2022 California Real Estate Exam Multiple Choice Questions & Answers (Test Bank)

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2022 California Real Estate Exam Multiple Choice Questions & Answers (Test Bank) An appraiser's definition of "Value" would be: a. present worth of all rights to future benefits arising out ... of ownership. b. the ability of one commodity to command other commodities in exchange. c. relationship between the thing desired and the potential purchaser. d. all of the above. - ✔✔d. all of the above. These are elements of value. Which of the following abbreviations is associated with the FHA? a. NAR b. CPM c. MIP/MMI d. MBA - ✔✔c. MIP/MMI MIP - Mortgage Insurance Premium/Mutual Mortgage Insurance. An investor group recently sold a parcel of land for $217,500, which was 45% more than they paid for it. The land is described as follows: N½ of the NW¼ of the SE¼ of Section 13 plus the W½ of the NE¼ of Section 13. What was the original price they paid per acre for the property? a. $1,500 b. $1,200 c. $1,000 d. $750 - ✔✔a. $1,500 $217,500 ÷ 145% (1.45) = $150,000 original price Acreage: N½ of the NW¼ of the SE¼ = 20 acres W½ of the NE¼ = 80 acres Therefore, price per acre = $150,000 ÷ 100 = $1,500. Which of the following is NOT a lien? a. Encumbrance b. Homestead c. Zoning d. All of the above - ✔✔d. All of the above A lien is a charge against property, whereby the property is made security for payment of the debt, i.e., attachment. A property sells for $121,000. The purchaser gives $10,000 down payment, agrees to place an additional $5,000 down, and ta ke over an existing VA first loan of $100,000, with the remainder to be in the form of a 2nd note and trust deed. For these cond itions, how much would the documentary tax stamps be? a. $1.10 b. $5.50 c. $133.10 d. $23.10 - ✔✔d. $23.10 Do NOT pay on old existing loan being taken over. Therefore, ($121,000 - 100,000) ÷ 1,000 x ($1.10) = 21.0 x $1.10 = $23.10. If an appraiser were called upon to evaluate a public building, which had unique and distinctive architecture, he would employ which of the following methods of valuation? a. Replacement (cost approach) b. Comparison c. Capitalization d. None of the above - ✔✔a. Replacement (cost approach) Since there is no income for capitalization and no means for comparing sales, replacement cost is the only approach available. The members of the National Association of Real Estate Brokers are called: a. Realtors®. b. Consolidated Brokers. c. Realtists. d. None of the above. - ✔✔c. Realtists. If the taxes on a newly acquired property will amount to 1.25% of the purchase price, what will the first installment (6 months) bill for a home costing $125,500 be? a. $765.35 b. $742.51 c. $784.38 d. $795.97 - ✔✔c. $784.38 $125,500 x (.0125) ÷ 2 = $784.38. The best source for establishing the age of a home would be the: a. county tax assessor. b. building and safety department. c. county recorder's office. d. either a or b. - ✔✔a. county tax assessor. The county tax assessor is the best source for establishing the age of a home. "Gross multiplier" is used to determine value of certain types of income properties. It is determined by: a. dividing the gross rental income by the appraised value. b. multiplying the market price by the capitalization rate. c. dividing the sales price by the gross monthly rental. d. multiplying the gross monthly rental by a reasonable cap rate. - ✔✔c. dividing the sales price by the gross monthly rental. Gross Rent Multiplier is a rough, quick way of converting gross rent into market value. Which of the following could be used with a purchaser without the immediate involvement of a title change? a. Grant deed b. Land contract c. Quit claim deed d. Warranty deed - ✔✔b. Land contract The land contract does not pass title until some later time, whereby the buyer (vendee) has performed certain requirements (i.e., accumulate a minimum amount of equity for down payment); title in the meantime remains with the seller (vendor). It is preferable to use the replacement cost method of appraisal on new buildings, as opposed to old buildings, because: a. it is easier to estimate depreciation. b. values of land change. c. it is difficult to estimate historical values. d. local codes are changed from time to time. - ✔✔a. it is easier to estimate depreciation. As the age of the improvements on a property increases, it becomes more difficult to forecast the allowable depreciation. The following are essential to the creation of an "agency" relationship, except: a. parties are competent. b. agreement to pay consideration. c. agreement between principal and agent. d. fiduciary relationship. - ✔✔b. agreement to pay consideration. "Gratuitous agent" would not necessitate consideration. SHE owns a single-family residence in which SHE lives. SHE trades HE for another residence which HE is renting to a tenant. Both parties intend to use their newly acquired properties for rental income. Which of the following is true? a. SHE can negotiate a tax-free (deferred) exchange. b. HE can negotiate a tax free (deferred) exchange. c. Both parties can negotiate tax-free exchanges. d. Neither can negotiate a tax-free exchange. - ✔✔b. HE can negotiate a tax free (deferred) exchange. HE is exchanging income property for the same—like-for-like; SHE is not. Examination of the records indicate there are conflicts between the local zoning restrictions and private restrictions contained within the deed that conveyed the property. Which of the following statements is true? a. The deed restrictions would prevail. b. The zoning restrictions would prevail. c. Since they are in conflict, the earlier restriction would prevail. d. The more restrictive of the two (deed vs. zoning) requirements would prevail. - ✔✔d. The more restrictive of the two (deed vs. zoning) requirements would prevail. The more restrictive of conflicting zoning restrictions would prevail. Three general partners borrowed money and agreed to be liable for the repayment, either individually or collectively. They signed the security instrument: a. jointly. b. singularly. c. jointly and collectively. d. jointly and severally. - ✔✔d. jointly and severally. They are jointly (collectively) and severally (individually) responsible. When all expenses, including taxes and insurance, are paid by the lessee along with a new amount of "rent" as agreed upon to the landlord, this is referred to as a: a. gross lease. b. net lease. c. percentage lease. d. sandwich lease. - ✔✔b. net lease. Net lease. Lessor receives a net amount for lease payment, lessee pays for expenses; property taxes, fire insurance, and operating expenses. A lending institution hires an appraiser to evaluate a property for loan purposes. Select