NoHintQuiz

Congratulations, you passed the quiz with a score of 100%! ch 7 8

     1. When depreciation is taken on real property:
    A. The property has no salvage value;
    B. The basis is reduced;
     C. The value increases;
    D. None of the above.

     2. The buyers made an offer on the exact terms of the listing contract on February 1, with the condition that the offer be accepted within 72 hours. The broker was unable to contact the sellers until February 6. When the sellers accepted the offer, the broker that they had changed their minds and did not want to purchase the property. The buyers demand the return of their deposit;
    A. The buyers have grounds to demand the return of their deposit;
     B. The deposit would be forfeited because it was not the sellers' fault that the broker could not locate them;
    C. The broker would receive a full commission;
    D. The broker would receive one-half of his commission.

     3. In determining gain or loss on real property acquired by purchase, for federal income tax purposes, the term "unadjusted basis" most nearly means:
    A. Original cost;
     B. Original cost plus improvements minus losses;
    C. Original cost plus or minus improvement costs, losses and depreciation;
    D. Original cost minus losses.

     4. Mr. Reynolds constructed a $500,000 income-producing building on a lot for which he paid $100,000. Mr. Reynolds financed the construction of the building by paying $100,000 cash and obtaining an 8% per annum interest rate land for $400,000 secured by a first trust deed lien against the property. Under these conditions, Mr. Reynolds can depreciate on future income tax returns:
    A. $600,000;
    B. $500,000;
     C. $400,000;
    D. $100,000.

     5. Mr. Wall owned an apartment building with an adjusted cost basis of $220,000 and a fair market value of $330,000. He exchanged the property for an apartment house which had a fair market value of $365,000. Both properties were free and clear and no adjustment was made for the differences in value. For federal income tax purposes, the new property will have a basis for Mr. Wall of:
    A. $110,000;
    B. $145,000;
    C. $205,000;
    D. $220,000.

    On an exchange of property, the cost basis of the property being surrendered becomes the cost basis for the property being acquired if no adjustment is made for differences in value; in this case, $220,000.

     6. The annual property taxes an owner of a home must pay are determined by:
    A. Assessing the land and improvements separately, then multiplying the total by one tax rate;

    B. Assessing the land and improvements together, then multiplying by one tax rate;
    C. Assessing the land and improvements separately, then multiplying by different tax rates;
    D. None of the above.

     7. Under the Subdivision Map Act, subdivision reports must be filed with the:
    A. City or county where the land is located;
     B. Real estate Commissioner;
    C. Division of Architecture;
    D. Division of State Lands.

     8. Mr. Jones, in order to comply with the regulations of the state Housing Law, should seek the issuance of a building permit from:
    A. The local building department;
     B. The nearest office of the Department of Housing and Community Development;
    C. The California Department of Real Estate;
    D. The California Department of Urban Renewal.

     9. In a city or county, compliance with the state Housing Act is usually enforced by:
    A. City engineer;
    B. Police department;
    C. City Planning Commission;
    D. Building inspector.

     10. Mr. James sold Blackacre to Mr. Woods. Before he sold it, Blackacre had an appurtenant easement across Whiteacre, which was owned by Mr. Sommers. When Mr. Woods tried to use the easement, Mr. Sommers protested, which of the following is correct?
    A. Mr. Sommers owns the servient tenement and his consent must be obtained for Mr. Woods to use the easement;
    B. An appurtenant easement always passes when the property is sold;
     C. Mr. James owns the dominant tenement and the easement upon it;
    D. Mr. James owns the easement and can give it to anyone.

     11. Basic regulation of the housing and construction industries is accomplished by:
    A. State Housing Act;
    B. Local building codes;
    C. The state Contractor's License Law;
    D. All of the above.

     12. Why do brokers use trust fund accounting?
    A. In order to commingle funds;
    B. In order to designate their accounts with the Federal Deposit Insurance Corporation;
    C. In order to separate trust fund money from the broker's money;
     D. In order to earn more interest.
    The purpose of the broker's trust fund account is to separate the broker's personal funds from money that belongs to other people.

     13. A preliminary report issued by the Real Estate Commissioner will expire:
    A. When the final report is obtained;
    B. One year after its issuance;
    C. When any material change in the offering occurs;
    D. Any of the above.

     14. When a lender loans a borrower 100% of the purchase price of a house, and the loan is not government-related, the lender would be best protected by:
    A. A low interest rate;
    B. Low monthly payments;
    C. Appreciation;
     D. A downturn in the economy.

     15. Which of the following would be an illustration of the government's police power:
    A. The creation of restrictive conditions by the original subdivider;
    B. Eminent domain proceedings against property in the path of a proposed freeway;
    C. Adjudication of conflicting claims between present and former owners of parcel of real property;
    D. The enactment of zoning laws limiting the use which may be made of a parcel of real property.

     16. A voidable contract remains binding upon the parties until the contract is:
    A. Invalidated;
    B. Rescinded;
     C. discovered;
    D. Qualified.

     17. Deregulation of the financial institutions most nearly means:
    A. There is now no government control of financial institutions;
    B. There is no limit on the interest rate financial institutions can pay on deposits;
     C. Financial institutions can no longer respond to market conditions;
    D. Examination and enforcement attitudes are more relaxed.

     18. Under the Alquist-Priello Special Studies Act a subdivider would be required to disclose to potential purchasers;
    A. Toxic waste sites;
    B. Earthquake fault lines;
     C. Flood hazard zones;
    D. Water quality reports.

     19. Which of the following is the legal method that a city uses to implement its general plan?
    A. Variances;
    B. General land use;
    C. Zoning;

    D. Conditional use permits.

    A city's general plan indicates which areas will be used for which types of development. In order to implement the general plan, the city will pass zoning laws allowing only certain types of development to occur within certain areas.

     20. One-half of a standard township would contain how many square miles:
    A. 1;
    B. 6;
    C. 18;
     D. 36.

     21. As used in most deeds of trust, the term default refers to:
    A. Use of the property for an illegal purpose or activity;
    B. The refusal of the borrower to see that the property is adequately maintained;
    C. Delinquent loan payments;
    D. Any of the above.

    The usual deed of trust allows the beneficiary to declare a default when any of the acts listed occurs.

     22. In order to earn $75 per month, the amount one would have to invest at 5% would be:
    A. $6,000;
    B. $12,000;
    C. $18,000;
     D. 424,000.

     23. When a borrower has defaulted on a loan, and the lender chooses judicial foreclosure, the mortgagor is given a specified period of time to redeem the property. During this redemption period, the right of possession of the property is held by the:
    A. Mortgagee;
    B. Commissioner designated by the court;
    C. Court-appointed trustee;
    D. Mortgagor.

     24. Of the following, which would have priority (would be a superior lien):
    A. A first deed of trust;
    B. A homestead;
    C. A 1911 Street Improvement assessment lien (bond);
     D. Whichever of the above was recorded first.

     25. Bronson owns a 24-unit apartment building. In 1977, he rented all of the units for $150 a month and had 100% occupancy. In 1978, he increased the rent by 10%, but he had a 10% vacancy factor. His annual effective gross income was approximately:
    A. 10% more in 1977;
    B. 10% more in 1978;
    C. Equal in both years;
    D. 1% more in 1977.

1. Each of the following is considered an estate in real property, except:
    A. Trust deed;
     B. Remainder;
    C. Reversion;
    D. Leasehold.

     2. Economic rent is the rent:
    A. Received for comparable space in the economic open market;
     B. Charged under a contract;
    C. That the property would command in a perfectly informed market;
    D. necessary to produce a competitive return to the owner.

     3. All of the following would be classed as real property, except:
    A. Unextracted crude oil;
    B. Leasehold estates in residential properties;
     C. Uncultivated grove of trees;
    D. Easements appurtenant.

     4. Riparian rights:
    A. Give absolute ownership of adjacent waters;
    B. Are set forth in a standard title insurance policy;
    C. May accurately be determined from an examination of public records;
    D. Include the right to reasonably appropriate water as needed.

     5. When creating a fully-amortized loan for $5,000 at an 11% interest rate for 20 years, the lender will require equal monthly payments of $51.61, including principal and interest. How much of the first monthly payment will be used to reduce the principal balance:
    A. $45.83;
    B. $25.80;
    C. $11.56;
    D. $5.78.

     6. In tenancy in common, there is always a unity of:
    A. Time;
    B. Title;
    C. Interest;
    D. Possession.

     7. A real estate broker may have difficulty with personal property because its ownership rights and identification may be difficult to determine. This is because personal property can:
    A. Be alienated;
    B. Be hypothecated;
    C. Become real property;
    D. All of the above.

     8. When the law finds that an owner has riparian rights, it means he has rights relating to the use and ownership of water from which of the following sources:
    A. Rivers, streams, and watercourses;

    B. Underground cavities;
    C. The arms of a bay;
    D. All of the above.

     9. Mr. Brown was hired by a prospective purchaser to appraise a commercial lot with some improvements. It was difficult to determine the legal status of the improvements because of their nature. In the appraisal report Brown should:
    A. Include the items located on the lot because they will be transferred with the lot;
    B. Estimate the legal significance of any attached items that he is uncertain about and give his reasons;
     C. Tell the buyer that he cannot complete the assignment and return all money received;
    D. Disregard all items that he cannot specifically state to be a part of the property.

     10. Which of the following can be appurtenant to land:
    A. Stock in a mutual water company;
     B. A attachment;
    C. An easement in gross;
    D. None of the above.

     11. If the Smiths sold their house for $73,700, and this was 17% more than what they paid for it, the purchase price was most nearly;
    A. $58,380;
    B. $61,920;
    C. $62,992;
     D. $65,420.

     12. To achieve planning goals, local, state, and federal governments have the authority to regulate the use of or to purchase private property. In its broadest definition, the source of this authority is known as:
    A. Zoning;
    B. Eminent domain;

    C. Master plan;
    D. Police power.

     13. Which of the following instruments requires a listing or an inventory of the main buildings on real property being conveyed, sold, or insured:
    A. A grant deed;
    B. A land contract of sale;
    C. A CLTA policy of title insurance;
    D. None of the above.

     14. In relation to deeds on real property, which of the following is not true:
    A. Delivery of the deed is essential to the transfer of title;
    B. A reconveyance deed is issued by the trustee to convey title to a new purchaser in connection with a "trust deed sale";

    C. A quitclaim deed may convey fee simple title;
    D. A grant deed conveys "after-acquired" title even when such language is not actually specified in the deed.

