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REAL ESTATE PRACTICE EXAM 3
EXAM QUESTIONS WITH DETAILED, VERIFIED ANSWERS
"1) when a licensee is employed as an independent contractor, the employing broker may still have to cover the licensee for (A) unemployment insurance (B) Workers Compensation Insurance (C) errors and omissions insurance
(D) all of the above - CORRECT ANSWER B
the workers compensation law requires all employers to provide insurance coverage for their employees in case of injury on the job. this law may apply to real estate brokers regardless of whether the broker considers his or her sales people to be employees or independent contractors" "2) In the correct order, list the chain of events necessary to comply with the agency disclosure law (A) Confirm, disclose, elect (B) Investigate, disclose, confirm (C) Disclose, elect, confirm
(D) Disclose, confirm, reconfirm - CORRECT ANSWER C
Statement of fact" "3) a real estate broker hires an unlicensed assistant. Among the duties of the assistant is writing advertising for placement in the local newspaper. This would be (A) unlawful behavior for both the broker and assistant (B) legal if the seller agrees (C) legal if the broker approves the ad copy
(D) illegal under any circumstances - CORRECT ANSWER C
this would be legal as long as the broker either rights or proves the copy. The work being performed is similar to that of a secretary" "4) the person who would normally be responsible for routine maintenance on an apartment building would be (A) the owner (B) the resident manager
(C) the property manager
(D) the tenant - CORRECT ANSWER C
routine maintenance would be one of the duties of the property manager" "5) the purchasing power of a dollar is measured (A) by reference to price indexes (B) by the interest paid on savings (C) by the Federal Reserve board
(D) by reference to the local real estate market - CORRECT ANSWER A
the value of money is measured by what a dollar will buy. Price indexes should show whether the ability to buy the same amount has increased or decreased. For example: when the Consumer Price Index goes up, the value of the dollar goes down" "6) a licensee has agreement with the owner of rental property to find a lessee for the property. The commission for the licensee would be (A) 6% of the lease amount (B) determined by a listing agreement (C) 10% of the total rent for the first year (D) 5% of the first year's rent and 3% of the remaining years, to be paid by the owner as received
CORRECT ANSWER B
the commission would be determined by agreement between the licensee and the owner of the property. This is usually accomplished by a listing agreement" "7) an appraiser would be which of the following approaches in appraising a shopping center (A) comparison approach (B) capitalization approach (C) the replacement cost approach
(D) the market data approach - CORRECT ANSWER B
the shopping center with regularly produce income, and would be valued using the capitalization (income) approach to value" "8) in a sale leaseback, the purchaser would be least concerned with which of the following (A) the economic life remaining in the improvement (B) the sellers Book value
"12) broker Ortiz takes a buyer Tom out to see several properties. They work together for about 3 weeks. A couple of weeks later, broker Davis shows Tom a house which Tom buys. The commission would be paid to (A) broker Ortiz (B) broker Davis (C) broker Davis receives the entire commission and could share with broker Ortiz if he wishes
(D) none of the above - CORRECT ANSWER C
broker Ortiz does not have an exclusive contract to represent the buyer. Broker Davis found the house for the buyer and put the deal together. The commission would be paid entirely to broker Davis. If you wish to share with Ortiz, he could" "13) a sublease is (A) the same as an assignment (B) less than an assignment (C) a surrender
(D) always forbidden - CORRECT ANSWER B
a sublease is one where the original lessee maintains an interest in the lease. It is less than an assignment. With an assignment, the entire leasehold transfers to the assignee. The assignee becomes a tenant" "14) which of the following is not deducted from gross income to determine annual net income when using the capitalization approach to appraise an income-producing property (A) electricity (B) cost of capital (C) cost of management
(D) replacement Reserves - CORRECT ANSWER B
cost of capitalization in debt service or interest on the trust deed. Financing is not used when we appraise property" "15) Brokers A and B each have an open listing on a property. Broker A shows the property to a buyer and carries on negotiations, but the buyer decides not to buy. Two weeks later broker B contacts the same buyer and arranges a sale of the property. The seller is obligated to pay commission as follows (A) full amount to both broker A and B (B) full amount to broker B only
(C) 50% each to broker A and B
(D) full amount to broker A who will have to settle with broker B - CORRECT ANSWER B