one of the following factors which would have the greatest influence on her appraisal. a. The type of neighborhood surrounding the property b. The size of the loan c. The credit rating of the loan applicant d. None of the foregoing - ✔✔a. The type of neighborhood surrounding the property The appraiser would have a basic interest in the kind of neighborhood and its resulting effect on market value. The other items in the question would be a matter of concern only to the lender. On FHA and VA loans, the lender is allowed to charge the borrower a fee (percentage of the loan) as an initial service fee. This is generally referred to as a(n): a. subordination fee. b. accommodation fee. c. acceleration fee. d. origination fee. - ✔✔d. origination fee. In which of the following would you use a "package mortgage"? a. When covering more than one parcel of land in a subdivision. b. When encumbering real property and using personal property as additional collateral. c. When securing additional financing from the lender at a later date without rewriting the original loan. d. None of the above. - ✔✔b. When encumbering real property and using personal property as additional collateral. A loan that is secured by the basic lot and improvement, plus fixtures attached to the home (appliances, carpeting, drapes, air conditioning, and other kinds of personal property). The primary purpose of the Federal National Mortgage Association (FNMA) is to: a. provide large sums of money for the building industry. b. finance the construction of low cost residential housing. c. lend money in the residential marketplace lower than normal interest rates for lower income families. d. Expand available home loan funds by buying and selling VA, FHA, and conventional loans in the secondary money market. - ✔✔d. Expand available home loan funds by buying and selling VA, FHA, and conventional loans in the secondary money market. For a straight-line schedule of depreciation: a. earlier years receive more weight. b. later years receive more weight. c. each year receives equal weight. d. none of the above. - ✔✔c. each year receives equal weight. For straight-line, the value is divided by the number of years over which depreciation is run—the same amount for each year. For "accelerated" methods, allow greater amounts of depreciation for the earlier years, and less for the later years A lender with vast funds for investment, who prefers larger loans without collection responsibilities, would most likely be a(n): a. commercial bank. b. insurance company. c. private lender. d. savings bank. - ✔✔b. insurance company. One particular appraisal method would be more detailed and accurate than others. Which would it be? a. Unit of cubic foot method b. Unit of square foot method c. Unit cost in place d. Quantity survey - ✔✔d. Quantity survey The quantity survey is used by contractors in calculating the cost of construction of improvements. It is rarely used by appraisers because costly details are not necessary for most of their evaluations. To "rescind" is the same as to: a. revise. b. transfer. c. resale. d. revoke. - ✔✔d. revoke. To revoke, or take away a license. (The Real Estate Commissioner has this power.) The legal purpose of police power is to: a. keep all types of commercial property out of residential neighborhoods. b. keep the land in every area as similar as possible. c. preserve or protect public health, safety, morals, or general welfare. d. none of the above. - ✔✔c. preserve or protect public health, safety, morals, or general welfare. On which of the following dates do California real property taxes become a lien on the subject property? a. December 10 b. April 10 c. July 1 d. January 1 - ✔✔d. January 1 On January 1 of the preceding the tax year, the lien is placed on the property. December and April dates above are dates taxes become delinquent for their respective periods, and July 1 is the beginning of the tax year. In the development of a subdivision of single-family homes, which of the following would be the least economical? a. Cul-de-sacs b. Long blocks c. Right angle (90%) intersections into major streets d. Short blocks - ✔✔d. Short blocks With more streets, there's more cost and less land for homes. Capitalization is a process by which an appraiser: a. converts income into value. b. determines depreciation. c. establishes cost. d. finds gross income. - ✔✔a. converts income into value. When he ascertains the true net income for investment, an appraiser uses the "capitalization approach" to estimate value. Net income is determined by an appraiser using which one of the following? a. Real property taxes b. Capital additions c. Depreciation reserves d. Mortgage amortization and interest - ✔✔a. Real property taxes Real property taxes are considered as a fixed expense. Appraisers use them as deductions in computing net income. The other items are not in this category. Three of the following are closely related. Which one is NOT? a. Judgment b. Claim c. Real estate taxes d. Easement - ✔✔b. Claim Claim is associated with insurance, whereby the others are types of encumbrances. Financial enhancement, as compared to comfort and safety when purchasing a home, is generally considered: a. absolute. b. primary. c. secondary. d. none of the above. - ✔✔c. secondary. A true disadvantage of owning real property would be the lack of liquidity. Of the following, which would provide the greatest amount of liquidity to such an investment? a. Amortization b. Leaseback c. Leverage d. Syndication - ✔✔d. Syndication A syndication participant would be able to convert property interests into cash, without having to sell the property. For a "blanket encumbrance," the typical release clause requires the debtor to pay more to the lender than each released property is worth because: a. better lots are sold first. b. compensates for unsold lots. c. lender desires to increase security on overall loan. d. all of the above. - ✔✔d. all of the above. A fire station building and a small appliance sales and repair store were recently leased on long-term leases at the same lease payment. Between the two, the fire station building would probably have a stable capitalization rate, which would be: a. higher. b. lower. c. same as. d. varying; sometimes higher, sometimes lower than the other property. - ✔✔b. lower. Since the lessee of the fire station building would be the government, classified as a more stable tenant, the owner would probably be willing to accept a lower return on investment. In determining the value of a property, an appraiser would use the: a. cost approach. b. market approach. c. income approach. d. any or all of the above. - ✔✔d. any or all of the above. Appraisers use all three approaches