     15. Johnson bought a parcel of land for $63,360. Disregarding interest charges on any financing involved, property taxes, and all other variables, if it costs 12% of the future selling price to market this lot, how much must the property increase in value before it can be resold without loss:
    A. 24%;
    B. 112%;
    C. $4,320;
    D. $8,640.

     16. An appraiser is appraising a single-family residence, and notices an abandoned gas station next door. The appraiser would logically recommend which of the following:
    A. A structural pest control report;
    B. A toxic waste report from the EPA;

    C. Rezoning of the property;
    D. A soils report by a civil engineer.

    The appraiser would want to know if there had been any seepage from the gas tanks which might contaminate the property he was appraising.

     17. A grant deed is deemed by law to be executed at the time it is:
    A. Signed by the grantor;
     B. Delivered to the grantee;
    C. recorded;
    D. Delivered to escrow.

     18. Regarding deed restrictions, mortgages, easements, and leases:
    A. They are all contractual limitations on ownership;
     B. They are all voluntary limitations on ownership;
    C. Both "A" and "B" are correct;
    D. Neither "A" nor "B" is correct.

     19. Which of the following is lien:
    A. A notice to pay or quit;
    B. A homestead;
    C. An execution;

    D. All of the above.

    An execution lien is a specific lien evidenced by a "writ of execution" as a means of enforcing a judgment lien and is used to have the property sold.

     20. All of the following would be considered a lien against real property except:
    A. An assessment bond for sewers;
    B. Private restrictions which have been recorded;
     C. Unpaid property taxes first billed three years ago;
    D. A duly recorded but unpaid court judgment for money.

     21. You purchase a negotiable note and have no knowledge of any defects. You are known as:
    A. The new trustor;
    B. The new mortgagor;
    C. The holder in blank;
    D. The holder in due course.

    This is a definition of a holder in due course.

     22. A balloon loan could also be described as a:
    A. Non-assumable loan;
    B. Due-on-sale loan;
    C. Partially-amortized loan;
     D. Fully-amortized loan.

     23. Which of the following is not a characteristic of an easement:
    A. It is an interest which can be protected against interference by third person;
    B. It is capable of being created by a conveyance;
    C. It is considered a non- possessory interest;
    D. It is an interest that can be terminated at will by the possessor of the land.

     24. An interest in real property can be acquired through "adverse possession" or by "prescription." The interest acquired by prescription is:
    A. The right to use the land of another;

    B. An equitable title;
    C. A legal title;
    D. A private grant.

     25. Deed restrictions are appropriately classified as:
    A. General liens;
    B. Constructive liens;
    C. Encumbrances;
     D. All of the above.
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Correct answers are highlighted in green.

Incorrect Answers are highlighted in red.

1. When depreciation is taken on real property:

A. The property has no salvage value;

B. The basis is reduced;

C. The value increases;

D. None of the above.

Depreciation reduces the cost basis of the property.

2. The buyers made an offer on the exact terms of the listing contract on February 1, with the condition that the offer be accepted within 72 hours. The broker was unable to contact the sellers until February 6. When the sellers accepted the offer, the broker that they had changed their minds and did not want to purchase the property. The buyers demand the return of their deposit;

A. The buyers have grounds to demand the return of their deposit;

B. The deposit would be forfeited because it was not the sellers' fault that the broker could not locate them;

C. The broker would receive a full commission;

D. The broker would receive one-half of his commission.

Buyer or seller may make an offer contingent upon certain conditions. Since the offer was not accepted within 72 hours, the passage of that time terminated the offer.

3. In determining gain or loss on real property acquired by purchase, for federal income tax purposes, the term "unadjusted basis" most nearly means:

A. Original cost;

B. Original cost plus improvements minus losses;

C. Original cost plus or minus improvement costs, losses and depreciation;

D. Original cost minus losses.

For federal income tax purposes in determining gain or loss on real property, the term "unadjusted basis" most nearly means the original cost.

4. Mr. Reynolds constructed a $500,000 income-producing building on a lot for which he paid $100,000. Mr. Reynolds financed the construction of the building by paying $100,000 cash and obtaining an 8% per annum interest rate land for $400,000 secured by a first trust deed lien against the property. Under these conditions, Mr. Reynolds can depreciate on future income tax returns:

A. $600,000;

B. $500,000;

C. $400,000;

D. $100,000.

An owner is only permitted to take depreciation on improvements, not land.

5. Mr. Wall owned an apartment building with an adjusted cost basis of $220,000 and a fair market value of $330,000. He exchanged the property for an apartment house which had a fair market value of $365,000. Both properties were free and clear and no adjustment was made for the differences in value. For federal income tax purposes, the new property will have a basis for Mr. Wall of:

A. $110,000;

B. $145,000;

C. $205,000;

D. $220,000.

On an exchange of property, the cost basis of the property being surrendered becomes the cost basis for the property being acquired if no adjustment is made for differences in value; in this case, $220,000.

6. The annual property taxes an owner of a home must pay are determined by:

A. Assessing the land and improvements separately, then multiplying the total by one tax rate;

B. Assessing the land and improvements together, then multiplying by one tax rate;

C. Assessing the land and improvements separately, then multiplying by different tax rates;

D. None of the above.

A separate assessed value is determined for land and improvements. However, one tax rate is applied to the total assessed value of land and improvements. Assessed Value x Tax Rate = Taxes ($).

7. Under the Subdivision Map Act, subdivision reports must be filed with the:

A. City or county where the land is located;

B. Real estate Commissioner;

C. Division of Architecture;

D. Division of State Lands.

The Subdivision Map Act gives the local authorities control over the physical aspects of the subdivision as to zoning, building, and health codes.

8. Mr. Jones, in order to comply with the regulations of the state Housing Law, should seek the issuance of a building permit from:

A. The local building department;

B. The nearest office of the Department of Housing and Community Development;

C. The California Department of Real Estate;

D. The California Department of Urban Renewal.

The state Housing Law sets minimum standards; however, all building permits are issued from the local building department, be it city or county.

9. In a city or county, compliance with the state Housing Act is usually enforced by:

A. City engineer;

B. Police department;

C. City Planning Commission;

D. Building inspector.

The state Housing Act sets the minimum building standards, which are usually enforced by the local building department.

10. Mr. James sold Blackacre to Mr. Woods. Before he sold it, Blackacre had an appurtenant easement across Whiteacre, which was owned by Mr. Sommers. When Mr. Woods tried to use the easement, Mr. Sommers protested, which of the following is correct?

A. Mr. Sommers owns the servient tenement and his consent must be obtained for Mr. Woods to use the easement;

B. An appurtenant easement always passes when the property is sold;

C. Mr. James owns the dominant tenement and the easement upon it;

D. Mr. James owns the easement and can give it to anyone.

Appurtenant easements always pass with the land to the new owner when the property is conveyed.

11. Basic regulation of the housing and construction industries is accomplished by:

A. State Housing Act;

B. Local building codes;

C. The state Contractor's License Law;

D. All of the above.

All three of these help to regulate the housing and construction industry.

12. Why do brokers use trust fund accounting?

A. In order to commingle funds;

B. In order to designate their accounts with the Federal Deposit Insurance Corporation;

C. In order to separate trust fund money from the broker's money;

D. In order to earn more interest.

The purpose of the broker's trust fund account is to separate the broker's personal funds from money that belongs to other people.

13. A preliminary report issued by the Real Estate Commissioner will expire:

A. When the final report is obtained;

B. One year after its issuance;

C. When any material change in the offering occurs;

D. Any of the above.

"A," "B," and "C" are the three ways that a preliminary report terminates.

14. When a lender loans a borrower 100% of the purchase price of a house, and the loan is not government-related, the lender would be best protected by:

A. A low interest rate;

B. Low monthly payments;

C. Appreciation;

D. A downturn in the economy.

If the property appreciates in value, this would provide some money to pay any costs of foreclosure if necessary.

15. Which of the following would be an illustration of the government's police power:

A. The creation of restrictive conditions by the original subdivider;

B. Eminent domain proceedings against property in the path of a proposed freeway;

C. Adjudication of conflicting claims between present and former owners of parcel of real property;

D. The enactment of zoning laws limiting the use which may be made of a parcel of real property.

Zoning regulations are one of the most common examples of the government's police power.

16. A voidable contract remains binding upon the parties until the contract is:

A. Invalidated;

B. Rescinded;

C. discovered;

D. Qualified.

A voidable contract is one which stands until such time as the injured party takes action to rescind it. It behooves the injured party to take action immediately upon a breach of the contract, or the court could find that the injured party has accepted the breach as a modification of the contractual terms.

17. Deregulation of the financial institutions most nearly means:

A. There is now no government control of financial institutions;

B. There is no limit on the interest rate financial institutions can pay on deposits;

C. Financial institutions can no longer respond to market conditions;

D. Examination and enforcement attitudes are more relaxed.

Under deregulation financial institutions may now pay any amount of interest on deposits.

18. Under the Alquist-Priello Special Studies Act a subdivider would be required to disclose to potential purchasers;

A. Toxic waste sites;

B. Earthquake fault lines;

C. Flood hazard zones;

D. Water quality reports.

The Alquist-Priello Special Studies Act requires the subdivider to make certain disclosures if the property is near earthquake faults.

19. Which of the following is the legal method that a city uses to implement its general plan?

A. Variances;

B. General land use;

C. Zoning;

D. Conditional use permits.

A city's general plan indicates which areas will be used for which types of development. In order to implement the general plan, the city will pass zoning laws allowing only certain types of development to occur within certain areas.

20. One-half of a standard township would contain how many square miles:

A. 1;

B. 6;

C. 18;

D. 36.

Since a standard township contains 36 square miles, half of a standard township would contain 18 square miles.

21. As used in most deeds of trust, the term default refers to:

A. Use of the property for an illegal purpose or activity;

B. The refusal of the borrower to see that the property is adequately maintained;

C. Delinquent loan payments;

D. Any of the above.

The usual deed of trust allows the beneficiary to declare a default when any of the acts listed occurs.

22. In order to earn $75 per month, the amount one would have to invest at 5% would be:

A. $6,000;

B. $12,000;

C. $18,000;

D. 424,000.

(1) $75 x 12 = $900
(2) $900.00 / .05 = $18,000

23. When a borrower has defaulted on a loan, and the lender chooses judicial foreclosure, the mortgagor is given a specified period of time to redeem the property. During this redemption period, the right of possession of the property is held by the:

A. Mortgagee;

B. Commissioner designated by the court;

C. Court-appointed trustee;

D. Mortgagor.

During the one-year right of redemption, the defaulting borrower (the mortgagor) may remain in possession of the property.

