TEST 5 -- WRONG

Question 1

When Carr conveyed to Jim a portion of his fee estate for a term less than his own, Carr’s interest would be identified as a:

(A) fee defeasible; (B) vested severance; (C) reversionary interest; (D) leasehold.

Answer 1

(C) reversionary interest

Carr (lessor) has granted a leasehold interest to Jim (lessee). Carr holds a reversionary interest in that the possession will revert to Carr upon termination of the lease.

Question 2

Broker Bob wrote up an offer to buy real property for Buyer Don. Before Broker Bob could inform Buyer Don that his offer had been accepted, Buyer Don died of a heart attack. Under these circumstances there is:

(A) a binding contract on the heirs of Buyer Don; (B)
a binding contract because, the death of the buyer does not terminate an offer; (C) no contract; (D) a binding contract, only if Broker Don places a copy of the signed contract in the deceased buyer’s hand prior to the funeral.

Answer 2

(C) no contract

There is no contract, because the death of the buyer revoked the offer prior to the communication of seller’s acceptance to the buyer.

Question 3

The covenant of quiet enjoyment most directly relates to:

(A) nuisances maintained on adjoining property; (B) possession of real property; (C) title to real property; (D) all of the above.

Answer 3

(B) possession of real property

Every lease has an implied covenant of quiet enjoyment and possession of the premises.

Question 4

In a real estate transaction, the term “reversion” would most nearly mean:

(A) the interest held by the landlord in property which has been leased; (B) the interest held by the life tenant in a life estate; (C) the interest of a beneficiary under a trust deed; (D) the right of the state to acquire property by condemnation.

Answer 4

(A) the interest held by the landlord in property which has been leased

“Reversion” indicates that one party’s interest will revert, go back, to another. The right of possession will revert to the landlord.

Question 5

Property can be transferred in all of the following ways, except:

(A) court order; (B) public grant or dedication; (C) eminent domain; (D) executive sale.

Answer 5

(D) executive sale

There is no such thing as an executive sale.

Question 6

Bruce bought a parcel of raw land in 2003 and subdivided it into four separate lots. Five years later, he sold each lot for $100,000. The adjusted basis for each lot was $20,000. Bruce’s long-term capital gain on these transactions is:

(A) $ 80,000; (B) $320,000; (C) $400,000; (D) $500,000.

Answer 6

(B) $320,000

(1) $ 20,000 x 4 lots = $80,000 adjusted basis
(2) $100,000 x 4 lots = $400,000 total selling price
(3) $400,000 - $80,000 = $320,000 capital gains

Question 7

Real property in the State of California is assessed at:

(A) 1% of the assessed value; (B) 10% of the taxable value; (C) 25% of the assessed value; (D) 100% of the taxable value.

Answer 7

(D) 100% of the taxable value.

Property is assessed at 100% of the taxable value or fair market value.

Question 8

When real estate is sold, property taxes are set at:

(A) 1% of the tax assessor’s appraised value; (B) 100% of the tax assessor’s appraised value; (C)
1-1/2% of full cash value plus an amount for the existing bonded indebtedness; (D) 1% of full cash value plus an amount for the existing bonded debt.

Answer 8

(D) 1% of full cash value plus an amount for the existing bonded debt

Property taxes are set at 1% of the full cash value plus an amount to cover any bonded debt approved by taxpayers.

Question 9

The hot water heater in an apartment breaks. The tenant has a $1250 month to month rental agreement. The tenant may:

(A) deduct up to $312.50 to pay for the repair; (B)
deduct up to $625 to pay for the repair; (C) deduct up to $1250 to pay for the repair; (D) deduct up to $3750 to pay for the repair.

Answer 9

(C) deduct up to $1250 to pay for the repair

If a landlord fails to make necessary repairs within a reasonable time after written or oral notice to the landlord of problems (plumbing, heating, electrical, etc.) and these problems render the premises uninhabitable, the tenant may make the repairs as long as the cost of such repairs is not more than one month’s rent. The tenant can deduct the expenses of the repairs from the rent when due, or terminate the lease.