to determine value. "Domicile" most frequently means: a. semi-circled ceiling. b. relationship of parties. c. home or residence. d. none of above. - ✔✔c. home or residence. An investor who owned a 16-unit apartment complex has evaluated a newly installed freeway near his property, which has caused a decrease in monthly rent in the amount of $320. When an 11% "cap rate" for the area is applied, what is the resulting loss in value he has experienced due to the freeway? a. $45,000 b. $40,908 c. $34,909 d. $32,468 - ✔✔c. $34,909 Which of the following represents an essential part of a valid grant deed? a. Acknowledgment and recordation b. Offer and acceptance c. Parties capable of contracting d. Parties properly described - ✔✔d. Parties properly described The five essential elements of a valid deed are: (1) In writing; (2) Parties properly described; (3) Adequate property description; (4) Operative words (granting); (5) Signed by Grantor. In contracting, if one of the parties enters the agreement under duress, the contract would be: a. valid. b. voidable. c. void. d. Illegal. - ✔✔b. voidable. Until proved either valid or void, it is voidable. Under a real property sales contract, Buyer "A" makes a $2,000 down payment to Seller "B" on a property he had been renting. The agreement is filed with the county recorder. Subsequently, "A" moves to Florida, without making any further payments, and with no notice of his intentions being made to "B." Which of the following would be true? a. Seller could resell the property and obtain a deficiency judgment against "A." b. New buyer should not be concerned about the previous sales to "A." c. "A's" activity has no effect upon the marketability of the property. d. There would be a cloud on the title to the property. - ✔✔d. There would be a cloud on the title to the property. Seller "B" would need a quitclaim deed from "A," or would need to seek a "quiet title action" in court to clear the cloud on his title so he could sell the property to another. Appraisal fees: a. may vary. b. are always a fixed amount. c. are based on a percentage of the appraised value. d. are set by the loan broker. - ✔✔a. may vary. An appraiser's fee is set by the difficulty of the work and by the level of expertise required to complete the work. Percentage fees are illegal. An unlawful detainer action may be filed by a landlord in all but one of the following. Which is it? a. Tenant holds over after termination of lease. b. Tenant fails to pay rent. c. Tenant exercises lease option agreement, but fails to make payment as required. d. Tenant breaches lease by permitting nuisance on the property. - ✔✔c. Tenant exercises lease option agreement, but fails to make payment as required. By process of elimination, this is the exception. The others are three of five lawful situations for exercising this action, the others being: (4) failure to perform any lease covenant, and (5) failure to give up possession when he had previously given written notice of intention to do so. All the following statements are incorrect, except: a. a real property security can be created from a note on a home not located in any subdivision. b. real property securities are always secured by installment sales contracts. c. real property securities and real property sales contracts are interchangeable terms. d. out-of-state subdivisions offered in California for sale need not comply with Article 6 of the California Real Estate Law. - ✔✔a. a real property security can be created from a note on a home not located in any subdivision. All that is necessary would be the "guarantee" against loss, or a specific minimum yield, made by the selling broker. Which of the following properties could be purchased using FHA financing, but NOT VA financing? The purchase of: a. a business. b. a farm. c. farm equipment. d. income property/property to be rented to a tenant. - ✔✔d. income property/property to be rented to a tenant. VA requires the veteran purchaser must "move into" the property being purchased as personal residence. The purchase of "units" (4 maximum) is allowed, if the veteran will be residing in one of the units. An owner acquires title to additional land on his river-front property when the river shifts its course. This is acquiring by: a. acclamation. b. accession. c. abstraction. d. alienation. - ✔✔b. accession. Accession - addition to property through efforts of man or by natural forces. Accretion - Accession to property through natural forces, for example, alluvium. Alluvium - Gradual increase of the earth on ocean front or bank of stream resulting from action of water. Past expenditures for residential improvements are called: a. costs. b. investments. c. price. d. value. - ✔✔a. costs. They have nothing to do with establishing value. The term "highest and best use," as the fundamental concept of value, is best defined as: a. that which produces the greatest net return on the investment over a given period of time. b. that which produces the highest gross income. c. that which complies with all laws and restrictions. d. that which makes the highest general contribution to the community. - ✔✔a. that which produces the greatest net return on the investment over a given period of time. Appraisers always consider the highest net income as the basis for the highest value. A home sold for $150,000 on which the seller was to pay a 6% brokerage fee. Additional costs were: 2% prepayment penalty on existing loan balance of $102,800, escrow fees of $210, new loan discount fee of $534. The seller's cost of sale will be what percent of gross equity? a. 20.5% b. 25% c. 23.4% d. 228% - ✔✔b. 25% Commission = $150,000 x 6% = 50,000 x .06 = $9,000 Escrow Fees = 210 New Loan Discount Fee = 534 Prepayment Penalty = 2% x $102,800 = 2,056 Total Seller Costs = $11,800 Equity = Sale Price minus 1st loan = $150,000 - $102,800 = $47,200 Costs as "%" of Equity = $11,800 ÷ 47,200 x (100) = 25% To whom is the Mortgage Insurance Premium (MIP) on a VA loan paid? a. The broker b. The mortgage company c. The Veterans Administration d. To no one - ✔✔d. To no one FHA has the requirement for such a premium, not the VA. Which of the following would NOT be considered a "fiduciary" relationship? a. Agent to seller b. Attorney-in-fact to principal c. Attorney to client d. Trustor to beneficiary - ✔✔d. Trustor to beneficiary Fiduciary relationship involves "trust and confidence." This is NOT required between trustor (borrower) and beneficiary (lender). Under which of the following types of financing is a buyer required to purchase term life insurance? a. Cal-Vet b. Conventional c. FHA d. VA - ✔✔a. Cal-Vet The State of California is the beneficiary. If land was selling for $10,000 per acre, what would the