Quick Quiz 6

Question 1

A property that is referred to as “turn key” is
A) parcels on which the planning is complete and ready for building.
B) government-subsidized low-income housing projects.
C) an illegal ranch subdivision.
D) a contractor’s package that is complete and ready for occupancy.

Answer 1

D) a contractor’s package that is complete and ready for occupancy.

Question 2

Smith buys an apartment building for $100,000. He keeps it for 10 years and sells it for $100,000. He had depreciated the improvements $40,000 over his period of ownership. As to his income tax position
A) his gain may be deferred.
B) he has no recognized gain.
C) his gain is taxable as ordinary income.
D) he has to pay capital gains on the amount of the depreciation.

Answer 2

D) he has to pay capital gains on the amount of the depreciation.
Depreciation reduces the original cost basis, thereby increasing the difference between the selling price and the new (or “adjusted”) cost basis. That difference is a long-term capital gain on which the taxpayer will pay taxes. In this case, Smith’s gain equaled the depreciation taken.

Question 3

The most common listing agreement allows the broker to
A) guarantee the purchaser will accept.
B) find a purchaser, fill out the deposit receipt, obtain an offer, and present the offer.
C) find a purchaser, obtain an offer, and bind the principal to that offer.
D) convey title.

Answer 3

B) find a purchaser, fill out the deposit receipt, obtain an offer, and present the offer.
The broker does not have the authority to bind the principal to an offer. However, the broker may “obtain an offer” in order to “present it to the principal” for acceptance or rejection.

Question 4

In the absence of court approval, a minor or incompetent can
A) do all of these.
B) convey property through a guardian.
C) encumber real property through a power of attorney.
D) receive a deed to a property through gift or inheritance.

Answer 4

D) receive a deed to a property through gift or inheritance.
A minor can receive property through gift or inheritance, but because a minor is incapable of appointing an agent, such delegation of authority as appointing a power of attorney is void. Negotiating in real property with or for a minor is permitted through a court-appointed guardian (parents if living). Each transaction requires court approval.

Question 5

In California, estates at will are created by
A) either express agreement or operation of law.
B) operation of law.
C) a properly written and executed document.
D) express agreement.

Answer 5

B) operation of law.
Under common law, an estate at will is one that can be terminated at the will of either party without advance notice. The Civil Code of California, however, requires that any estate created by agreement except an estate for years requires advance notice to terminate. Therefore, an estate at will can be created only by operation of law in California.

Question 6

A lender, speaking of a loan in his portfolio, said it was “seasoned.” The lender was referring to the
A) pattern of payments of the trustor.
B) type of market in which the loan could be sold.
C) quarter of the fiscal year in which the loan was taken out.
D) maturity date of the loan.

Answer 6

A) pattern of payments of the trustor.

A seasoned loan is one that has been on the books for a time and the payment record of the borrower is a known quantity.

Question 7

All of these are exemptions from local real property taxes EXCEPT
A) senior citizens' tax exemption.
B) low-income homeowners' exemption.
C) veterans' exemption.
D) homeowners' exemption.

Answer 7

B) low-income homeowners’ exemption.
Under state law limited exemptions from local real property taxes for individuals who qualify are senior citizens (and blind and disabled persons), who may defer their taxes; Veterans, who receive $4,000 off assessed value; and homeowners, who receive $7,000 off assessed value.

Question 8

Discount points on financing under the California Farm and Home Purchase Act are paid by
A) the seller.
B) the state.
C) no one.
D) the buyer.

Answer 8

C) no one.

No discount points are charged on a Cal-Vet loan.

Question 9

Which of these are NOT liens?
A) Trust deeds
B) Private restrictions
C) Judgments
D) Taxes

Answer 9

B) Private restrictions
Restrictions on the use of property are encumbrances, but not liens. Taxes, trust deeds, and judgments are all examples of liens.

