-term due date for a balloon payment. b. quality loan. c. loan made at the beginning of spring. d. loan in which there is a record of consistent and timely payments made on the loan. |
d. loan in which there is a record of consistent and timely payments made on the loan. (A seasoned loan has a consistent history of loan repayment. An investor may feel more inclined to purchase a seasoned loan as they are confident the borrower will continue to make the required payments.) |
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When a dual agency relationship is established in a targeted sales transaction, the broker and their agents may not pass on any information from one party to the other relating to: a. the price the buyer may be willing to pay. b. the terms of payment the seller may be willing to accept. c. confidential financial information of the parties. d. All of the above. |
d. All of the above. (Under a dual agency, the agent may not express any information from one party to the other regarding the price the buyer may be willing to pay, the terms of payment the seller may be willing to accept, or confidential financial information of either party.) |
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Which of the following contracts must be in writing in order to be enforceable? a. An agreement by a buyer to assume an existing loan secured by a deed of trust. b. An agreement which is not to be performed within one year of being entered into. c. A listing to lease real property for one year. d. Both a. and b. |
d. Both a. and b. (This is very similar to Question 1. A slight derivation on another question will likely exist on the state exam.) |
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Surplus utility is an example of: a. substitution. b. contribution. c. functional obsolescence. d. economic obsolescence. |
c. functional obsolescence. (Surplus utility is an example of functional obsolescence. Functional obsolescence is created by items on the property that are either outdated or over-improved. Economic obsolescence refers to conditions off the property. The other alternative choices are principles of value.) |
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Which of the following is least likely to be a benefit of using Federal Housing Administration (FHA)-insured financing? a. A low down payment. b. Minimum property requirements. c. A long loan term which yields lower monthly payments. d. Title does not transfer until the loan is fully repaid. |
d. Title does not transfer until the loan is fully repaid. (The benefits of a federal housing administration (FHA)-insured loan includes a lower down payment requirement, lower monthly payments, and minimum building standards.) |
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A real estate agent may represent all principals in a transaction if: a. they have obtained the consent of all parties to this dual agency relationship. b. they have informed all principals that they are the agent for each principal. c. they are collecting a commission from each principal with the knowledge of the other party. d. All of the above. |
d. All of the above. (In order to properly be a dual agent, the dual agency status needs to be disclosed as soon as possible and all parties must consent.) |
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Which of the following does not create an agency relationship? a. Implication. b. Ratification. c. Express agreement. d. Coercion. |
d. Coercion. (Agency cannot be created through coercion. This question presents a good opportunity to recognize the different ways agency is created.) |
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To establish title by adverse possession, an occupant must show: a. they have occupied the property in a way which constitutes no notice to the record owner. b. their occupancy is consistent with the owner's title. c. they have been in possession of the property for a continuous and uninterrupted period of at least two years. d. they have paid all taxes assessed against the property during their occupancy. |
d. they have paid all taxes assessed against the property during their occupancy. (Only answer choice D fits the requirements for adverse possession. The period of possession must be at least five years, not two. This is why answer choice C is incorrect.) |