following parcel sell for? The SE¼ of the SE¼ of the SE¼ of Sec. 4 a nd the S½ of the SW¼ of the SW¼ of Sec. 3 and the N½ of the NE ¼ of the NE¼ of the NE¼ of Sec. 9 and the N½ of the N½ of the NW¼ of the NW¼ of Sec. 10. a. $400,000 b. $425,000 c. $450,000 d. $500,000 - ✔✔c. $450,000 Sec. 4: SE¼ of SE¼ of SE¼ = 1/4 x 1/4 x 1/4 x 640 acres = 10 Sec. 3: S½ of SW¼ of SW¼ = 1/2 x 1/4 x 1/4 x 640 acres = 20 Sec. 9: N½ of NE¼ of NE¼ of NE¼ = 1/2 x 1/4 x 1/4 x 1/4 x 640 acres = 5 Sec. 10: N½ of N½ of NW¼ of NW¼ = 1/2 x 1/2 x 1/4 x 1/4 x 640 acres = 10 Total Acreage = 45 acres Price (total) = $10,000 x 45 acres = $450,000 The cost of an improved parcel of real property would probably be equal to its value in which of the following instances? a. Highest and best use of the parcel. b. The parcel as a new piece of property. c. When a and b are both present. d. None of the foregoing. - ✔✔c. When a and b are both present. A new piece of property would offer the best possibility of equality for cost and value. Determination of the highest and best use of a parcel would probably justify the cost of additional improvements, with the expectation of creating a profit. An "agreement in a deed" would best match up with: a. option. b. prescription. c. covenant. d. subrogation. - ✔✔c. covenant. Which of the following would constitute a proper delivery of a deed? a. Escrow mailing the deed to the Grantee after signed by seller, and after all other requirements of the escrow had been met, but also after the seller had died. b. After signing, seller gave to broker with instructions to give it to buyer. c. Escrow delivers deed to buyer without completed (signed) instructions. d. After signing the deed, Grantee personally delivers to Grantor. - ✔✔a. Escrow mailing the deed to the Grantee after signed by seller, and after all other requirements of the escrow had been met, but also after the seller had died. Death does not automatically terminate contract. If it can be proved that the seller intended to deliver to the buyer upon completion of requirements of escrow, it would be a valid delivery. For an appraisal being conducted on a residence built in 1910, which of the following would an appraiser use? a. Original cost of construction b. Original cost of materials multiplied by the change in the cost of living index since 1910 c. Today's cost of reproduction less depreciation d. None of the above - ✔✔c. Today's cost of reproduction less depreciation This is the replacement cost method (cost approach). In residential real estate lending, when lenders "soften" their requirements to allow less than qualified buyers to "qualify, ": a. overall financing costs tend to remain the same. b. overall financing costs tend to decrease. c. overall financing costs tend to increase. d. overall financing costs are not affected. - ✔✔c. overall financing costs tend to increase. When borrowers with lower incomes and weaker credit ratings are allowed to borrow, the lender must cover the increased "risk." Thus, the overall increase in costs of borrowing. The best hedge against inflation would be: a. equity assets. b. government bonds. c. mortgages/loans. d. savings accounts. - ✔✔a. equity assets. A fine example of an "equity asset" is a single-family residence, which during an inflationary market condition, has a value that tends to follow the inflationary trends. All of the following are methods for estimating accrued depreciation, except the: a. engineering method. b. market analysis method. c. economic method. d. cost of reproduction method. - ✔✔c. economic method. There are five recognized methods for measuring past, or accrued, depreciation: 1. The breakdown method 2. The engineering method 3. The straight-line method 4. The market method 5. The capitalized income method The economic method is not included in this category. A homestead offers NO protection against which of the following filed prior to the filing of the homestead? a. Real property taxes b. Mechanic's liens c. Prior recorded liens d. All of the above - ✔✔d. All of the above An owner has been found guilty of discrimination under the Health and Safety Code. What action can the aggrieved party take? a. May purchase the property in question, if still available b. May purchase another like property, if the original property is not available c. May be awarded $500 in damages if neither a nor b available d. All of the above - ✔✔d. All of the above In appraising a residential property, the appraiser must consider the forces currently influencing the neighborhood. Boundaries of such a neighborhood are best established by: a. geographical situation. b. social composition. c. street pattern. d. traffic flow. - ✔✔b. social composition. Theory: most people with mutual interest and desires usually group together in a given area (forming a neighborhood), creating market influences. All of the following instruments are used to convey an interest in real property, except: a. agreement of sale. b. bill of sale. c. deed. d. lease. - ✔✔b. bill of sale. A bill of sale is used to convey title to personal property, NOT real property. The recording of which of the following creates a lien? a. Attachment b. Easement c. Notice of nonresponsibility d. Restriction - ✔✔a. Attachment Attachment is an "involuntary lien." All of the following are methods for appraising unimproved real property, except the: a. development method. b. abstractive method. c. market data method. d. reproduction method. - ✔✔d. reproduction method. There is NO structure to reproduce on unimproved property. Therefore, the reproduction method is not applicable. Real estate brokers and salespeople are authorized to engage in listing and selling certain manufactured homes which have been registered with the Department of Housing and Community Development for a minimum of: a. 18 months. b. 6 months. c. 1 year. d. 2 years. - ✔✔c. 1 year. No minimum time limit if manufactured home has been converted into real property. An apartment owner desires to carpet his units. The area to be covered is 60% of the total 15,000 sq. ft. living space in the building. If the total cost of the carpet (including installation) is $14 per sq. yd., what will be the owner's total expenditure? a. $12,000 b. $14,000 c. $16,000 d. $18,000 - ✔✔b. $14,000 Area to be carpeted (yds) = 15,000 x 60% ÷ 9 sq. ft/sq yd = 15,000 x (.60) ÷ 9 = 1,000 Total cost = area x $14 = 1,000 sq. yds x 14 = $14,000. Involving the sale of a property, which of the following would be exempt from the "discrimination and unlawful acts" of the Health and Safety Code? a. Duplex financed by VA loan. b. Single family, owner-occupied residence financed by FHA. c. Single family, owner-occupied residence unencumbered. d. Twenty unit apartment