24. Of the following, which would have priority (would be a superior lien):

A. A first deed of trust;

B. A homestead;

C. A 1911 Street Improvement assessment lien (bond);

D. Whichever of the above was recorded first.

An assessment lien and property taxes generally have priority over all other liens.

25. Bronson owns a 24-unit apartment building. In 1977, he rented all of the units for $150 a month and had 100% occupancy. In 1978, he increased the rent by 10%, but he had a 10% vacancy factor. His annual effective gross income was approximately:

A. 10% more in 1977;

B. 10% more in 1978;

C. Equal in both years;

D. 1% more in 1977.

(1) $150 x 24 = $3,600;
(2) $3,600 x 12 = $43,200;
(3) $43,200 x .10 = $4,320;
(4) $43,200 + $4,320 = $47,520;
(5) $47,520 x .10 = $4,752;
(6) $47,520 - $4,752 = $42,768;
(7) $43,200 - $42,768 = $432 less in 1978;
(8) $432 / $43,200 = .01 = 1%.

1. Each of the following is considered an estate in real property, except:

A. Trust deed;

B. Remainder;

C. Reversion;

D. Leasehold.

Lenders, such as beneficiaries under a deed of trust, do not hold an estate in real property. Life estates imply an estate in remainder or reversion upon termination of the designated life, and leaseholds are estates in real property.

2. Economic rent is the rent:

A. Received for comparable space in the economic open market;

B. Charged under a contract;

C. That the property would command in a perfectly informed market;

D. necessary to produce a competitive return to the owner.

This is a good definition of economic rent. There probably is no such thing as a perfectly informed market.

3. All of the following would be classed as real property, except:

A. Unextracted crude oil;

B. Leasehold estates in residential properties;

C. Uncultivated grove of trees;

D. Easements appurtenant.

Leasehold estates in residential properties refers to a lease, which is a contract between the landlord and a tenant. This contract would be classified as personal property.

4. Riparian rights:

A. Give absolute ownership of adjacent waters;

B. Are set forth in a standard title insurance policy;

C. May accurately be determined from an examination of public records;

D. Include the right to reasonably appropriate water as needed.

Riparian rights refers to the rights of a landowner land touches a river or stream to use a reasonably appropriate amount of water as needed.

5. When creating a fully-amortized loan for $5,000 at an 11% interest rate for 20 years, the lender will require equal monthly payments of $51.61, including principal and interest. How much of the first monthly payment will be used to reduce the principal balance:

A. $45.83;

B. $25.80;

C. $11.56;

D. $5.78.

(1) $5,000 x 11% = $550 annual interest; (2) $550 divided by 12 = $45.83 monthly interest; (3) $51.61 monthly payment less $45.83 interest = $5.78 principal portion.

6. In tenancy in common, there is always a unity of:

A. Time;

B. Title;

C. Interest;

D. Possession.

Equal rights of possession are a part of a tenancy in common. All four unities are present in a joint tenancy.

7. A real estate broker may have difficulty with personal property because its ownership rights and identification may be difficult to determine. This is because personal property can:

A. Be alienated;

B. Be hypothecated;

C. Become real property;

D. All of the above.

Personal property can be alienated or transferred, can be hypothecated or used as security for a loan, or can become real property.

8. When the law finds that an owner has riparian rights, it means he has rights relating to the use and ownership of water from which of the following sources:

A. Rivers, streams, and watercourses;

B. Underground cavities;

C. The arms of a bay;

D. All of the above.

An owner has riparian rights when the water on or adjacent to his land is a river, stream, or watercourse. When the water is a lake or ocean, the rights are littoral.

9. Mr. Brown was hired by a prospective purchaser to appraise a commercial lot with some improvements. It was difficult to determine the legal status of the improvements because of their nature. In the appraisal report Brown should:

A. Include the items located on the lot because they will be transferred with the lot;

B. Estimate the legal significance of any attached items that he is uncertain about and give his reasons;

C. Tell the buyer that he cannot complete the assignment and return all money received;

D. Disregard all items that he cannot specifically state to be a part of the property.

An appraiser should provide as much information as possible. Since he is unsure whether the items are real or personal property, he should value them separately and give his best reasoning why they would be real or personal property.

10. Which of the following can be appurtenant to land:

A. Stock in a mutual water company;

B. A attachment;

C. An easement in gross;

D. None of the above.

Stock in a mutual water company is an appurtenance; an easement in gross belongs to a person and not to land and thus is not an appurtenance; and an attachment is a lien.

11. If the Smiths sold their house for $73,700, and this was 17% more than what they paid for it, the purchase price was most nearly;

A. $58,380;

B. $61,920;

C. $62,992;

D. $65,420.

$73,700 divided by 117% = $62,991.45

12. To achieve planning goals, local, state, and federal governments have the authority to regulate the use of or to purchase private property. In its broadest definition, the source of this authority is known as:

A. Zoning;

B. Eminent domain;

C. Master plan;

D. Police power.

The broadest and most widely used governmental powers on all levels of government are the police powers which are exercised for the health, welfare, and protection of the general public.

13. Which of the following instruments requires a listing or an inventory of the main buildings on real property being conveyed, sold, or insured:

A. A grant deed;

B. A land contract of sale;

C. A CLTA policy of title insurance;

D. None of the above.

A grant deed, a land contract, and a policy of title insurance usually do not describe the improvements on the property. They deal with the title to the property.

14. In relation to deeds on real property, which of the following is not true:

A. Delivery of the deed is essential to the transfer of title;

B. A reconveyance deed is issued by the trustee to convey title to a new purchaser in connection with a "trust deed sale";

C. A quitclaim deed may convey fee simple title;

D. A grant deed conveys "after-acquired" title even when such language is not actually specified in the deed.

A reconveyance deed is used to return title held by the trustee under the deed of trust to the original trustor (or the one currently in title thereto). A trustee's deed would be used to sell the property at a trust deed sale.

15. Johnson bought a parcel of land for $63,360. Disregarding interest charges on any financing involved, property taxes, and all other variables, if it costs 12% of the future selling price to market this lot, how much must the property increase in value before it can be resold without loss:

A. 24%;

B. 112%;

C. $4,320;

D. $8,640.

(1) 100% - 12% = 88% portion of the future selling price that is merely the recovery of purchase cost; (2) $63,360 divided by 88% = $72,000 minimum selling price; (3) $72,000 - $63,360 = $8,640 necessary appreciation.

16. An appraiser is appraising a single-family residence, and notices an abandoned gas station next door. The appraiser would logically recommend which of the following:

A. A structural pest control report;

B. A toxic waste report from the EPA;

C. Rezoning of the property;

D. A soils report by a civil engineer.

The appraiser would want to know if there had been any seepage from the gas tanks which might contaminate the property he was appraising.

17. A grant deed is deemed by law to be executed at the time it is:

A. Signed by the grantor;

B. Delivered to the grantee;

C. recorded;

D. Delivered to escrow.

A document is executed when it is signed.

18. Regarding deed restrictions, mortgages, easements, and leases:

A. They are all contractual limitations on ownership;

B. They are all voluntary limitations on ownership;

C. Both "A" and "B" are correct;

D. Neither "A" nor "B" is correct.

Deed restrictions, mortgages, easements, and leases are all contractual limitations on ownership. Some types of easements are not voluntary limitations on ownership.

19. Which of the following is lien:

A. A notice to pay or quit;

B. A homestead;

C. An execution;

D. All of the above.

An execution lien is a specific lien evidenced by a "writ of execution" as a means of enforcing a judgment lien and is used to have the property sold.

20. All of the following would be considered a lien against real property except:

A. An assessment bond for sewers;

B. Private restrictions which have been recorded;

C. Unpaid property taxes first billed three years ago;

D. A duly recorded but unpaid court judgment for money.

A lien is a claim for money; private restrictions affect the use of the property, but the other three answers are each a claim for money.

21. You purchase a negotiable note and have no knowledge of any defects. You are known as:

A. The new trustor;

B. The new mortgagor;

C. The holder in blank;

D. The holder in due course.

This is a definition of a holder in due course.

22. A balloon loan could also be described as a:

A. Non-assumable loan;

B. Due-on-sale loan;

C. Partially-amortized loan;

D. Fully-amortized loan.

A balloon loan is one which incorporates a balloon payment; thus, it would be only partially amortized, since the installments do not fully retire the debt.

23. Which of the following is not a characteristic of an easement:

A. It is an interest which can be protected against interference by third person;

B. It is capable of being created by a conveyance;

C. It is considered a non- possessory interest;

D. It is an interest that can be terminated at will by the possessor of the land.

The possessor of the land is the owner of the land. He cannot terminate the easement at will.

24. An interest in real property can be acquired through "adverse possession" or by "prescription." The interest acquired by prescription is:

A. The right to use the land of another;

B. An equitable title;

C. A legal title;

D. A private grant.

Prescription refers to an easement, which is the right to use the property of another.

25. Deed restrictions are appropriately classified as:

A. General liens;

B. Constructive liens;

C. Encumbrances;

D. All of the above.

Deed restrictions (private limitations on real property) are encumbrances; that is, burdens on the title to the property.

==Quiz 9

1. The value of a property purchased for investment purposes is usually:

A. Based on the capitalization of future net income;

B. Determined by a gross multiplier factor;

C. Proportional to the structural soundness of the building;

D. Inversely proportional to the remaining economic life of the building.

The capitalization of future net income is the usual method of appraising income property.

2. Agent Brown is appraising real property by estimating the quantity, quality and durability of its net income expectancy. This procedure in the appraisal process is called:

A. Marginal utility analysis;

B. Q-Q-D survey;

C. Market data approach;

D. Capitalization of income.

The capitalization approach to value estimates the value of a property by an analysis of the quantity, quality and durability of its income.

3. Which of the following conditions would not cause a building to be declared substandard?

A. There is dampness in the habitable rooms;

B. The electrical wiring does not comply with present code, but it did when it was installed and it is now safe and is working properly;

C. There is no heating;

D. There is defective weather protection on the outside of the building.

A building would not be considered substandard if the electrical wiring complied with the code when it was installed and it was safe and working properly.

4. Whenever possible, an appraiser would estimate the value of land on the basis of:

A. The original purchase price plus the cost of making off-site and on-site improvements;

B. The size, location and utility;

C. The original cost plus the expense of making it usable;

D. The selling prices of comparable sites.

Land is normally appraised using the market data approach. The original cost or purchase price might have little to do with the present value of real property. The size, location, and utility only describe the physical features and characteristics of the property; they normally do not serve as a basis for appraisal.