Question 10

In construction terminology, the studs of an interior wall are supported by and rest on the:

(A) I-beam; (B) joist; (C) soleplate; (D) sheeting.

Answer 10

(C) soleplate

The studs rest on the soleplate.

Question 11

What happens to the value of a parcel of land when the depth of that parcel increases beyond the depth of other lots in the area?

(A) the value per front foot remains the same; (B) the value per square foot increases; (C) the value per front foot increases; (D) the total value of the lot decreases.

Answer 11

(C) the value per front foot increases

The deeper the lot, the greater the front foot value. The value per square foot usually goes down.

Question 12

The owner of a parcel of land granted an easement to the local telephone company to erect telephone poles across his land. This would create an:

(A) encroachment; (B) encumbrance; (C) appurtenance: (D) estate at sufferance.

Answer 12

(B) encumbrance

An easement is an encumbrance.

Question 13

When lenders charge points on FHA insured loans, this is done to:

(A) close the gap between market rates and fixed rates; (B) increase the effective yield; (C) obtain the market yield; (D) all of the above.

Answer 13

(D) all of the above

Most lenders charge points in connection with FHA insured loans to close the gap between market rates and fixed rates, increase the effective yield, and to obtain the market yield.

Question 14

Which of the following items may be short rated in escrow?

(A) real estate taxes; (B) interest; (C) title insurance; (D) fire insurance.

Answer 14

(D) fire insurance

Fire insurance on the property may be short rated in escrow.

Question 15

In appraising real property, a separate site analysis is considered least important:

(A) For calculating depreciation; (B) for applying the income approach; (C) when applying gross rent multiplier; (D) When applying the cost approach.

Answer 15

(C) when applying gross rent multiplier

Gross rent multiplier determines value by multiplying gross income by a commonly accepted number. A separate site analysis would not be used.

Question 16

Harry sold two parcels of land for $9,430 which was 15% more than their cost four years ago. While Harry owned the parcels, he paid taxes each year at a rate of $8.00 per $100 on an assessed value of 25% of the purchase price. Assuming an annual loss of 5% imputed interest on Harry’s original investment as an expense, how much did Harry lose on the transaction?

(A) $650; (B) $885; (C) $1,066; (D) None of the above, because Harry made money on the transaction.

Answer 16

C) $1,066

(1) $9,430 divided by 115% = $8,200 original cost
(2) $8,200 x 25% = $2,050 assessed value
(3) $2,050 x .08 = $164 annual property taxes
(4) $164 x 4 = $656 taxes
(5) $8,200 x 5% x 4 = $1,640 loss of interest
(6) $8,200 + $656 + $1,640 = $10,496 total cost
(7) $10,496 - $9,430 = $1,066 loss

Question 17

In which of the following contracts does one of the parties agree not to revoke an offer?

(A) lease; (B) option; (C) open listing; (D) deposit receipt.

Answer 17

(B) option

During the term of the option, the seller agrees not to revoke his offer to sell.

Question 18

The value of the best property in a neighborhood is adversely affected by a substandard property nearby. This can be described as the principle of:

(A) balance; (B) regression; (C) contribution; (D) progression.

Answer 18

(B) regression

The Principle of Regression states that the value of a more expensive home is pulled down when lesser quality (substandard) homes are built nearby.

Question 19

Two similar buildings are leased on a long term basis, one for a post office and the other for a hardware store. Using the capitalization approach to appraise the properties, the post office would demand:

(A) a lower capitalization rate; (B) the same capitalization rate as the hardware store; (C) a higher capitalization rate; (D) the two capitalization rates could not be compared because the properties involve different uses.

Answer 19

(A) a lower capitalization rate

The lower the risk, the lower the capitalization rate demanded by investors. For example, purchasing a building leased to the U.S. Postal Service to be used as a post office involves little risk of vacancy and results in the investor requiring a lower capitalization rate

Question 20

A residential purchase agreement says, “The seller will provide and pay for a structural pest control report on improvements and pay for corrective work, if any.” The agent must be certain that the buyers receive a copy of the structural pest control report:

(A) within 5 days of the date of the termite report; (B) within 10 days of opening escrow; (C) as soon as practicable before the close of escrow; (D) none of the above.