in an open listing the broker who sells the property is the one who gets paid. The owner is only obligated to pay the commission to the broker who actually put the deal together (the procuring cause)" "16) when a deed contains discriminatory language or clauses (A) the deed needs to be rewritten by the owner before the property may be sold (B) the title company must rewrite the deed (C) the discriminatory words or causes are unenforceable
(D) the clauses may be enforced, since they would be considered grandfathered into law -
CORRECT ANSWER C
the discriminatory words or Clauses are not enforceable. There is no law requiring that the Deeds be Rewritten" "17) Pest Control reports which contain information concerning wood destroying insects are kept on file with (A) the department of wood destroying agency (B) the structural pest control board (C) the Environmental Protection Agency
(D) the United States Department of insect control - CORRECT ANSWER B
the structural pest control board in Sacramento has all these reports on file. They are kept on file for 2 years and are part of public reports. Anyone may obtain a copy of one" "18) a tenant has a 3-year lease with the lessor of an apartment building. At the end of the year one, the tenant is transferred to another city. The lease between the lessor and lessee is silent on the tenants ability to sublease or sign the lease. In this case (A) the lessee may sublease, but not assign, the lease (B) the lessee may either assign or sublease the apartment, without the lessors permission (C) the lessee may assign, but not sublease the apartment
(D) the tenant must have the lessors permission to either sublease or sign the lease - CORRECT
ANSWER B
failure to mention assignment or subleasing in a lease, allows the tenant to do either without the consent of the lessor"
(D) a strip shopping mall in a residential area - CORRECT ANSWER C
an electric assembly plant is producing products which will not depend on the local economy. The products will be distributed naturally and / or internationally the value of the other three choices would be directly affected by the local economy." "23) a general contractor hired subcontractor to install the hardwood floors in a home under construction. The subcontractor had to file a mechanic's lien in order to get paid, the mechanics lien would date back to the date (A) work began on the house (B) work began on the hardwood floors (C) work endee on the house
(D) work was completed on hardwood floors - CORRECT ANSWER A
all mechanic's liens date back to the beginning of any work on the project, not the date that individual contractor performed his labor" "24) once an offer has been made and accepted, the buyer would have (A) pending title (B) Equitable Title (C) contract title
(D) no title - CORRECT ANSWER D
title remains in the owner (seller) until all the contingencies of the contract have been met and escrow closes. When escrow closes, legal title transfers from the seller to the buyer" "25) a buyer walks into a broker's office and ask for information on a property the broker's office has listed. The agent gives the buyers information and the buyer asks the agent to mail her more information to her house. An agency relationship has been created when (A) Buyer walks into the broker's office (B) agent gives buyer information (C) agent mails information to buyers house
(D) there is no agency relationship - CORRECT ANSWER D
there is no agency relationship. An agency relationship would require a contract between the buyer and the broker" "26) an agent often receives confidential information from a principal. The agent has a duty to maintain this confidentiality. This duty of confidentiality
(A) terminates when the contract is completed (B) terminates when the contract is terminated (C) terminates four years after the close of escrow
(D) never terminates - CORRECT ANSWER D
when information is given by a principal to an agent and that information is confidential, that information must never be revealed. In a sense, agents have the same duty of confidentiality as a lawyer to a client. Confidential information is just that, confidential, and must remain such" "27) when a tenant holds possession of a landlord's property without a current lease agreement and without the landlord's approval (A) the tenant is maintaining a gross lease (B) this would be an estate at sufferance (C) the tenant has no obligation to pay rent
(D) the landlord may be subject to constructive eviction - CORRECT ANSWER B
at the end of the lease term, lessee is expected to vacate the premises. When the tenant remains without the permission of the owner, it is called an estate at sufferance (the landlord is suffering the tenants presents in his property), if the tenant continues to pay rent and landlord accepts the rent, it would become a periodic tenancy" "28) California counties collect a documentary transfer tax when most transfers of title are recorded. The rate is $0.55 of each $500 of consideration paid or any part thereof. If a property sold for $90,750 and the buyer assumed an existing loan of $30,000, the amount of the tax would be (A) $ (B) $100. (C) $67.