5. The one particular area that appraisers find most difficult to measure accurately is:

A. Replacement cost new;

B. Cost data;

C. Accrued depreciation;

D. Capitalized income.

Appraisers sometimes find it difficult to figure the accrued depreciation on older buildings, such as a 35-year-old residence.

6. The age of a house can be determined most accurately by inspecting which of the following;

A. Physical condition of the house;

B. Architectural style of the house;

C. Tax assessor's records;

D. Recorded subdivision map.

The tax assessor's records are the best source for determining the age of an improvement. They will show when the tax assessor first started assessing that improvement. The physical condition of the house and the architectural style of the house, will give you a rough idea of when the house was built, but not an accurate one. The recorded subdivision map may show only when the land was cut up into parcels and not when the improvements were built.

7. Restoring a property to a satisfactory condition without changing the plan, form, or style of the building is known as:

A. Remodeling;

B. Rehabilitation;

C. Reclamation;

D. Reproducing.

By definition, remodeling involves changing the plan, form or style.

8. The type of depreciation which is socially oriented and from which we derive the saying "more buildings are torn down than fall down," would be known as;

A. Functional obsolescence;

B. Economic obsolescence;

C. Physical deterioration;

D. Deferred maintenance.

The saying, "more old buildings are torn down than fall down," refers to the fact that neighborhoods change and buildings become economically obsolete.

9. An elevation sheet which is used in a subdivision shows which of the following:

A. Topography of the land including slope, elevation of the site, streets, sidewalks, and curbs;

B. Drawings of the front and side views of the finished homes;

C. An interior of the homes showing framing and structure of the homes;

D. An aerial view of the site.

Elevations are drawn of the outside of the finished home.

10. Soil pipe is commonly used in:

A. Cold water lines;

B. Gas lines;

C. Irrigation lines;

D. Sewer lines.

Statement of fact.

11. When changes are made in the plan, form, or the styling of a residence in order to correct functional obsolescence or economic obsolescence, this is termed:

A. Rehabilitation;

B. Modernization;

C. Remodeling;

D. Replacement.

Statement of fact.

12. Which of the following normally installs conduit:

A. Plumbers;

B. Electricians;

C. Roofers;

D. Carpenters.

Conduit is metal pipe in which electrical wiring is placed.

13. Which of the following are benefits of ownership as contemplated by the "bundle of rights" theory:

A. To use or refrain from using the property with absolute power;

B. To acquire by escheat, adverse possession, or eminent domain;

C. To use, lease, and dispose of the property subject to burdens of taxation and possible claims of others;

D. None of the above are true statements.

An owner has a bundle of rights which includes the right to use, lease, and dispose of the property subject to governmental powers and the claims of others.

14. Property is:

A. Personal, if it is a fixture;

B. Real if it is an estate;

C. Personal if it is other than real;

D. All of the above.

All property is either real or personal.

15. Which of the following would be considered real property:

A. Crops before harvest;

B. Fruit that has not been picked, but which has been sold under contract;

C. Stock in a mutual water company;

D. Minerals which have been mined.

Crops, before harvest, could be either real or personal property. Crops which have been cut, mortgaged, or sold, are considered personal property; minerals removed from the ground are personal property; hence, stock in a mutual water company is real property.

16. Personal property is easily distinguished from real property by its:

A. Lower unit value;

B. Multiplicity of use;

C. Mobility;

D. Greater variety.

The most distinguishing feature between personal and real property is that personal property is movable; real property is immovable.

17. Mortgages and trust deeds are considered to be

A. Estates in land;

B. Personal property exclusively;

C. Chattels real;

D. None of the above.

Mortgages and trust deeds are pieces of paper and, therefore, personal property.

Quiz 10

1. The prospective purchaser may withdraw the offer at any time before the seller's acceptance of an offer has been communicated to the prospective purchaser:

A. Unless the offer states that it is irrevocable;

B. Provided the offer is not supported by a deposit;

C. Provided the offeree has breached the offer;

D. For any reason.

To create a binding contract there must be a three step process:
(1) Offeror makes an offer/bid;
(2) Offeree receives it and accepts it;
(3) Offeree's acceptance must be communicated back to the offeror; Until this takes place, the offeror may revoke or withdraw the offer and no reason is required.

2. A broker's ad in a loan newspaper says that if a buyer or seller will bring this ad to his office and either list or buy a property through him, that he will give that person $50. Which of the following is true:

A. The broker cannot give $50 to the buyer or seller;

B. The broker cannot give $50 to the buyer;

C. This would violate the real estate law because he would be compensating unlicensed persons for performing real estate acts;

D. The broker can give $50 to the buyer or seller.

The broker can share a commission with or give money or anything else of value to anyone he wants to, as long as he informs his principal.

3. A federal income tax advantage could be gained from:

A. A deduction for depreciation on income property;

B. An installment sale;

C. A tax-free exchange;

D. Any of the above.

All of the choices could result in a tax advantage.

4. The most essential element to the creation of an enforceable broker-principal relationship in matters affecting any right, title, or interest in real property is a:

A written employment contract;

B broker's written authority to accept a deposit

C. written offer to purchase

D. bilateral agreement as to the legal rate of consideration.

A written employment contract would be, of the items listed, most essential to create an enforceable contract.

5. The state Board of Equalization:

A. Equalizes the flow of mortgage money throughout California;

B. Appraises all public utility properties for tax assessment;

C. Appraises all real property where a liquor license is located;

D. Is the Board to which one appeals in case of excessive tax assessment on his property.

Statement of fact.

6. A listing agreement is:

A. A promise for a promise;

B. A bilateral contract;

C. An employment contract;

D. All of the above.

A listing agreement is a contract whereby a principal employs an agent. The listing contract that is commonly used is a bilateral contract in which a promise is given for a promise.

7. In housing construction, a joist is a:

A. Batten;

B. Girder;

C. Parallel;

D. Jamb.

Statement of fact.

8. The Subdivision Map Act requires:

A. Delivery of a copy of the Real Estate Commissioner's public report to all prospective purchasers;

B. The subdivider to prepare a tentative map and file it with the city or county;

C. Insertion of release clauses in all blanket mortgages covering subdivision property;

D. Submission of proposed sales contracts for subdivision lots that a local governing agency had approved.

The Subdivision Map Act allows the allows the local authorities to control the physical aspects of the subdivision. This is done by means of a map. The delivery of the Commissioner's public report to prospective purchasers, release clauses, and the approval of the proposed sales contracts are required by the Subdivided Lands Act.

9. In order to be entitled to a commission, a broker must show that he/she was the procuring cause of the sale under all of the following types of listings, except:

A. Exclusive agency;

B. Exclusive authorization and right to sell;

C. Open listing;

D. Nonexclusive listing.

Under an exclusive authorization and right to sell listing, the seller agrees to pay the broker if the property is sold at any time during the term of the listing by anyone. Therefore, the broker would not need to prove that the broker was the procuring cause.

10. Enforcement of sanitation requirements in connection with the sewage disposal from subdivisions is usually the responsibility of the local:

A. Health officer;

B. Plumbing inspector;

C. Building inspector;

D. Public works director.

The enforcement of sanitary requirements, in connection with sewage disposal from subdivisions, comes under the control of the State department of Health Services and it is usually enforced by the local city or county health officer.

11. When the deposit receipt on the sale of a house states that the property is being sold "as is," it:

A. Also requires a real estate transfer disclosure statement;

B. Provides that the buyer should beware;

C. Means that nothing is warranted;

D. Does not require a real estate transfer disclosure statement.

The use of the phrase "as is" in a real estate purchase contract really means nothing. The seller still must deliver the real estate transfer disclosure statement to the buyer revealing anything that is wrong with the property.

12. What is the highest construction member of a frame house:

A. Header;

B. Ridge board;

C. Collar beam;

D. Girder.

The ridge board is the highest construction member of the house to which the rafters tie.

13. All of the following are sufficient to convey an interest in real property, except:

A. Agreement of sale;

B. Bill of sale;

C. Lease;

D. Deed.

A bill of sale is used to convey an interest in personal property, not real property.

14. Under the Uniform Commercial Code, the proper document to use in mortgaging articles of personal property is a:

A. Chattel mortgage;

B. Financing statement;

C. Security agreement;

D. Bill of sale.

The Uniform Commercial Code provides for the use of a security agreement in place of the older practice of using a chattel mortgage in mortgaging articles of personal property. A financing statement is filed with the Secretary of State in order to give notice that a creditor has an interest in personal property. A bill of sale is used to Convey the personal property.

15. Potential buyer Marshall seeks to purchase a home in a new subdivision. A licensee assists Marshall in securing a loan for such purpose from a savings and loan association, explaining to Marshall the loan processing costs that will be involved at closing. Under these conditions, when the loan is arranged, a copy of the HUD Booklet, "Settlement Costs and You":

A. need not be provided to Marshall if the procedures and costs of the loan have been adequately explained;

B. Must be provided immediately by the licensee;

C. Must be provided to Marshall within one week;

D. Must be provided to Marshall by the lender within three days of the loan application.

The law requires that the HUD Booklet be given to the borrower within three days of the loan application. The lender is normally responsible for this service.

16. None of the following would automatically terminate an offer to buy real property except:

A. Revocation of the offer by the offeree;

B. Rejection of the offer by the offeror;

C. An inquiry by the offeree as to whether the offeror will accept different terms;

D. Rejection of the offer by the offeree.

If the one to whom the offer is made (the offeree) rejects the offer, the offer is terminated. The offeror can revoke (call back) the offer, the offeree cannot.

17. In a real estate purchase contract, the liquidated damages clause is initialed and the buyer defaults. The deposit will be:

A. No more than 3% of the selling price or the amount of deposit, whichever is less;

B. Used to pay any escrow expenses and the balance returned to the buyer;

C. Divided equally between the seller and the listing agent;

D. Given to the seller when escrow in opened.

According to the liquidated damages clause the deposit is used to pay any expenses (escrow, etc.) and then given to the seller who divides it with the broker. The deposit can be more than 3% but the liquidated damages cannot be more than 3% if the property is residential and will be occupied by the buyer.

18. How many feet are on one side of a section:

A. 1,000;

B. 2,640;

C. 5,280;

D. 43,560.

A section is one mile on each side. One mile equals 5,280 lineal feet.