financed by a conventional loan. - ✔✔d. Twenty unit apartment financed by a conventional loan. Law applies to: (1) owner-occupied, publicly assisted (gov't. financing program) single family dwellings; (2) Publicly assisted apartment units (3 or more); (3) Privately financed apartments (5 or more); and (4) Public housing projects. Which of the following is NOT related to a "will"? a. Bequeath b. Bequest c. Devise d. None of the above - ✔✔d. None of the above Bequeath - to give, hand down, leave by will; Bequest - that which is given by terms of will; Devise - gift by will. An appraiser, engaged to appraise a single-family residence, took away an amount of value because of "functional obsolescence." To which of the following was he referring? a. Dry rot b. Poor neighborhood c. Single car garage d. Zoning - ✔✔c. Single car garage In today's world, this feature would be considered "outdated," or in other words, functionally obsolete. There are three methods normally used in the evaluation of real property. However, one of these might prove more effective and accurate than the others, depending on the type of property being appraised. For example, the comparison approach would be the most desirable choice in the appraisal of: a. so-called amenity properties. b. service properties. c. industrial properties. d. apartment properties. - ✔✔a. so-called amenity properties. Because of the appeal of amenities and of the effect of emotional factors related to single-family residences, the best basis for the analysis of current market value is by means of comparison. Occasionally a property owner will realize a taxable gain when his property is destroyed or taken through condemnation. This is known as: a. trading up. b. depreciation. c. owner's amenities. d. involuntary conversion. - ✔✔d. involuntary conversion. The conversion of real property to personal property (money). A member of the Institute of Real Estate Management would carry the designation: a. NAREM. b. MAI. c. CPM. d. PMA. - ✔✔c. CPM. CPM - Certified Property Manager. The others are: NAREM - National Association of Real Estate Managers; MAI - Member of Appraisal Institute; and PMA - Property Manager's Association. A corporation "seal" evidences the: a. authority of persons using the "seal." b. rights and privileges of recipient of document with "seal." c. proof of office of the presidency. d. none of above. - ✔✔a. authority of persons using the "seal." According to R.E.S.P.A., on applicable loans, a lender is required to furnish a copy of a Special Information Booklet (prescribed by Housing and Urban Development) together with a "Good Faith Estimate" of closing costs to every person from whom it receives (or for whom it prepares) a written application for a federally related loan, within: a. 3 business days. b. 12 business days. c. 15 business days. d. 21 business days. - ✔✔a. 3 business days. By delivery, or placing it in the mail within 3 days. Seller has paid the 1st half of the annual tax bill of $1,200. Buyer agrees to assume existing fire insurance policy, originally dated Oct. 1, 1986, with a three year premium of $900. Escrow to close on Mar. 1, 1988. What would be the net buyer proration for closing? a. $200 credit b. $275 debit c. $675 credit d. $475 debit - ✔✔b. $275 debit Taxes: $1,200 ÷ 12 = $100 per month. Seller owes buyer for 2 months = $100 x (2) = $200 credit buyer Insurance: $900 ÷ 36 = $25 per month. Buyer owes seller for 19 months unused premiums = $25 x (19) = $475 debit buyer Net = debit buyer ($475 - 200) = $275 debit buyer Two buildings, comparable in all respects, are leased to two different tenants, one the owner of a retail store, the other an agency of the federal government. How would the capitalization rates compare between the two buildings? a. The capitalization rate on the federal building would be higher. b. The capitalization rate on the federal building would be lower. c. The capitalization rate would be the same for each. d. The capitalization rate would be lower on the retail store. - ✔✔b. The capitalization rate on the federal building would be lower. A lease to a federal agency offers greater security to a lessor than does a lease on a retail store. This probably means that the lessor would accept a lower rental and lower income on the federal agency building. In turn, this indicates that the capitalization rate for the federal building would be lower and that it would be higher for the retail store. Since both buildings have equal size and value, these conclusions could be verified by the following computations: Assume the cost of both buildings at $200,000: the annual rental from the retail store at $12,000: from the federal building at $10,000: then: $12,000 ÷ $200,000 = .06, or 6% cap rate for the retail store. $10,000 ÷ $200,000 = .05, or 5% cap rate for the federal building. Which of the following statements will INCORRECTLY complete this phrase? A subdivider who is not a licensee of the DRE: a. may not sell or offer for sale any lots in a subdivision prior to issuance of the Commissioner's Public Report. b. may sell all lots in a subdivision himself. c. may make any improvements on the land prior to receiving the public report. d. may employ licensed real estate salespeople to sell lots in a subdivision. - ✔✔d. may employ licensed real estate salespeople to sell lots in a subdivision. Only a broker can hire or employ salespeople to sell real estate. The subdivider would have to employ a broker , who in turn would hire salespeople. An apartment house offered single garages. When a new unit was built nearby, offering double garages, the tenants all moved into the newer units. This is an example of: a. physical deterioration. b. economic obsolescence. c. social obsolescence. d. functional obsolescence. - ✔✔d. functional obsolescence. Refers to "outdated" condition. "Moral philosophy" best matches: a. ethnics. b. ethics. c. dedication. d. subordination. - ✔✔b. ethics. Which of the following would NOT be eligible for filing a mechanic's lien? a. Architect b. Handyman, if more than 75 days has elapsed since recording of notice of completion c. Subcontractor, if a notice of completion has been recorded within the past 29 days d. None of the above - ✔✔b. Handyman, if more than 75 days has elapsed since recording of notice of completion Following recordation of a notice of completion, a general contractor has 60 days to file; a subcontractor has 30 days . "b" has exceeded allowed time and therefore is ineligible to file. "c" must hurry, for he has only one day left. Which of the following lenders would NOT be approved (respectively) by VA or FHA? a. Federal bank b. Institutional lender c. Insurance company d. Private lender - ✔✔d. Private lender VA and FHA