(D)$33 - CORRECT ANSWER C
remember the documentary transfer tax is not charge on an assumed loan. Remember also-you must round up to the nearest $ the tax is $1.10 per $1, $90,750-30,000=$60, 61 X 1.10=$67.10" "29) which of the following would be considered an encumbrance? (A) a lease (B) a reversion
"33) a licensee has filed to renew his license prior to his renewal date (A) he will have to take the state exam (B) he will have to qualify through education and take the state exam (C) he has a two-year grace period to renew at the original license fee (D) he has a two-year grace period and renew his license during that time, but must pay an
additional fee - CORRECT ANSWER D
statement of fact" "34) an appraiser is doing a narrative appraisal report of an apartment building, using all three approaches to Value. The last step in the appraisal process would be which of the following (A) the letter of transmittal (B) a Reconciliation of values to arrive at the final Value Estimate (C) the definition of the problem
(D) an averaging of the values to arrive at the final estimate - CORRECT ANSWER B
reconciliation of values the last step in the appraisal process. The appraiser correlates the values, giving greatest wait to the value indication arrived at from the approach to Value which would give him the most accurate picture of value. In this case it would be the income approach. He would use the other to Value indications primarily as backup data" "35) real estate broker Joe has an exclusive agency listing with contractor Bob who is building a new subdivision. The listing is to be effective 90 days from completion of construction. Broker Joe has found a buyer who made an offer on one of the homes and contractor Bob has accepted. In order to be able to collect a commission (A) broker Joe must agree to split the commission with contractor Bob (B) the listing contract must contain a specific termination date (C) the escrow instructions must name broker Joe (D) contractor Bob does not have to pay a commission because this is an exclusive agency listing
CORRECT ANSWER B
all exclusive listings must contain a specific termination date. 90 days from the completion of construction would not be a definite termination date" "36) a buyer sued broker Tom for fraud in the sale of a 4-unit apartment building. The broker was unable to pay the judgment and the recovery account agreed to pay Tom $50,000. What is the maximum amount the recovery account can pay for a single real estate agent (A) $50,
(B) $100,
(C) $200,
(D)$250,000 - CORRECT ANSWER D
the maximum the recovery account is now $250,000" "37) a tenant in a single family dwelling suspects that a release of a hazardous substance has occurred on or beneath the property. The tenant should (A) call the health care Department (B) notify the owner or lessor (C) file a complaint with the Bureau of Real Estate
(D) file a complaint with the Department of Fair Employment and housing - CORRECT
ANSWER B
the tenant should report a release of a hazardous substance to the owner or lessor. It is the responsibility of the owner to have the situation corrected" "38) an accidental dual agency or unintended dual agency would most likely occur (A) with an in-house sale (B) in a 1031 tax-free Exchange (C) the sale of a mobile home
(D) when a mortgage broker arranges a loan for a buyer - CORRECT ANSWER A
in an in-house transaction the broker is representing both the buyer and seller. Since more than one sales person is often involved an unintended dual agency is more likely to occur in this situation than the others mentioned" "39) real estate salesperson Kelly had been negotiating with potential buyer Tom. Kelly was certain that the property meant all of Toms requirements and that the price was within his means. However, she was unable to persuade time to make an offer. This worried Kelly because the listing was to expire in one week. Kelly began to suspect that Tom had talked to the seller. She felt sure the seller agreed to wait until the listing expired and sell the property directly to Tom. This would allow the seller to save the commission, which is the seller would probably split with buyer Tom. On the last day of the listing, salesperson Kelly talked to the seller and informed the seller that she had been negotiating with buyer Tom. She further reminded the seller of the safety period in the listing which said that if the seller sells to Tom within 90 days, the seller would owe
Kelly a commission. The seller sold the property to Tom - CORRECT ANSWER B
in order for the safety period to be effective, the broker must give written notice to the seller. The notice must name each Buyer the agent expects to fall under that protection period."