19. Carter purchased a parcel of real property for $200,000, paying 25% cash and 75% in a purchase-money mortgage. Over a ten-year period, the property doubled in value. Exclusive of equity buildup, Carter's original cash investment is now worth:

A. $100,000;

B. $120,000;

C. $200,000;

D. $250,000.

(1) $200,000 x .25 = $50,000; (2) $200,000 - $50,000 = $150,000 loan; (3) $200,000 x 2 = $400,000; (4) $400,000 - $150,000 = $250,000.

20. In the capitalization method of appraising, the most difficult step is to:

A. Establish the gross income;

B. Establish the effective gross income;

C. Establish the net income;

D. Select a capitalization rate.

When selecting a capitalization rate for a property many subjective factors are used. One of them would be the investor's desired rate of return.

21. The Internal Revenue Service would define the marginal tax rate as:

A. The tax rate which is used for the next dollar of taxable income earned;

B. The 15% tax rate;

C. The tax rate used for your state income taxes;

D. None of the above.

The marginal tax rate is the tax rate that applies to the next taxable dollar that a person earns.

22. A man borrowed $2,500 on a straight note. In eight months, he paid $150. What was the interest rate:

A. 8.4%;

B. 9%;

C. 10%;

D. None of the above.

(1) $150.00 amount paid divided by 8 months = $18,75; (2) $18.75 x 12 = $225; (3) $225.00 divided by $2,500 = .09.

23. A square parcel of land, 1,780 feet long and 1,780 feet wide, will be most nearly equal in size to:

A. 73 acres;

B. 65 acres;

C. 43 acres;

D. 27 acres.

(1) 1,780 x 1,780 = 3,168,400; (2) 3,168,400 divided by 43,560 = 72.7+.

24. Which of the following is the largest parcel of land:

A. 10% of a township;

B. 2 sections;

C. 2 miles square;

D. 5,280 feet x 10,560 feet.

A two mile square would be a square two miles on each side. It would contain four sections. The other choices are all smaller.

25. Which of the following is the largest in area:

A. 4,047 square yards;

B. 1 acre;

C. 196 foot square;

D. 41,640 square feet.

(1) 4,047 sq. yd. x 9 sq. ft. per sq. yd. = 36,423 sq. ft.; (2) 1 acre = 43,560 sq. ft.; (3) 196 x 196 = 38,416 sq. ft.

Quiz 11

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Correct answers are highlighted in green.

Incorrect Answers are highlighted in red.

1. If a person owns two personal residences and sells one and buys another one under conditions that comply with the gain deferral rules, which of the following is true?

A. The person must sell both residences in order to qualify for deferral;

B. Only the residence that has the greater value can use the deferral rules;

C. Deferral of the gain can only be done on the principal place of residence;

D. Deferral of the gain can be used for either residence.

According to income tax laws, the deferral of gain when an owner-occupant sells his personal residence and buys another one applies only to the principal residence. A person can have only one principal residence at a time.

2. Which of the following appraisal reports would be the most comprehensive and complete:

A. Narrative;

B. Certificate;

C. Letter;

D. Form.

A narrative appraisal report is usually very lengthy. The appraiser would investigate every factor which might influence the value of the property. He would consider the neighborhood, schools, churches, library, and the city, among other things.

3. All of the following would be considered essential to making an appraisal of old family residences, except:

A. Purpose of the appraisal;

B. Suitability of the residence to the site;

C. Physical condition of the building;

D. Original cost of the residence.

The original cost of a property, especially an old one, is the least important factor in determining its present value.

4. Which of the following would not be considered one of the great special forces influencing value:

A. Social ideals and standards;

B. Private restrictions;

C. Economic adjustments;

D. Government regulations.

The special forces influencing value are physical characteristics, social ideals and standards, economic adjustments, and political or governmental regulations.

5. In analyzing a parcel of vacant land to estimate its value, what is the first thing necessary to determine:

A. Price at which it should be listed;

B. Price at which it was purchased;

C. Highest and best use of the land;

D. Prices of comparable properties.

The first thing to do when appraising a parcel of vacant land is to determine its highest and best use.

6. The basis of the market data approach to appraising is found in:

A. The principle of change;

B. The principle of substitution;

C. The principle of conformity;

D. The principle of anticipation.

The principle of substitution says that the value of a property tends to be set by the cost of acquiring an equally desirable substitute property.

7. An appraiser is appraising a two-year-old, single-family, owner-occupied home in a good neighborhood. If he is trying to determine the sales price, which of the following would normally be given the greatest weight:

A. Determining the value received from direct use of the property by the owner-occupant;

B. Determining the present cost to replace the dwelling, plus the depreciation to date and the land value;

C. Capitalizing the rental income from an apartment property that is comparable, using the capitalization rate that is common in the neighborhood;

D. Carefully comparing the property with similar properties that have sold recently in the neighborhood.

The best method to appraise a residential single-family home is the comparison approach.

8. When appraising amenity-type properties, the method generally used is know as:

A. Risk rating method;

B. Replacement cost;

C. Market comparison;

D. Capitalization of income.

The market comparison method is used primarily when appraising amenity properties such as swimming pools, tennis courts, high-rise parking, etc.

9. The income approach would not be used when appraising:

A. Commercial retail properties;

B. Residences in new subdivisions;

C. Industrial buildings on long-term lease;

D. Neighborhood shopping centers.

The income approach considers the annual net income in arriving at the value of the property. Residences in a new subdivision would not be considered rental property.

10. The maximum potential income which any income-producing property is capable of generating is known as:

A. Gross scheduled income;

B. Gross effective income;

C. Net operating income;

D. Net spendable income.

The gross scheduled income is the maximum potential income that an income-producing property is capable of producing under ideal conditions, i.e., 100% occupancy at 100% maximum rental rate.

11. Which of the following is not a proper charge in determining net income for capitalization purposes;

A. Vacancy and collection losses;

B. Maintenance expenses;

C. Management agent's fees;

D. Mortgage interest.

In determining the net income for capitalization purposes, only the following items can be subtracted from gross income: Vacancies, taxes, utilities, maintenance, management, and insurance. Financing costs cannot.

12. Wolfman is considering a extensive modernization program for an older apartment building which she owns. Her decision should give most emphasis to:

A. The cost involved;

B. The history of vacancy;

C. The potential increase in real property taxes;

D. Net effect on the net income.

In determining whether to do an extensive modernization program, a property owner should carefully analyze the effect this will have on net income.

13. Larson's property has a fair market value of $39,000 and is currently renting for $300 per month. Gilman's property, which is located in the same neighborhood, is more expensive, and therefore, will rent for $345 per month. Using the same percentage rate of return as Larson's property, what is the value of Gilman's property:

A. $44,850;

B. $44,220;

C. $43,000;

D. $42,930.

(1) $39,000 Larson's value divided by $300 monthly rent = 130 gross rent multiplier; (2) 130 gross rent multiplier x $345 monthly rent (Gilman's property) = $44,850 approximate value.

14. When comparing the physical and the economic life of an improvement, the economic life usually is:

A. Shorter;

B. Longer;

C. The same;

D. Shorter or longer, depending on the type of improvement.

The economic life is usually shorter than the physical life. The economic life is the period during which the improvement will sow a return on the investment. A building will usually be worn out and unrentable a year or two before it falls down.

15. Mr. Smith, who owns an apartment, sustained a $3,000 operational loss for the tax year. For income tax purposes, he may:

A. Deduct only $1,000 of the loss on his income tax return;

B. Offset the loss against any capital gains;

C. Deduct the full amount from his ordinary income;

D. Deduct only one-half of the loss from his ordinary income.

Rent is ordinary income and an operational loss can be deducted.

16. When trying to determine the amount of economic obsolescence suffered by a commercial property, the answer to which of the following questions would be of most benefit:

A. Can a building be operated efficiently?

B. Are the tenants in the neighborhood prospering;

C. Should a fire escape be installed;

D. Is the rental schedule of the building equitably charged to the tenants?

Economic obsolescence, i.e., social obsolescence, concerns factors of the surrounding properties within the same geographic area; such as, are the tenants in the general neighborhood prospering, or is it a depressed area, etc.

17. Which of the following would be contained in a plot map:

A. Thickness of exterior walls;

B. Concrete foundation;

C. Location of the improvement on the lot and relationship to surrounding features;

D. All of the above.

The plot map would show the location of the improvement on the lot.

18. The effectiveness of insulation is referred to as its "R-value." The R stands for:

A. Required minimums;

B. Resistance to heat flow;

C. Replacement values;

D. None of the above.

This is what the R stands for.

19. According to income tax laws, which of the following is true about depreciation of land?

A. Land has a residual value but improvements do not;

B. The ACRS method of depreciation can be used when depreciating land;

C. Land is considered to be 25% of the total value and is depreciated;

D. Land is not depreciated.

Under income tax laws, land never depreciates.

20. An offer to purchase real estate could be terminated in all of the following ways, except:

A A conditional acceptance of the offer by the offeree;

B Failure to communicate notice of revocation before the other party has communicated his acceptance;

C Death or insanity of the offeror or offeree;

D Failure to accept the offer within the prescribed period of time.

Read carefully. A binding contract would result if the offer has been accepted, and the acceptance communicated to the offeror prior to the revocation of that offer. A conditional acceptance would, in effect, be a counter offer, and answers C and D would not result in a valid contract.

21. A deposit receipt said, "Seller to provide and pay for a structural pest control inspection report on improvements and pay for corrective work, if any." The broker must be certain that the buyer receives a copy of the structural pest control report:

A. Within 10 days of opening escrow;

B. Within 5 working days of the date of the termite report;

C. As soon as practicable before close of escrow;

D. None of the above.

The law requires the report to be delivered as soon as practicable.

22. When a trust deed is sold, the parties often use an escrow in order to:

A. Obey the civil code;

B. Be a witness for the transaction;

C. Make sure that the conditions and terms are met prior to the closing of the transaction;

D. Provide a legal recourse against the escrow company for the two parties involved.

The purpose of any escrow is to make sure that all of the details of the agreement are completed before the closing of the transaction.

23. When a licensee is the buyer's agent, the licensee will tell others:

A. As soon as possible;

B. After the offer has been presented and accepted;

C. When the loan is funded;

D. After the licensee receives his commission.

An agent must reveal who his principal is as soon as possible.

24. An offer on listed property was accepted and the acceptance was communicated to the buyer. However, before going to escrow, the seller found a buyer who was willing to pay all cash and notified the broker that the original deal was rescinded:

A The buyer must be refunded the amount of the deposit, but he has no further claim or right against the seller;

B The broker would not be entitled to compensation since escrow had not opened and the transaction had not closed;

C The broker has good legal basis for a commission claim;

D The broker could probably void the transaction which the seller made with the all-cash buyer.