do NOT guarantee or insure loans made by private lenders. When real property is leased to various tenants, appraisers find it helpful to use a gross multiplier, which is founded upon: a. gross income as a function of capitalized value. b. rental value versus the selling price of the property. c. gross income versus estimated gross income. d. gross income as related to future net income. - ✔✔b. rental value versus the selling price of the property. Use of the gross multiplier implies a definite relationship between gross income and market value. A property offered for sale for $88,000 has been appraised for a new FHA loan at an appraised value of $87,500. How large a loan can be obtained if the FHA down payment is 3% of the first $25,000 of the appraised value plus 5% of the remainder of $25,000 ? a. $84,100 b. $83,625 c. $84,338 d. $84,125 - ✔✔b. $83,625 Loan calculation must use the APPRAISED value Appraised Value = $87,500 Down Payment Requirements: 3% x $25,000 = $750 5% x 62,500 = 3,125 Total Down Payment = $3,875 Sale Price - Down Payment = Loan = $87,500 - 3,875= $83,625 A personal, revocable, and unassignable permission of authority to do one or more acts on the land of another, without possessing any interest therein, is the definition of: a. license. b. easement. c. encroachment. d. option. - ✔✔a. license. Easement includes an "interest"; license just gives permission. The first and last months' rent payments were collected by the lessor, leasing a single family residence. The prepaid rents received would be reported on income tax: a. in year received totally. b. split between year received and year in which last month would occur. c. all in year which last month occurs. d. would not need to be reported because they were prepaid. - ✔✔a. in year received totally. Easement includes an "interest"; license just gives permission. Which of the following is NOT necessary in the formation of a contract? a. Acceptance b. Consideration c. Offer d. Performance - ✔✔d. would not need to be reported because they were prepaid. Performance comes after the contract is formed. The ratio of "physical deterioration" of a single-family residence, compared to its original replacement cost, would be greater in the initial 10 years for which of the following? a. Lower quality home b. Fair quality home c. Good quality home d. Excellent quality home - ✔✔a. Lower quality home Home built with poor quality materials and labor (workmanship) should require more maintenance and will deteriorate more rapidly. The highest annual operating expense of an apartment normally would be assigned to: a. utilities. b. general maintenance. c. management fees. d. property taxes. - ✔✔d. property taxes. Property taxes in recent years have shown steady increases, and are becoming a greater factor in overall operating expenses. Which of the following groups represent ALL specific liens? a. Lien for descendants' debts, vendor's lien b. Mechanics' liens, tax liens, assessment liens c. Federal income tax liens, attachments, state inheritance tax liens d. Corporate franchise tax liens, federal estate tax liens, judgment liens - ✔✔b. Mechanics' liens, tax liens, assessment liens All liens in this group are against one property. Regarding a "Blanket Trust Deed," which of the following statements is correct? a. It covers more than just one property. b. It usually contains a "release clause" providing for release of a particular parcel upon the repayment of a specified portion of the loan. c. It is typically used with a tract of homes built on speculation. d. All of the above. - ✔✔d. All of the above. All the statements describe a blanket encumbrance, or trust deed. The wording... "all monies paid on the property are to be held in trust until a release is obtained from the blanket encumbrance..." is required to protect the: a. holder of blanket encumbrance. b. broker. c. subdivider. d. purchaser. - ✔✔d. purchaser. This provision will assure the buyers that their money is safe, until such time the developer can get a release on the parcel of land involved with their purchase. Otherwise, without such "partial" release, no transfer of title could occur on various purchases until the encumbrance on the entire parcel developed was paid in full. Which of the following would NOT be included in an "eminent domain" situation? a. Condemnation proceedings b. Fair consideration c. For public good d. Zoning regulations - ✔✔d. Zoning regulations This provision will assure the buyers that their money is safe, until such time the developer can get a release on the parcel of land involved with their purchase. Otherwise, without such "partial" release, no transfer of title could occur on various purchase s until the encumbrance on the entire parcel developed was paid in full. A developer of a subdivision included a clause in each purchase agreement prohibiting signs offering individual properties for sale, until he had sold all the subdivision. Until developer completes sales of all parcels, which of the following is true? a. Buyers may put up any size sign to attract prospective buyers for resale. b. Buyers may put up reasonable size signs to attract prospective buyers for resale, for the original clause prohibiting signs would be unfair restraint and in violation of fair trade laws. c. Buyers cannot put up any signs, as it would be against the law. d. None of the above. - ✔✔b. Buyers may put up reasonable size signs to attract prospective buyers for resale, for the original clause prohibiting signs would be unfair restraint and in violation of fair trade laws. When computing the net income of an office building, an appraiser would consider, as a management expense, which of the following? a. Salary paid to a manager b. The owner acting as his own manager c. A tenant performing as manager in lieu of rental d. All of the foregoing - ✔✔d. All of the foregoing Calculation of net income for properties requires an assessment of management fees, regardless of the manner in which the service is performed. Which of the following would complete this (true) statement? Property is: a. real if movable. b. personal if a fixture. c. personal if not real. d. real if tangible. - ✔✔c. personal if not real. A person holding a judgment against a real estate broker seeking relief from the Recovery Fund could obtain a maximum of: a. $10,000. b. $15,000. c. $50,000. d. $250,000. - ✔✔c. $50,000. $50,000 per claimant, not to exceed that figure for all claimants in a single transaction. The $250,000 is the maximum for multiple transactions per one licensee. Abe owned two parcels of land, "A" and "B." Abe sold lot "A" to Bob who, before escrow closed, had the escrow officer change the deed to read lot "B." Escrow closed and documents