Answer 20

(C) as soon as practicable before the close of escrow

The agent must be certain that the buyers receive a copy of the structural pest control report as soon as practicable before the close of escrow.

Question 21

Which of the following professions commonly use a bench mark?

(A) an appraiser; (B) a surveyor; (C) a carpenter; (D) an assessor

Answer 21

(B) a surveyor

A bench mark is a monument used by a surveyor to establish the elevation at a particular point on land.

Question 22

Fee schedules setting forth the cost of title policies and other services performed by title companies are set by the:

(A) Department of Insurance; (B) Department of Real Estate; (C) title insurance companies; (D) Department of Corporations.

Answer 22

(C) title insurance companies

Fee schedules setting forth the cost of title policies and other services performed by title companies are set by the title insurance companies, not by state agencies.

Question 23

In the capitalization approach, which of the following expenses is not deducted from gross income to determine annual net income?

(A) electricity; (B) cost of capital; (C) cost of management; (D) replacement reserves.

Answer 23

(B) cost of capital

The cost of capital, such as interest paid on the loan is not deducted in establishing annual net income.

Question 24

Which of the following items would be warranted by a seller in a grant deed, but not covered by a standard policy of title insurance?

(A) that there are no defects in the chain of title; (B) that the grantor actually signed the deed; (C) that there are no undisclosed liens against the property placed there by the grantor; (D) that the grantor is legally competent to convey title.

Answer 24

(C) that there are no undisclosed liens against the property placed there by the grantor

A grant deed contains two implied warranties. One of them is that there are no undisclosed liens against the property placed there by the grantor. The standard title insurance policy carries no such protection.

Question 25

A joint tenancy may be created by:

(A) joint tenants, deeding their property to themselves, and another person, as joint tenants; (B) tenants in common, deeding their property to themselves as joint tenants; (C) husband and wife, deeding their property to themselves as joint tenants; (D) all of the above.

Answer 25

(D) all of the above

A joint tenancy may be created by: joint tenants, deeding their property to themselves, and another person, as joint tenants, or tenants in common, deeding their property to themselves as joint tenants and/or husband and wife, deeding their property to themselves as joint tenants.

Question 26

In which of the following listings would the agent who was the procuring cause of a successful offer possibly earn no commission?

(A) open listing; (B) exclusive agency listing; (C) exclusive right to sell listing; (D) net listing.

Answer 26

(D) net listing

The agent with a net listing who was the procuring cause of a successful offer would earn no commission if the seller accepted an offer below the net listing amount.

Question 27

Leonard purchased and took title to a residential property located at 1735 Main Street. One week later, he employed Broker Wilson to sell the property. The listing was completed and signed. Being uncertain as to the correct legal address of the property, it was described in the listing as “Leonard Duncan’s residential property located at 1735 Main Street, Fresno, California.” With regard to the effect of this description on the listing, which of the following is true?

(A) the description is not sufficient to properly describe the property and the listing is unenforceable; (B) Leonard’s signature on the listing gives only a tentative listing right to Broker Wilson until the legal description is completed correctly; (C) the description is adequate if Leonard owns no other property on 1735 Main St. , Fresno, California; (D) the description is adequate and the listing contract enforceable regardless of the location of any property owned by Leonard.

Answer 27

(C) the description is adequate if Leonard owns no other property on 1735 Main St. , Fresno, California

A listing does not need a legal description as long as it adequately describes the property not own any other property with the same street address.

Question 28

Which of the following is necessary for a deed to be valid?

(A) a granting clause; (B) consideration; (C) an acknowledgment; (D) the grantee is of legal age.

Answer 28

(A) a granting clause

The granting clause is also called the action clause and is considered one of the essential elements to a valid deed.

Question 29

Mr. Jones purchased a home for $72,000 with a $20,000 cash down payment and a $52,000 loan. This loan was interest free and required no payments of principal for five years. One year later, he sold the home for double its purchase price. Each dollar of his original cash investment now equals:

(A) $2.00; (B) $4.60; (C) $7.30; (D) $9.20.