Since the broker did the job he was hired to do in finding a buyer with an offer acceptable to the seller, he is entitled to his commission, even if the seller cannot or will not sell the property.

25. Of the following, which best defines a fee simple estate?

A Title in owner without limitations;

B Estate for years;

C Life estate;

D Most interest one can hold in land.

The "A" answer is eliminated because all property is going to have some limitations; for example, the police powers of zoning and building codes may limit title to property, whereas the fee simple estate is the most interest that one can hold in property.

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Quiz 12

Congratulations, you passed the quiz with a score of 80%!

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Correct answers are highlighted in green.

Incorrect Answers are highlighted in red.

1. Which of the following type of transactions would most frequently allows the real estate agent to collect a commission from more than one party:

A Long-term open-end listings;

B Business opportunity sales;

C Short term leases;

D "Tax-Free" exchanges.

An exchange might reasonably involve a commission from more than one party, since each seller might well have contracted to pay a commission in the original listing.

2. Which of the following statements is true with respect to options: An option is:

A Valid without consideration;

B Valid if the consideration is exactly $10, but not delivered;

C Valid if consideration is delivered, even if it is less than $10;

D Not valid if the delivered consideration is less than $10.

An option, to be valid, must have actual consideration and the consideration must be delivered. The amount does not matter, as long as it is delivered.

3. Concerning option contracts, which of the following statements is most incorrect:

A If the optionee does not exercise the option right, the optionee loses the option money that was given the optionor for the right to purchase during the option period;

B If the optionee decides to buy the property, it will be necessary to enter into a separate sales contract before the expiration of the option in order for the two parties to be legally bound;

C The optionee must give the optionor some amount of valuable consideration;

D Separate from the purchase of real property owned by a business, an option may be used to buy the business separate from the property.

An option contract should spell out the complete terms and conditions of the option, the time in which it is to be exercised, etc. Therefore, no additional agreement would be required. It is true that there must be some amount of valuable consideration involved in the option, and that if the option is not exercised during the specified time period, the optionee loses the amount of the option monies. Options can be used to purchase business opportunities.

4. In which of the following contracts does one of the parties agree not to revoke an offer for a certain period of time?

A An exchange listing;

B An option;

C A ratification;

D An exclusive right to sell listing.

In an option, the optionor, or giver of the option, agrees to keep the offer open for a specified period of time.

5. When a broker sells a property on which he holds an option, he must inform the buyer that he is acting as:

A An optionor;

B A grantor;

C An agent;

D A principal.

Any party holding an option is an optionee and a principal. If the broker decides to sell his interest, he must disclose this to the buyer.

6. A contract is best defined as:

A a deliberate agreement between two or more persons to perform or abstain from an act;

B a deliberate agreement between two competent persons to perform or abstain from a legal act;

C a deliberate agreement, based upon a legal consideration, between two or more parties who have legal capacity, to perform or abstain from doing a legal act;

D a deliberate agreement, based upon a legal consideration between two or more parties, to perform or abstain from doing an act.

This is the best answer given because it includes the four legal essentials and is therefore the most complete. Can you find the four legal essentials?

7. If a contract is considered voidable, it is:

A Invalid,

B Void

C Valid until voided;

D None of the above.

A voidable contract is valid until voided by the injured party.

8. An executed contract is a contract:

A Completed and fully performed by both parties;

B Under the jurisdiction of the probate court;

C Signed, notarized, and recorded;

D That requires a novation.

This is a good definition of an executed contract.

9. Which of the following is required for a valid contract:

A Legal capacity;

B Consideration;

C Lawful object;

D All of the above.

The four requirements for a valid contract are: (1) legal capacity; (2) mutual consent, usually an offer an unqualified acceptance of the offer; (3) lawful object; and (4) consideration.

10. Joanie James, a minor wanted to hire Broker Stone to assist in a real estate transaction. Legally, a broker may not be employed by a minor, because the minor:

A Is legally incapable of appointing an agent;

B Is prohibited by law from making any contract relating to real property under any conditions;

C May disaffirm contracts within a 25-year period;

D Is considered incapable of making adult decisions and the broker breaches fiduciary responsibility in representing the minor.

An unemancipated minor lacks legal competence; and in the eyes of the law, is legally incapable of appointing an agent.

11. All of the following are essential elements of every valid contract, except:

A A meeting of the minds;

B Adequate capability of parties;

C A legal act;

D The payment of money.

The consideration required for a valid contract could be the payment of money, but it could also be, for example, the performance of an act.

12. A voidable contract is a contract that:

A Was valid at the time that it was signed, but for some reason cannot be proved or sued upon by either or both parties;

B Contains all of the legal essentials that are required for its existence;

C Has no legal effect because it really is not a contract;

D Is valid and enforceable on its face, but it may be rejected by one of the parties.

This is a classic definition of a voidable contract.

13. In order for an agreement for a transfer of real property to be binding on the buyer and seller, it must:

A Contain an offer and an acceptance;

B Contain an acknowledgment;

C Be recorded;

D All of the above.

Any contract for the transfer of property must contain an offer and an acceptance. It also must be in writing. It does not have to be acknowledged or recorded.

14. Swenson, a 16-year old divorcee, went to Broker Cook trying to list Swenson's portion of community real property. Broker Cook can legally:

A Accept the listing provided the commission is approved by a court of competent jurisdiction;

B Accept the listing and agree to sell according to the instructions of Swenson;

C Not accept the listing unless Swenson is declare emancipated by a court of competent jurisdiction;

D Not accept the listing until Swenson has reached the age of 18.

A minor is considered emancipated if he or she has been legally married. Hence, Broker Cook can legally accept a listing from a 16-year old divorcee.

15. At what minimum age is a single person who has not had any court of guardianship intervention legally capable of entering into an enforceable real estate contract:

A 16 years;

B 18 years;

C 19 years;

D 21 years.

In California, a person becomes legally competent at the age of 18, unless earlier emancipated.

16. Michaels, who is a 15-year-old and an emancipated minor, wants to sell a parcel of land and has submitted documentation of emancipation to the listing broker. After the broker finds a buyer, he should submit the documentation to the:

A Escrow company;

B Title insurer;

C Buyer's lender;

D Buyer.

As holder of documents relating to the transaction, the escrow company would be the logical one to hold the documentation of emancipation.

17. Actual fraud has been described as:

A The suppression of that which is true by a person who has knowledge or belief of the fact;

B The intentional and successful circumventing or cheating or another person;

C A promise which has been made without any intention of performing it;

D All of the above.

All of these are included within the definition of actual fraud.

18. Sometimes in a bilateral contract, the offeror gives a promise expecting a return promise from the offeree. When the return promise is given, each promise is:

A Part performance;

B Consideration for the contract;

C An option to perform;

D A subrogation.

The consideration for a contract can be a promise as well as money or other things of value or love and affection.

19. In order for a contract to be valid, it must have consideration. "Valuable consideration" may be:

A Anything which the parties deem to be of value;

B $1 or more;

C The performing of services by one or both parties;

D Any of the above.

All of these would be considered valuable consideration.

20. An agreement for the transfer of real estate, in order to be binding on buyer and seller, must:

A Contain an acknowledgment of the signature of the buyer;

B Be submitted to the county recorder of the county in which the property is located;

C Contain an offer and acceptance;

D All of the above.

Signatures on an agreement for the transfer of real property need not be acknowledged to be binding; nor need they be recorded. But mutual agreement is essential in the contract, and that is normally evidenced by an offer and acceptance.

21. When a contract has been rescinded, it means that it has been:

A Revised:

B Subrogated;

C Honored;

D Annulled.

When a contract is rescinded, the contract becomes null and void.

22. Sampson offered to fully perform his part of a purchase contract. This would be described as:

A Demand;

B Condition;

C Tender;

D Covenant.

An offer to fully perform is referred to as tender.

23. A remedy in court compelling a vendor to execute a deed in pursuance of a valid written contract is known as:

A Specific performance;

B Foreclosure;

C Execution;

D Equity of redemption.

Specific performance is a court suit where the party to a contract is ordered by the court to perform specifically as promised. Foreclosure refers to a loan. Execution is a court order to sell the property. Equity of redemption refers to the borrower's right to redeem and keep the property within certain time limits.

24. Assume a broker took an open listing. He then made an oral agreement with another broker to share the commission on the commission on the property. The second broker procured an offer resulting in the sale of the property. The first broker refused to share his commission on the sale:

A He need not share the commission, as it was an it was an open listing;

B He need not share the commission, because of the Statute of Frauds;

C The second broker would stand a good chance of winning a court suit for his share of the commission;

D The second broker could sue the seller for his share of the commission.

An agreement between brokers to share a commission need not be in writing, and could be enforced on an open listing. A second broker does not have an agreement with the seller.

25. A seller sued a broker for failing to disclose a material fact to him. In defense, the broker proved that his listing contract with the seller was oral. Under these circumstances:

A The defense is a bar to the lawsuit because of the Statute of Frauds;

B The Statute of Frauds does not apply because the transaction was completed;

C The defense is not a bar to the lawsuit because it is not applicable to the issue of the case;

D The defense does bar the lawsuit unless the seller can show actual damages exceeding $100.

Failure to disclose material facts cannot be justified on the basis that the listing was oral.

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Correct answers are highlighted in green.

Incorrect Answers are highlighted in red.

1. When depreciation is taken on real property:

A. The property has no salvage value;

B. The basis is reduced;

C. The value increases;

D. None of the above.

Depreciation reduces the cost basis of the property.

2. The buyers made an offer on the exact terms of the listing contract on February 1, with the condition that the offer be accepted within 72 hours. The broker was unable to contact the sellers until February 6. When the sellers accepted the offer, the broker that they had changed their minds and did not want to purchase the property. The buyers demand the return of their deposit;

A. The buyers have grounds to demand the return of their deposit;

B. The deposit would be forfeited because it was not the sellers' fault that the broker could not locate them;

C. The broker would receive a full commission;

D. The broker would receive one-half of his commission.

Buyer or seller may make an offer contingent upon certain conditions. Since the offer was not accepted within 72 hours, the passage of that time terminated the offer.

3. In determining gain or loss on real property acquired by purchase, for federal income tax purposes, the term "unadjusted basis" most nearly means:

A. Original cost;

B. Original cost plus improvements minus losses;

C. Original cost plus or minus improvement costs, losses and depreciation;

D. Original cost minus losses.

For federal income tax purposes in determining gain or loss on real property, the term "unadjusted basis" most nearly means the original cost.