were recorded. Bob then sold lot "B" to Chuck, who recorded his deed. Subsequently, Abe sold "B" to Daren, who recorded his deed. Who is the owner of lot "B"? a. Abe b. Bob c. Chuck d. Daren - ✔✔d. Daren Alteration (unilaterally) of the deed in escrow voided that deed. Therefore, no transfer to Bob of lot "B," and subsequently, none to Chuck, for Bob did not have title to that lot. Abe's transfer to Daren was valid. Title insurance involvement in these transactions would have saved a lot of trouble and headaches. The Uniform Commercial Code revised, combined, and replaced many statutes and laws, including: a. Uniform Conditional Sales Act. b. Uniform Negotiable Instruments Law. c. neither of the above. d. both a and b. - ✔✔d. both a and b. California Code passed in 1965. If not specified in escrow, what is the number of days normally allowed to close an escrow? a. 30 days b. 45 days c. 60 days d. A reasonable time - ✔✔d. A reasonable time There is NO standard time. Make certain that there is sufficient time allowed to accomplish the work to be done. As part of his determination of value by means of the cost approach, an appraiser would employ the market data approach to determine the: a. value of the land. b. value of the improvements on the land. c. integration of property values. d. comparable values of adjoining properties. - ✔✔a. value of the land. The market data approach is used by an appraiser to compare the selling prices of similar land sites in the area. When values, so found, are added to the costs of improvements, this procedure is called the cost approach, and the result is a total value estimate of both land and improvements. Broker A accepted a deposit from Buyer B with an offer on a property, and promptly deposited the Buyer's check into his Trust Account. Seller rejected the offer and Buyer demanded the deposit back—immediately. Broker wrote check to Buyer from Trust Account, but later learned that Buyer's original check had not cleared due to insufficient funds. Which of the following statements is correct? a. Broker violated Real Estate Law by refunding Buyer's deposit before receiving notice it had cleared. b. Broker has shortages in his Trust Account. c. Broker should have given Buyer a postdated check. d. All of the above. - ✔✔b. Broker has shortages in his Trust Account. This was poor judgment on the part of the broker One month interest payment on a straight note amounts to $180. At 9% per annum interest rate, what is the face amount of the note? a. $26,000 b. $20,000 c. $24,000 d. $27,000 - ✔✔c. $24,000 Annual Interest = $180 x 12 = $2,160. Interest amount divided by Rate = Principal Amount = $2,160 ÷ 9% = $24,000. The appraiser's primary measure of the efficiency of an office building plan is: a. elevator capacity. b. corridor widths. c. parking. d. ratio of net rentable area to gross area. - ✔✔d. ratio of net rentable area to gross area. If the "demand" for homes goes up and the "supply": a. diminishes, the values will decrease. b. remains the same, the values go down. c. remains the same, the values will increase. d. goes up, the values will go up. - ✔✔c. remains the same, the values will increase. Law of supply and demand: If there is high demand and low supply, then values will rise. Seller "ABLE" recently sold a property for $141,450, which was 15% more than he paid for it. He held the property for two years, during which time his interest expenses were 10% of his purchase price (5% per year). Taxes were $80 per $1,000 of assessed valuation, and the property was assessed at 25% of the original purchase price. Seller's ownership resulted in a net: a. $11,070 loss. b. $3,690 gain. c. $1,230 gain. d. none of the above. - ✔✔c. $1,230 gain. $141,450 ÷ 115% (1.15) = $123,000 Assessed Value = 25% x Purchase Price = (.25) x $123,000 = $30,750 Taxes = $80 x $30,750 ÷ 1000 = $80 x 30.75 = $2,460 x 2 yrs = $4,920 Interest Expense = 10% (.10) x $123,000 = $12,300 Gross Expenses = $4,920 + $12,300 = $17,220 Sale Price - Purchase Price = $141,450 - 123,000 = $18,450 Net Profit = $18,450 - 17,220 = $1,230 Gain A $2,000 down payment was made on a property, which was purchased for $20,000. The gross return on the purchase price was 9%. The only expense in the transaction was a 7% interest charge. The percentage return on this investment would be: a. 11% b. 13% c. 27% d. 8% - ✔✔c. 27% $20,000 x . 09 = $1,800 Gross return $18,000 x .07 = $1.26 Interest expense = Gross return - interest = net return = $1,800 - $1,260 = $540 net return. Net return divided by Investment = % return on investment $540 ÷ $2,000 = 27%. The resale of which of the following would NOT require a notice to the Department of Real Estate (DRE)? a. 2 units in a planned development b. 5 units in a condominium project c. 5 lots in a standard subdivision d. 5 units in a stock cooperative - ✔✔a. 2 units in a planned development The DRE requires a notice to be filled for the resale of 5 lots or more in a planned unit development (PUD) A licensed real estate broker, buying and selling many properties for himself, may have his profits taxed as: a. long-term capital gains. b. short-term capital gains. c. deferred capital gains. d. ordinary income. - ✔✔d. ordinary income. One who holds property "primarily for the sale to customers in the ordinary course of business" is considered a "dealer" and may have profits taxed as ordinary income. Advertising regulations of the Truth-in-Lending Law apply to all of the following, except: a. homeowner who is advertising his/her own home for purchase subject to the existing loan. b. homeowner advertising that loan may be assumed under certain terms. c. financing institution advertising to promote consumer credit. d. broker advertising a property with an annual percentage rate. - ✔✔a. homeowner who is advertising his/her own home for purchase subject to the existing loan. Regulation "Z" requires that those who "extend credit" must make certain disclosures. When taking a listing, what is the most important question to ask? a. Will you help finance the sale? b. What is your asking price? c. Why are you selling? d. What are your existing loans? - ✔✔c. Why are you selling? It is called "Motivation," and tells you how serious they are about selling. When using the cost approach to determine the value of land and improvements of a property, an appraiser would use: a. one approach to arrive at a value for both. b. one approach to arrive at a value for each. c. separate approaches to arrive at a value for each. d. none of the above. - ✔✔c. separate approaches to arrive at a value for each. Value of land - comparison approach; Value of improvements based on today's building costs. If a $52,500 loan was made on a property which was equivalent