Answer 29

(B) $4.60

Your response is Incorrect.

(1) $72,000 x 2 = $144,000;
(2) $144,000 - $52,000 = $92,000;
(3) $92,000 divided by $20,000 = $4.60.

Question 30

It is unlawful for someone to sell any franchise that is regulated by the Franchise Investment Law unless such person has made application to the Corporations Commissioner or is licensed by the:

(A) Real Estate Commissioner; (B) Franchise Tax Board; (C) Corporations Commissioner; (D) either “A “or “C.”

Answer 30

(D) either “A “or “C.”

A person licensed by either the Real Estate Commissioner or the Corporations Commissioner may sell a franchise.

Question 31

Which of the following characteristics are present in FHA and VA loans but are not present in most conventional loans?

(A) no acceleration clauses; (B) no prepayment penalty clauses; (C) a restraint on alienation of title; (D) an escalator clause.

Answer 31

(B) no prepayment penalty clauses

FHA and VA loans have no prepayment penalty clauses.

Question 32

When may a real estate broker, acting as agent for a seller, refuse to submit a buyer’s offer?

(A) when the owner has already accepted an offer; (B) when the owner has already accepted a better offer; (C) when the owner has given broker express instructions not to submit any further offers; (D) never, all offers must be presented.

Answer 32

(C) when the owner has given broker express instructions not to submit any further offers

A broker must present all offers unless they are frivolous or unless seller has expressly instructed broker to submit no further offers.

Question 33

An option to buy real estate becomes a mutually binding contract, when:

(A) the option is given to the optionee by the optionor; (B) the optionee exercises the right to purchase; (C) the consideration for the option is given; (D) any of the above happens.

Answer 33

(B) the optionee exercises the right to purchase

An option to purchase becomes a mutually binding contract when the optionee (buyer) exercises the right to buy.

Question 34

Mrs. Johnson told Broker Bob, “While I will not sign a listing for my home, if you can find a buyer who will pay at least $250,000 for it, I’ll pay you a 6% commission.” Three weeks later, Broker Bob found a buyer who gave him a $1,000 deposit on the purchase price of $255,000, along with a signed offer to purchase. When the offer was presented to Mrs. Johnson, she accepted it and then demanded that the deposit be given to her. Which of the following is true?

(A) once the offer is accepted, the deposit belongs to the seller, Broker Bob must give it to her upon her demand; (B) Broker Bob may not give the buyer’s deposit to the seller without the buyer’s written consent; (C) because the listing was not in writing, Broker Bob is not obligated to follow the seller’s orders; (D) Broker Bob should deposit the money into escrow and then let the escrow officer worry about it.

Answer 34

(B) Broker Bob may not give the buyer’s deposit to the seller without the buyer’s written consent

The broker must get the consent of the buyer before releasing the check to the seller.

Question 35

How many square miles does a section contain?

(A) 1; (B) 6; (C) 36; (D) 180.

Answer 35

(A) 1

A section is one mile by one mile, one mile square and contains one square mile.

Question 36

What listing requires an owner to pay a commission if she sells the property herself?

(A) exclusive right to sell listing; (B) exclusive agency listing; (C) open listing; (D) net listing.

Answer 36

(A) exclusive right to sell listing

The broker gets the commission no matter who sells the property, if it sells during the term of the exclusive right to sell listing.

(YOU REALLY SHOULD HAVE READ THIS BETTER)

Question 37

Upon moving into the home they had recently purchased, Mr. and Mrs. Katz discovered that their neighbor had built a wall which encroached onto their property by three feet. When they purchased the home, they received a standard coverage title insurance policy. If a friendly settlement cannot be negotiated, who will Mr. and Mrs. Katz sue?

(A) the title company; (B) the previous owner in the chain of title; (C) the neighbor, because the encroachment is a trespass; (D) the neighbor, if the encroachment has been in place less than five years.

Answer 37

(C) the neighbor, because the encroachment is a trespass

The wall is an encroachment. The owner has three years to sue the encroaching party.