Question 10

Interest paid on original principal and also on the accrued and unpaid interest that has accumulated is
A) multiple interest.
B) compound interest.
C) simple interest.
D) accumulative interest.

Answer 10

B) compound interest.
Compound interest is interest paid on the original principal and also on the accrued and unpaid interest that has accumulated. Simple interest is interest paid on the unpaid principal balance only.

Question 11

A seller’s transfer disclosure statement provides that a broker
A) physically inspect inaccessible areas and report findings to the buyer.
B) visually inspect the property and advise of any pertinent information.
C) pay for the pest control inspections.
D) inspect condominium common areas.

Answer 11

B) visually inspect the property and advise of any pertinent information.

Question 12

Ms. Johnson owns two personal residences. If she sells one residence, under what circumstances could she defer her gain?
A) She could defer her gain only if the property sold was her principle residence.
B) She could defer her gain on the residence of greater value.
C) She must sell both residences to defer the gain.
D) She could defer her gain if she sold either residence.

Answer 12

A) She could defer her gain only if the property sold was her principle residence.

Question 13

All of these are secondary benefits of the Federal Housing Administration as established by the National Housing Act of 1934 EXCEPT
A) elimination of short-term financing.
B) establishment of improved building standards.
C) a loan amount appropriate for the borrower’s income.
D) mortgage guarantee insurance with low premiums to protect the borrower.

Answer 13

D) mortgage guarantee insurance with low premiums to protect the borrower.
FHA insurance is for the benefit of lenders, not borrowers. A loan amount appropriate for the borrower’s income, elimination of short-term financing, and establishment of improved building standards are all advantages developed by the FHA plan.

Question 14

An agency contract can be created by all of these EXCEPT
A) appointment by the principal.
B) a voluntary offer by the agent.
C) an oral contract.
D) an implied contract in law.

Answer 14

B) a voluntary offer by the agent.
An offer is not a contract; it is an expression of willingness to enter into a contract. While the existence of agency is a question of fact and is not dependent on the existence of a contract, this question asks about an agency contract. A voluntary offer by the agent would not create an agency contract; the offer would have to be accepted in order for a contract to be created.

Question 15

A tenant would be justified in abandoning a property in all of these situations EXCEPT when
A) excessive or unwarranted changes or alterations in the property are made by the landlord.
B) dilapidated conditions are created by the tenant.
C) property is taken by eminent domain or condemnation.
D) the landlord threatens expulsion.

Answer 15

B) dilapidated conditions are created by the tenant.

Question 16

A mortgage loan is identified as
A) any recorded instrument related to financial transfer.
B) a promissory note.
C) a loan collateralized by real property.
D) an unsecured note.

Answer 16

C) a loan collateralized by real property.
Collateral is marketable real or personal property that a borrower pledges as security for a loan. Thus, a mortgage loan is a loan collateralized by real property.

Question 17

A deed made and delivered, but not recorded, is
A) valid as between the parties and invalid as to subsequent recorded interests without notice.
B) valid as between the parties and valid as to subsequent recorded interests.
C) invalid as between the parties and valid as to third parties with constructive notice.
D) invalid as between the parties.

Answer 17

A) valid as between the parties and invalid as to subsequent recorded interests without notice.
Recording a deed gives constructive notice to the world of the contents of the deed. The recording laws were enacted to protect innocent third parties. In this instance, the grantee did not record the deed; therefore, he or she cannot expect the courts to protect the title against third parties or subsequent recorded interests that have no knowledge of the document. The deed itself is valid between the grantor and the grantee, but invalid as against an innocent purchaser without notice.

Question 18

An individual is employed by a lending institution to procure first deed of trust loans and is compensated on a commission basis by the lending institution for each loan he procures. This requires
A) an active real estate broker’s license.
B) a $5,000 surety bond.
C) none of these.
D) a real property securities dealer license.

Answer 18

C) none of these.
Any person or employee doing business under any law of this state, or any other state relating to banks, trust companies, savings and loan associations, industrial loan companies, pension trusts, credit unions, or insurance companies are not required to have a license.