4. Mr. Reynolds constructed a $500,000 income-producing building on a lot for which he paid $100,000. Mr. Reynolds financed the construction of the building by paying $100,000 cash and obtaining an 8% per annum interest rate land for $400,000 secured by a first trust deed lien against the property. Under these conditions, Mr. Reynolds can depreciate on future income tax returns:

A. $600,000;

B. $500,000;

C. $400,000;

D. $100,000.

An owner is only permitted to take depreciation on improvements, not land.

5. Mr. Wall owned an apartment building with an adjusted cost basis of $220,000 and a fair market value of $330,000. He exchanged the property for an apartment house which had a fair market value of $365,000. Both properties were free and clear and no adjustment was made for the differences in value. For federal income tax purposes, the new property will have a basis for Mr. Wall of:

A. $110,000;

B. $145,000;

C. $205,000;

D. $220,000.

On an exchange of property, the cost basis of the property being surrendered becomes the cost basis for the property being acquired if no adjustment is made for differences in value; in this case, $220,000.

6. The annual property taxes an owner of a home must pay are determined by:

A. Assessing the land and improvements separately, then multiplying the total by one tax rate;

B. Assessing the land and improvements together, then multiplying by one tax rate;

C. Assessing the land and improvements separately, then multiplying by different tax rates;

D. None of the above.

A separate assessed value is determined for land and improvements. However, one tax rate is applied to the total assessed value of land and improvements. Assessed Value x Tax Rate = Taxes ($).

7. Under the Subdivision Map Act, subdivision reports must be filed with the:

A. City or county where the land is located;

B. Real estate Commissioner;

C. Division of Architecture;

D. Division of State Lands.

The Subdivision Map Act gives the local authorities control over the physical aspects of the subdivision as to zoning, building, and health codes.

8. Mr. Jones, in order to comply with the regulations of the state Housing Law, should seek the issuance of a building permit from:

A. The local building department;

B. The nearest office of the Department of Housing and Community Development;

C. The California Department of Real Estate;

D. The California Department of Urban Renewal.

The state Housing Law sets minimum standards; however, all building permits are issued from the local building department, be it city or county.

9. In a city or county, compliance with the state Housing Act is usually enforced by:

A. City engineer;

B. Police department;

C. City Planning Commission;

D. Building inspector.

The state Housing Act sets the minimum building standards, which are usually enforced by the local building department.

10. Mr. James sold Blackacre to Mr. Woods. Before he sold it, Blackacre had an appurtenant easement across Whiteacre, which was owned by Mr. Sommers. When Mr. Woods tried to use the easement, Mr. Sommers protested, which of the following is correct?

A. Mr. Sommers owns the servient tenement and his consent must be obtained for Mr. Woods to use the easement;

B. An appurtenant easement always passes when the property is sold;

C. Mr. James owns the dominant tenement and the easement upon it;

D. Mr. James owns the easement and can give it to anyone.

Appurtenant easements always pass with the land to the new owner when the property is conveyed.

11. Basic regulation of the housing and construction industries is accomplished by:

A. State Housing Act;

B. Local building codes;

C. The state Contractor's License Law;

D. All of the above.

All three of these help to regulate the housing and construction industry.

12. Why do brokers use trust fund accounting?

A. In order to commingle funds;

B. In order to designate their accounts with the Federal Deposit Insurance Corporation;

C. In order to separate trust fund money from the broker's money;

D. In order to earn more interest.

The purpose of the broker's trust fund account is to separate the broker's personal funds from money that belongs to other people.

13. A preliminary report issued by the Real Estate Commissioner will expire:

A. When the final report is obtained;

B. One year after its issuance;

C. When any material change in the offering occurs;

D. Any of the above.

"A," "B," and "C" are the three ways that a preliminary report terminates.

14. When a lender loans a borrower 100% of the purchase price of a house, and the loan is not government-related, the lender would be best protected by:

A. A low interest rate;

B. Low monthly payments;

C. Appreciation;

D. A downturn in the economy.

If the property appreciates in value, this would provide some money to pay any costs of foreclosure if necessary.

15. Which of the following would be an illustration of the government's police power:

A. The creation of restrictive conditions by the original subdivider;

B. Eminent domain proceedings against property in the path of a proposed freeway;

C. Adjudication of conflicting claims between present and former owners of parcel of real property;

D. The enactment of zoning laws limiting the use which may be made of a parcel of real property.

Zoning regulations are one of the most common examples of the government's police power.

16. A voidable contract remains binding upon the parties until the contract is:

A. Invalidated;

B. Rescinded;

C. discovered;

D. Qualified.

A voidable contract is one which stands until such time as the injured party takes action to rescind it. It behooves the injured party to take action immediately upon a breach of the contract, or the court could find that the injured party has accepted the breach as a modification of the contractual terms.

17. Deregulation of the financial institutions most nearly means:

A. There is now no government control of financial institutions;

B. There is no limit on the interest rate financial institutions can pay on deposits;

C. Financial institutions can no longer respond to market conditions;

D. Examination and enforcement attitudes are more relaxed.

Under deregulation financial institutions may now pay any amount of interest on deposits.

18. Under the Alquist-Priello Special Studies Act a subdivider would be required to disclose to potential purchasers;

A. Toxic waste sites;

B. Earthquake fault lines;

C. Flood hazard zones;

D. Water quality reports.

The Alquist-Priello Special Studies Act requires the subdivider to make certain disclosures if the property is near earthquake faults.

19. Which of the following is the legal method that a city uses to implement its general plan?

A. Variances;

B. General land use;

C. Zoning;

D. Conditional use permits.

A city's general plan indicates which areas will be used for which types of development. In order to implement the general plan, the city will pass zoning laws allowing only certain types of development to occur within certain areas.

20. One-half of a standard township would contain how many square miles:

A. 1;

B. 6;

C. 18;

D. 36.

Since a standard township contains 36 square miles, half of a standard township would contain 18 square miles.

21. As used in most deeds of trust, the term default refers to:

A. Use of the property for an illegal purpose or activity;

B. The refusal of the borrower to see that the property is adequately maintained;

C. Delinquent loan payments;

D. Any of the above.

The usual deed of trust allows the beneficiary to declare a default when any of the acts listed occurs.

22. In order to earn $75 per month, the amount one would have to invest at 5% would be:

A. $6,000;

B. $12,000;

C. $18,000;

D. 424,000.

(1) $75 x 12 = $900
(2) $900.00 / .05 = $18,000

23. When a borrower has defaulted on a loan, and the lender chooses judicial foreclosure, the mortgagor is given a specified period of time to redeem the property. During this redemption period, the right of possession of the property is held by the:

A. Mortgagee;

B. Commissioner designated by the court;

C. Court-appointed trustee;

D. Mortgagor.

During the one-year right of redemption, the defaulting borrower (the mortgagor) may remain in possession of the property.

24. Of the following, which would have priority (would be a superior lien):

A. A first deed of trust;

B. A homestead;

C. A 1911 Street Improvement assessment lien (bond);

D. Whichever of the above was recorded first.

An assessment lien and property taxes generally have priority over all other liens.

25. Bronson owns a 24-unit apartment building. In 1977, he rented all of the units for $150 a month and had 100% occupancy. In 1978, he increased the rent by 10%, but he had a 10% vacancy factor. His annual effective gross income was approximately:

A. 10% more in 1977;

B. 10% more in 1978;

C. Equal in both years;

D. 1% more in 1977.

(1) $150 x 24 = $3,600;
(2) $3,600 x 12 = $43,200;
(3) $43,200 x .10 = $4,320;
(4) $43,200 + $4,320 = $47,520;
(5) $47,520 x .10 = $4,752;
(6) $47,520 - $4,752 = $42,768;
(7) $43,200 - $42,768 = $432 less in 1978;
(8) $432 / $43,200 = .01 = 1%.

1. Each of the following is considered an estate in real property, except:

A. Trust deed;

B. Remainder;

C. Reversion;

D. Leasehold.

Lenders, such as beneficiaries under a deed of trust, do not hold an estate in real property. Life estates imply an estate in remainder or reversion upon termination of the designated life, and leaseholds are estates in real property.

2. Economic rent is the rent:

A. Received for comparable space in the economic open market;

B. Charged under a contract;

C. That the property would command in a perfectly informed market;

D. necessary to produce a competitive return to the owner.

This is a good definition of economic rent. There probably is no such thing as a perfectly informed market.

3. All of the following would be classed as real property, except:

A. Unextracted crude oil;

B. Leasehold estates in residential properties;

C. Uncultivated grove of trees;

D. Easements appurtenant.

Leasehold estates in residential properties refers to a lease, which is a contract between the landlord and a tenant. This contract would be classified as personal property.

4. Riparian rights:

A. Give absolute ownership of adjacent waters;

B. Are set forth in a standard title insurance policy;

C. May accurately be determined from an examination of public records;

D. Include the right to reasonably appropriate water as needed.

Riparian rights refers to the rights of a landowner land touches a river or stream to use a reasonably appropriate amount of water as needed.

5. When creating a fully-amortized loan for $5,000 at an 11% interest rate for 20 years, the lender will require equal monthly payments of $51.61, including principal and interest. How much of the first monthly payment will be used to reduce the principal balance:

A. $45.83;

B. $25.80;

C. $11.56;

D. $5.78.

(1) $5,000 x 11% = $550 annual interest; (2) $550 divided by 12 = $45.83 monthly interest; (3) $51.61 monthly payment less $45.83 interest = $5.78 principal portion.

6. In tenancy in common, there is always a unity of:

A. Time;

B. Title;

C. Interest;

D. Possession.

Equal rights of possession are a part of a tenancy in common. All four unities are present in a joint tenancy.

7. A real estate broker may have difficulty with personal property because its ownership rights and identification may be difficult to determine. This is because personal property can:

A. Be alienated;

B. Be hypothecated;

C. Become real property;

D. All of the above.

Personal property can be alienated or transferred, can be hypothecated or used as security for a loan, or can become real property.

8. When the law finds that an owner has riparian rights, it means he has rights relating to the use and ownership of water from which of the following sources:

A. Rivers, streams, and watercourses;

B. Underground cavities;

C. The arms of a bay;

D. All of the above.

An owner has riparian rights when the water on or adjacent to his land is a river, stream, or watercourse. When the water is a lake or ocean, the rights are littoral.