to 70% of the appraised value. What was the amount of the appraised value? a. $90,000 b. $80,000 c. $50,000 d. $75,000 - ✔✔d. $75,000 $52,500 ÷ .70 = $75,000 appraised value. A real estate broker lends his own money to Buyer to aid in purchasing a home. The note is for $4,000, and will be secured by a trust deed on the purchased property. The note interest rate is 12% per year, with monthly payments of $40. Final payoff will be on the 48th monthly payment. Which of the following is true? a. Broker holds legal title to property. b. Broker is in violation of usury. c. Final amount of payoff on the 48th month will be $4,040. d. None of the above. - ✔✔c. Final amount of payoff on the 48th month will be $4,040. Payments are "interest only," resulting in no principal reduction. The final month payment PLUS the $4,000 principal is due at that time. Which of these words does NOT belong with the others? a. Will b. Executor c. Sale d. Heir - ✔✔c. Sale a, b, and d relate to disposition of property after death. Regarding termination of estates in manufactured home parks, a tenant who has a tenancy in a manufactured home that cannot be legally moved without a permit, may not have the tenancy terminated without written notice of not less than: a. 30 days. b. 45 days. c. 60 days. d. 90 days. - ✔✔c. 60 days. Which of the following would come first? a. Hereditament b. Attachment c. Writ of Execution d. Judgment - ✔✔b. Attachment Attachment is the process whereby property is seized and retained in custody of court as security for satisfaction of judgment plaintiff "hopes" to obtain in pending litigation. Execution is the final act. Hereditament is property that is capable of being inherited. Which of the following is nearest to a synonym of "metes and bounds"? a. Angles and degrees b. Measures and perimeters c. Degree of perimeters d. Angles and measures - ✔✔d. Angles and measures "Metes" means distance or angles; "Bounds" means boundaries or measures. If the rent of commercial property increased well above the maintenance or servicing costs, the resulting situation would: a. not affect the vacancy rate. b. increase the effective gross income. c. increase the demand for space. d. increase the vacancy rate, and tenants would tend to conserve on space. - ✔✔d. increase the vacancy rate, and tenants would tend to conserve on space. When rent controls are not a factor, rental prices can become highly competitive. When established rent is too far above housing and servicing requirements, tenants tend to conserve on space, and the vacancy rate will increase. National Fair Housing principles are founded on: a. First Amendment to the Constitution. b. Unruh Act. c. 13th Amendment to the Constitution. d. Rumford Act. - ✔✔c. 13th Amendment to the Constitution. The 13th Amendment and Title 8 of the Civil Rights Act of 1968 both provide for fair housing on a national level. The county building inspector would not approve a site ready for construction on a new residence until a "percolation" test had been approved. The latter deals with: a. the water table. b. runoff drainage. c. the septic tank. d. none of the above. - ✔✔c. the septic tank. Deals with the ability of earth to filter liquids from the septic tank. An investor purchased a property, financing with a 75% loan-to-value ratio loan. Payments of interest only for the first 6 months was $6,000. Interest rate is 10%. What was the appraised value of the property? a. $170,000 b. $160,000 c. $150,000 d. $140,000 - ✔✔b. $160,000 Annual Interest = $6,000 x 2 = $12,000 Principal Amount = $12,000 ÷ 10% (.10) = $120,000 Appraisal Value = Loan divided by (LTV Ratio) = $120,000 ÷ 75% (.75) = $160,000 With which of the following would appraisers least likely use the "gross income" appraisal technique? a. Residential apartments b. Industrial c. Commercial d. Public buildings - ✔✔d. Public buildings Public buildings do not have "income production" capacities. A subordination clause written into a 1st trust deed would benefit the: a. trustee. b. trustor. c. beneficiary. d. lender. - ✔✔b. trustor. Allows the borrower to more easily obtain additional funds (i.e., for construction loan) with the new funds being secured by a new first trust deed, which moved ahead of the original first deed, which has now subordinated to the subsequent loan. A net lease may be said to have which of the following characteristics? a. It is a percentage of the profits. b. It does not benefit the lessor. c. It produces a net income for the lessor. d. The lessor pays for all variable expenses. - ✔✔c. It produces a net income for the lessor. A net lease provides a lessor with a fixed income, which is founded on an agreement requiring the lessee to pay all variable costs, such as insurance and property taxes. If Notification of Default was filed on July 15 and publication of sale was started on Oct. 15, the right of the Trustor after Oct. 15 is: a. pay the back payments and late charges and fees. b. pay the balance due, including all penalties and late charges. c. neither a nor b. d. either a or b. - ✔✔d. either a or b. The loan can be reinstated until 5 days before the auction. Demise deals with: a. transferability of an estate by lease or will. b. personal property left in a will. c. a "type" of will. d. none of the above. - ✔✔a. transferability of an estate by lease or will. Not to be confused with "devise," a gift of real property by will. An owner of a cooperative apartment project makes monthly payments which include principal, interest, taxes, and insurance. Which of the following statements is NOT correct? a. Tax collector will render a separate tax bill to each owner. b. Assessment bond costs will be divided among the owners. c. Owner may deduct the amount of property taxes paid on his income tax return. d. If other owners fail to make payments, all owners could lose their equities, for a foreclosure action could be taken against the (single) blanket type loan, unless delinquencies were brought current. - ✔✔a. Tax collector will render a separate tax bill to each owner. A stock cooperative receives one tax bill in the name of the corporation. If a broker decided to add to his real estate business and handle the sale of trust deeds, what other kind of license would he have to get? a. Loan broker's license b. Securities dealer's license c. Business opportunity license d. None of the above - ✔✔d. None of the above A broker's license is required. The other answers are nonexistent. For selling real property securities, a broker must obtain an "endorsement" to complement his broker's license. An appurtenant easement need NOT be mentioned in a deed since it: a. is hypothecated. b. is pledged. [Show More]

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