Question 19

There are several reasons why a contract can be voidable. However, a voidable contract is binding on the parties until it is
A) qualified.
B) discovered.
C) rescinded.
D) invalidated.

Answer 19

C) rescinded.

Voidable means the contract is binding until some action is taken to rescind the contract.

Question 20

A lessor is renting a furnished apartment from period to period. Under the Fair Housing Act, the lessor may do all of these things EXCEPT
A) check with former landlords for references.
B) require only single tenants to have a co-signor for the lease.
C) obtain credit checks on married couples.
D) collect the first, second, and last month’s rent.

Answer 20

B) require only single tenants to have a co-signor for the lease.
A lessor may not discriminate based on marital status as would be the case in requiring a single tenant to have a co-signor.

Question 21

Wall studs are placed on and secured to
A) joists.
B) girders.
C) subflooring.
D) sole plates.

Answer 21

D) sole plates.

A sole plate is a member (piece of lumber), usually a 2 × 4, on which wall and partition studs rest.

Question 22

Which expense on a personal residence may be deducted from ordinary income for tax purposes?
A) Property taxes and mortgage interest
B) Wear and tear
C) Depreciation
D) General upkeep

Answer 22

A) Property taxes and mortgage interest
For income tax purposes, property taxes and mortgage interest on a personal residence are deductible from ordinary income. Depreciation, upkeep, and wear and tear are not allowable deductions on a personal residence.

Question 23

For federal income tax purposes, a taxpayer could adjust the cost basis of the personal residence on income tax records for which of the following items?
A) The addition of a concrete patio
B) Fire insurance premiums paid
C) Interest on a loan
D) Depreciation

Answer 23

A) The addition of a concrete patio

Cost basis is the same as tax basis. The addition of a capital improvement would constitute an increase to cost basis.

Question 24

With respect to easements appurtenant, which statement is correct?
A) If the grantor conveys title to property, the easement passes automatically with the land.
B) The dominant tenement is the land burdened and benefited by the easement.
C) An easement always gives the rights of ingress and egress.
D) All encumbrances are liens but all liens are not encumbrances.

Answer 24

A) If the grantor conveys title to property, the easement passes automatically with the land.
Easements pass automatically upon transfer of the dominant tenement. The first statement is incorrect, as the dominant tenement is benefited, not burdened, by the easement. The second statement is incorrect, as an easement can include, besides rights-of-way, the right of receiving air, light, or heat; the right of using a wall as a party wall; or the right of flooding land, among other things. The third statement is incorrect, as an easement is an encumbrance but not a lien.

Question 25

Smith owns an older apartment building and is considering the merits of an expensive remodeling plan. The deciding factor that would be instrumental on his final decision would be the
A) potential increases in the real property taxes.
B) effect of the plan on the net income.
C) wishes of the tenants.
D) cost of the plan.

Answer 25

B) effect of the plan on the net income.
The owner would apply the principle of contribution. He must be sure that the investment in the improvements will produce sufficient additional income to cover the expenditure. If the net income increases adequately, he should go ahead with the plan.

Question 26

A conduit in a new building would be installed by a(n)
A) carpenter.
B) electrician.
C) plumber.
D) roofer.

Answer 26

B) electrician.

Question 27

Some contracts are printed and some contracts are handwritten. Most contracts are a combination of printed and handwritten material. If litigation arose over this kind of contract, which statement would be TRUE?
A) Written material copied from printed material takes precedence over other written portions.
B) The handwritten part takes precedence.
C) The printed part takes precedence.
D) Each is given equal consideration and evaluated on its own merits.

Answer 27

B) The handwritten part takes precedence.
Handwriting takes precedence over printing. The handwritten part would indicate the portions of the printed contract that they wanted to change or emphasize. The parties may accidentally have overlooked printed matter and failed to strike it out.