(C) must have the permission of the owner to either sublease or assign the lease
(D) the lessee may not do either sublease or assign the lease - CORRECT ANSWER A
failure to mention either the subleasing or signing of the lease in the original lease agreement, gives the lessee the right to do either one. The lessee does not need permission of the landlord" "44) which of the following would not be a required payment for the lessee under a net lease (A) Janitorial (B) lease Commission (C) property taxes
(D) insurance - CORRECT ANSWER B
the lease commission is paid by the landlord. The other fees are included in the net lease agreement" "45) which of the following phrases in a rental ad would not be illegal (A) female roommate (B) retirees dream house (C) ideal for college students
(D) family only - CORRECT ANSWER A
a roommate will live with the landlord in his/her house. When the tenant will live in the landlord's house, the landlord is allowed to discriminate" "46) in the eyes of the real estate commissioner, any individual employed as a salesperson by a licensed real estate broker is considered to be (A) an independent contractor (B) an employee (C) a special agent
(D) sub-agent - CORRECT ANSWER B
the real estate commissioner considers a salesperson an employee of the broker. That is the reason the commissioner can hold the broker responsible for everything the salesperson says or does. The sales person is an independent contractor for IRS purposes" "47) a landlord is trying to evict a tenant and serves an eviction notice. Under what circumstances could the tenant remain in the (A) the tenant has not had hot water for months
(B) unlawful entry by the landlord (C) the lessor fail to repair a weak staircase
(D) all of the above - CORRECT ANSWER D
all of these are examples for constructive eviction. In this case the tenant may move out without notice or get whatever is not working fixed. He would pay for it himself and give the receipt to the owner. He would deduct the repair amount from the rent. The tenant can do this up to twice in one 12-month period. The landlord cannot evict a tenant for things he did or did not do when he should have" "48) a buyer signs the offer to purchase and the seller accepts the offer. The buyer's agent delivers the signed acceptance to the buyer on with the seller's transfer disclosure statement. How long does the buyer have to resicind the contract? (A) 2 days (B) 3 days (C) 5 days
(D) 7 days - CORRECT ANSWER B
the buyer has three days from the delivery, in-person, of the sellers transfer disclosure has three days from the delivery, in-person, of the sellers transfer disclosure statement (5 days if mailed) 2 the rescind the contract" "49) Richard owned a vacant lot free and clear. He decided to build a home on the lot. On May 1st, lumber was delivered to the lot at a cost of $8,000. On May 2nd a First Trust deed $150,000 was recorded against the property to finance construction. September 15th, painters started work on the property with their bill totaling $3,000. The project was completed and Joe did not pay the bills for the lumber and the painting. To mechanics liens were filed for $8,000 and $3,000. The property went into foreclosure and sold for $150,000. Ignoring the expenses of sale, approximately how much did the lender on the first trust deed receive as a result of the sale? (A) $139, (B) $147, (C) $150,
(D) nothing - CORRECT ANSWER A
remember: all mechanic's liens date back to the beginning of any work. In this case work started on May 1st. The trust deed was recorded May 2nd. For that reason, the mechanic liens would have priority over the trust deed. In a foreclosure, the mechanics would be paid first. $8,000 + $3,000= $11,000 total of mechanic's liens $150,000 trust deed-$11,000 mechanic liens=$139,000 to be paid to lender." "50) the year in which Brokers became requireed to disclose asbestos is
"54) FHA will, but VA will not, provide loans for (A) agricultural land (B) farming equipment (C) duplex purchase for rental
(D) business - CORRECT ANSWER C
FHA has programs which will allow a buyer to purchase a one to 4 unit dwelling to be used as a rental, VA does not" "55) in purchasing a home, the purchaser generally gives a note secured by a first deed of trust to a lending institution. In addition, he may give the seller cash and a note secured by a second deed of trust on the property. A request for notice would be filed for the benefit of the (A) mortgagor (B) holder of the second (C) trustor
(D) holder of the first - CORRECT ANSWER B
a request for a notice of default is filed with the county recorder when the second trust deed is recorded. If there is a default on the first trust deed, the recorder will send a copy of the notice of default to the holder of the second. This gives the holder of the second time to reinstate the first and begin foreclosure of the second" "56) in which of the following ways is fraud different from misrepresentation (A) a misrepresentation is a deliberate attempt to deceive, while fraud is not (B) fraud is a deliberate attempt to deceive, while a misrepresentation is not (C) there is no difference between fraud and misrepresentation
(D) a misrepresentation cannot result in discipline and fraud will always involve discipline -
CORRECT ANSWER B