Question 28

In qualifying a borrower for an FHA loan the lender would be most interested in
A) ethnic background of the borrower.
B) marital status of the borrower.
C) credit characteristics of the borrower.
D) purchase price of the property.

Answer 28

C) credit characteristics of the borrower.
Many lenders have established standards to evaluate a borrower’s ability to repay. These standards are usually tied to the borrower’s income. In addition to the ability to pay, the question of willingness to pay is a central point in credit analysis.

Question 29

In California, the abstract of title has ultimately been replaced by the
A) certificate of title.
B) title guarantee.
C) policy of title insurance.
D) trust deed.

Answer 29

C) policy of title insurance.
Title insurance companies evolved from abstract companies, which first issued “abstracts of title.” The industry was eventually regulated by the insurance commissioner and the best protection is now afforded by means of the title insurance policy which insures against both “off-record” and “on-record” risks.

Question 30

Mr. Newton owned a six-unit dental building and lot valued at $225,000. The adjusted cost basis was $185,000 and the property was mortgaged for $137,000. He exchanged with the owner of a store building valued at $198,000 with a $125,000 mortgage. Newton also received $25,000 cash boot. What is Newton's actual and taxable gain?
A) $78,000-$54,000
B) $50,000-$13,000
C) $73,000-$43,000
D) $50,000-$37,000

Answer 30

D) $50,000-$37,000
(1) Newton’s Dental Building Store Building
$225.000 Market value $198,000
–137,000 Mortgage –125,000
$ 88,000 Equity $ 73,000
Cash 25,000
(2) Newton “gets” $198,000 Property (like-kind)
\+ 12,000 Mortgage relief
\+ 25,000 Cash 37,000 Boot*
$235,000 Total
(3) Less his basis
in dental bldg. –185,000
50,000 realized (actual gain)
*(4) Of which 37,000 is recognized (taxable now)*
(5) Leaving $ 13,000 Deferred gain

Question 31

All of these statements are correct concerning probate sales of real property EXCEPT
A) the representative of the estate may enter into an exclusive listing with the broker with the approval of the court.
B) commissions for brokers negotiating sales are determined by the probate code according to prearranged schedules based on selling price.
C) the first bid in a probate sale must not be less than 90% of the court’s appraisal.
D) an offer can be accepted by the representative of the estate with the approval of the court.

Answer 31

B) commissions for brokers negotiating sales are determined by the probate code according to prearranged schedules based on selling price.
The probate code does not have a prearranged commission schedule. Commissions are set at the discretion of the court. The representative of the estate may, with the court’s approval, give a broker an exclusive listing, not to exceed 90 days; an offer must be at least 90% of the court’s appraisal. The court may then approve the sale and set the commission.

Question 32

The maximum amount of commission and loan costs that may be charged for a second trust deed of $4,000 for a four-year term is
A) $990.
B) $550.
C) $725.
D) $850.

Answer 32

A) $990.
Under Article 7, the maximum commission and fee is:
$4,000 2nd T.D.
× 0.15 (15% of the principal of a loan of three years or more)
600 Maximum commission
+ 390 (5% or $390—whichever is greater)
$ 990 Maximum commission and fees

Question 33

An increase in the appraised value of property that is considered an unearned increment would most probably result from
A) increase in population.
B) capital improvements.
C) increase in amenities.
D) management expenses.

Answer 33

A) increase in population.
Unearned increment is an increase in value of real estate due to no effort on the part of the owner; it is often due to increase in population. Amenities may or may not be due to the owner’s effort.

Question 34

Under California law, it is necessary to give notice to terminate
A) None of these.
B) estate for years.
C) estate at will.
D) estate at sufferance.

Answer 34

C) estate at will.
Under common law, an estate at will is one that is terminable at the will or unilateral decision of either party. By statute, California has modified the abrupt conclusion of such estates and requires advance 30-day notice of termination by each party. If this question had referred to common law, the answer would have been “None of these.”