fraud involves a deliberate attempt to deceive, misrepresentation does not. A licensee may be disciplined for either fraud or misrepresentation" "57) Jack leases a single family dwelling property from Mr. Michaels. After the lease agreement is signed and Jack moves in, Mister Michaels insists that Jack sign a contract agreeing to make substantial capital improvements to the property. This requirement by the landlord would render the lease contract (A) valid (B) voidable by lessor
(C) voidable by Lessee
(D) void - CORRECT ANSWER C
his contract would be voidable on the part of the lessee, not by lessor. The lessor cannot change the contract or add to the lease contract after it is signed" "58) valuable, adequate, good, sufficient in a contract would refer to (A) performance (B) just compensation (C) consideration
(D) a bilateral contract - CORRECT ANSWER C
these words describe consideration-the something of value which binds the contract" "59) The statement of purpose section of a narrative appraisal report would contain which of the following (A) the type of value being given (B) the method of appraisal approach (C) the reconciliation of values
(D) the valuation - CORRECT ANSWER A
the type of value being given is stated in the statement of purpose. Appraisals are used for various reasons-loans, insurance, taxation or public acquisition. This would be made part of the statement of purpose" "60) when a buyer purchases a home using the Cal Vet program, title to the home is held by (A) the veteran (B) the Veterans Administration (C) the Department of Veterans Affairs
(D) the trustee - CORRECT ANSWER C
read these carefully. The Department of Veterans Affair is part of the California state government. Title to the property is held by the Department of Veterans Affairs and not by the Veterans Administration" "61) an estoppel is a (A) Plumbing fixture (B) trade fixture
Lenders would not be willing to make FHA Loans if they could not receive the same yield on FHA Loans as they do on conventional loans. The secondary Market would not be willing to purchase FHA Loans if the yield was lower than on conventional loans. If the secondary Market would be willing to purchase the loans, the yield to the lender would be less than on conventional loans. In order to solve these problems and to make these loans available to buyers, the discount points are charged. They may be paid by either the buyer or seller" "65) in what year did the requirement for disclosure of lead-based paint become effective (A) 1976 (B) 1980 (C) 1996
(D) 2000 - CORRECT ANSWER C
statement of fact. The law applies to owners, lessors and real estate licensees. It became effective in 1996. This law requires that the owner or lessor of dwelling units built before 1978, to provide buyer or lessee with the federal booklet entitled, protect your family from lead in your home" "66) a season's alone is one with a steady history of payments made on time by the borrower. How long does it take to season a loan? (A) 12 months (B) 25 months (C) 31 months
(D) 37 months - CORRECT ANSWER A
it takes 12 months to season a loan" "67) an advertisement by a mortgage company that is solictingting real estate loans must include the (A) name of the broker / mortgage company (B) address of the broker or mortgage company (C) telephone number of the brokers mortgage company
(D) name and license number of the broker or mortgage company - CORRECT ANSWER D
a mortgage loan broker must put both the name of the broker (Mortgage Company) and license number in any ad" "68) conditions affecting interest rates and the availability of low on funds vary overtime. When would it be advantageous for a lender to waive a prepayment penalty clause contained in a promissory note
(A) when the Federal Reserve board lowers the discount rate (B) in a tight money market where there is a lack of funds available for real estate loans (C) in a deflationary economy where home prices are failing
(D) when money is readily available for real estate loans - CORRECT ANSWER B
In a tight money market with little money available for financing, the interest goes up. There fore, the lender will be able to make a new loan with a higher interest rate. he wants to get the old loan paid off" "69) When a buyer made an offer on a home, he was given a lead based paint disclosure by the agent. The buyer decided to have an inspection made of the property and lead based paint was discovered. The buyer requested the seller have the necessary repairs be made. Does the seller have a legal obligation to correct the situation: (A) Yes, because lead is a known hazard (B) Yes, if the buyer has children under the age of 13 (C) No, lead is no longer considered a hazard
(D) No, but the existence of lead can be used as a negotiating point in the purchase - CORRECT
ANSWER D
The seller is under no obligation to correct a situation created by lead based paint. The buyer may certainly try to negotiate a change in price as a result of the possibility of lead based paint" "70) where would you most likely see the term Consumer Price Index (CPI) used in real estate contractual agreements (A) In a lease agreement which contains an option to purchase (B) any commercial lease agreement (C) in a residential lease agreement
(D) In a novation - CORRECT ANSWER B
the Consumer Price Index is often used in commercial leases as a method of increasing rent, usually annually. The rent will be adjusted according to changes in the Consumer Price Index" "71) what is considered real property? (A) stock in a mutual water company (B) unharvested crops (C) crops sold with the property
(D) All the Above - CORRECT ANSWER D