9. Mr. Brown was hired by a prospective purchaser to appraise a commercial lot with some improvements. It was difficult to determine the legal status of the improvements because of their nature. In the appraisal report Brown should:

A. Include the items located on the lot because they will be transferred with the lot;

B. Estimate the legal significance of any attached items that he is uncertain about and give his reasons;

C. Tell the buyer that he cannot complete the assignment and return all money received;

D. Disregard all items that he cannot specifically state to be a part of the property.

An appraiser should provide as much information as possible. Since he is unsure whether the items are real or personal property, he should value them separately and give his best reasoning why they would be real or personal property.

10. Which of the following can be appurtenant to land:

A. Stock in a mutual water company;

B. A attachment;

C. An easement in gross;

D. None of the above.

Stock in a mutual water company is an appurtenance; an easement in gross belongs to a person and not to land and thus is not an appurtenance; and an attachment is a lien.

11. If the Smiths sold their house for $73,700, and this was 17% more than what they paid for it, the purchase price was most nearly;

A. $58,380;

B. $61,920;

C. $62,992;

D. $65,420.

$73,700 divided by 117% = $62,991.45

12. To achieve planning goals, local, state, and federal governments have the authority to regulate the use of or to purchase private property. In its broadest definition, the source of this authority is known as:

A. Zoning;

B. Eminent domain;

C. Master plan;

D. Police power.

The broadest and most widely used governmental powers on all levels of government are the police powers which are exercised for the health, welfare, and protection of the general public.

13. Which of the following instruments requires a listing or an inventory of the main buildings on real property being conveyed, sold, or insured:

A. A grant deed;

B. A land contract of sale;

C. A CLTA policy of title insurance;

D. None of the above.

A grant deed, a land contract, and a policy of title insurance usually do not describe the improvements on the property. They deal with the title to the property.

14. In relation to deeds on real property, which of the following is not true:

A. Delivery of the deed is essential to the transfer of title;

B. A reconveyance deed is issued by the trustee to convey title to a new purchaser in connection with a "trust deed sale";

C. A quitclaim deed may convey fee simple title;

D. A grant deed conveys "after-acquired" title even when such language is not actually specified in the deed.

A reconveyance deed is used to return title held by the trustee under the deed of trust to the original trustor (or the one currently in title thereto). A trustee's deed would be used to sell the property at a trust deed sale.

15. Johnson bought a parcel of land for $63,360. Disregarding interest charges on any financing involved, property taxes, and all other variables, if it costs 12% of the future selling price to market this lot, how much must the property increase in value before it can be resold without loss:

A. 24%;

B. 112%;

C. $4,320;

D. $8,640.

(1) 100% - 12% = 88% portion of the future selling price that is merely the recovery of purchase cost; (2) $63,360 divided by 88% = $72,000 minimum selling price; (3) $72,000 - $63,360 = $8,640 necessary appreciation.

16. An appraiser is appraising a single-family residence, and notices an abandoned gas station next door. The appraiser would logically recommend which of the following:

A. A structural pest control report;

B. A toxic waste report from the EPA;

C. Rezoning of the property;

D. A soils report by a civil engineer.

The appraiser would want to know if there had been any seepage from the gas tanks which might contaminate the property he was appraising.

17. A grant deed is deemed by law to be executed at the time it is:

A. Signed by the grantor;

B. Delivered to the grantee;

C. recorded;

D. Delivered to escrow.

A document is executed when it is signed.

18. Regarding deed restrictions, mortgages, easements, and leases:

A. They are all contractual limitations on ownership;

B. They are all voluntary limitations on ownership;

C. Both "A" and "B" are correct;

D. Neither "A" nor "B" is correct.

Deed restrictions, mortgages, easements, and leases are all contractual limitations on ownership. Some types of easements are not voluntary limitations on ownership.

19. Which of the following is lien:

A. A notice to pay or quit;

B. A homestead;

C. An execution;

D. All of the above.

An execution lien is a specific lien evidenced by a "writ of execution" as a means of enforcing a judgment lien and is used to have the property sold.

20. All of the following would be considered a lien against real property except:

A. An assessment bond for sewers;

B. Private restrictions which have been recorded;

C. Unpaid property taxes first billed three years ago;

D. A duly recorded but unpaid court judgment for money.

A lien is a claim for money; private restrictions affect the use of the property, but the other three answers are each a claim for money.

21. You purchase a negotiable note and have no knowledge of any defects. You are known as:

A. The new trustor;

B. The new mortgagor;

C. The holder in blank;

D. The holder in due course.

This is a definition of a holder in due course.

22. A balloon loan could also be described as a:

A. Non-assumable loan;

B. Due-on-sale loan;

C. Partially-amortized loan;

D. Fully-amortized loan.

A balloon loan is one which incorporates a balloon payment; thus, it would be only partially amortized, since the installments do not fully retire the debt.

23. Which of the following is not a characteristic of an easement:

A. It is an interest which can be protected against interference by third person;

B. It is capable of being created by a conveyance;

C. It is considered a non- possessory interest;

D. It is an interest that can be terminated at will by the possessor of the land.

The possessor of the land is the owner of the land. He cannot terminate the easement at will.

24. An interest in real property can be acquired through "adverse possession" or by "prescription." The interest acquired by prescription is:

A. The right to use the land of another;

B. An equitable title;

C. A legal title;

D. A private grant.

Prescription refers to an easement, which is the right to use the property of another.

25. Deed restrictions are appropriately classified as:

A. General liens;

B. Constructive liens;

C. Encumbrances;

D. All of the above.

Deed restrictions (private limitations on real property) are encumbrances; that is, burdens on the title to the property.

==Quiz 9

1. The value of a property purchased for investment purposes is usually:

A. Based on the capitalization of future net income;

B. Determined by a gross multiplier factor;

C. Proportional to the structural soundness of the building;

D. Inversely proportional to the remaining economic life of the building.

The capitalization of future net income is the usual method of appraising income property.

2. Agent Brown is appraising real property by estimating the quantity, quality and durability of its net income expectancy. This procedure in the appraisal process is called:

A. Marginal utility analysis;

B. Q-Q-D survey;

C. Market data approach;

D. Capitalization of income.

The capitalization approach to value estimates the value of a property by an analysis of the quantity, quality and durability of its income.

3. Which of the following conditions would not cause a building to be declared substandard?

A. There is dampness in the habitable rooms;

B. The electrical wiring does not comply with present code, but it did when it was installed and it is now safe and is working properly;

C. There is no heating;

D. There is defective weather protection on the outside of the building.

A building would not be considered substandard if the electrical wiring complied with the code when it was installed and it was safe and working properly.

4. Whenever possible, an appraiser would estimate the value of land on the basis of:

A. The original purchase price plus the cost of making off-site and on-site improvements;

B. The size, location and utility;

C. The original cost plus the expense of making it usable;

D. The selling prices of comparable sites.

Land is normally appraised using the market data approach. The original cost or purchase price might have little to do with the present value of real property. The size, location, and utility only describe the physical features and characteristics of the property; they normally do not serve as a basis for appraisal.

5. The one particular area that appraisers find most difficult to measure accurately is:

A. Replacement cost new;

B. Cost data;

C. Accrued depreciation;

D. Capitalized income.

Appraisers sometimes find it difficult to figure the accrued depreciation on older buildings, such as a 35-year-old residence.

6. The age of a house can be determined most accurately by inspecting which of the following;

A. Physical condition of the house;

B. Architectural style of the house;

C. Tax assessor's records;

D. Recorded subdivision map.

The tax assessor's records are the best source for determining the age of an improvement. They will show when the tax assessor first started assessing that improvement. The physical condition of the house and the architectural style of the house, will give you a rough idea of when the house was built, but not an accurate one. The recorded subdivision map may show only when the land was cut up into parcels and not when the improvements were built.

7. Restoring a property to a satisfactory condition without changing the plan, form, or style of the building is known as:

A. Remodeling;

B. Rehabilitation;

C. Reclamation;

D. Reproducing.

By definition, remodeling involves changing the plan, form or style.

8. The type of depreciation which is socially oriented and from which we derive the saying "more buildings are torn down than fall down," would be known as;

A. Functional obsolescence;

B. Economic obsolescence;

C. Physical deterioration;

D. Deferred maintenance.

The saying, "more old buildings are torn down than fall down," refers to the fact that neighborhoods change and buildings become economically obsolete.

9. An elevation sheet which is used in a subdivision shows which of the following:

A. Topography of the land including slope, elevation of the site, streets, sidewalks, and curbs;

B. Drawings of the front and side views of the finished homes;

C. An interior of the homes showing framing and structure of the homes;

D. An aerial view of the site.

Elevations are drawn of the outside of the finished home.

10. Soil pipe is commonly used in:

A. Cold water lines;

B. Gas lines;

C. Irrigation lines;

D. Sewer lines.

Statement of fact.

11. When changes are made in the plan, form, or the styling of a residence in order to correct functional obsolescence or economic obsolescence, this is termed:

A. Rehabilitation;

B. Modernization;

C. Remodeling;

D. Replacement.

Statement of fact.

12. Which of the following normally installs conduit:

A. Plumbers;

B. Electricians;

C. Roofers;

D. Carpenters.

Conduit is metal pipe in which electrical wiring is placed.

13. Which of the following are benefits of ownership as contemplated by the "bundle of rights" theory:

A. To use or refrain from using the property with absolute power;

B. To acquire by escheat, adverse possession, or eminent domain;

C. To use, lease, and dispose of the property subject to burdens of taxation and possible claims of others;

D. None of the above are true statements.

An owner has a bundle of rights which includes the right to use, lease, and dispose of the property subject to governmental powers and the claims of others.

14. Property is:

A. Personal, if it is a fixture;

B. Real if it is an estate;

C. Personal if it is other than real;

D. All of the above.

All property is either real or personal.

15. Which of the following would be considered real property:

A. Crops before harvest;

B. Fruit that has not been picked, but which has been sold under contract;

C. Stock in a mutual water company;

D. Minerals which have been mined.

Crops, before harvest, could be either real or personal property. Crops which have been cut, mortgaged, or sold, are considered personal property; minerals removed from the ground are personal property; hence, stock in a mutual water company is real property.

16. Personal property is easily distinguished from real property by its:

A. Lower unit value;

B. Multiplicity of use;

C. Mobility;

D. Greater variety.

The most distinguishing feature between personal and real property is that personal property is movable; real property is immovable.

17. Mortgages and trust deeds are considered to be

A. Estates in land;

B. Personal property exclusively;

C. Chattels real;

D. None of the above.

Mortgages and trust deeds are pieces of paper and, therefore, personal property.

Quiz 10

1. The prospective purchaser may withdraw the offer at any time before the seller's acceptance of an offer has been communicated to the prospective purchaser:

A. Unless the offer states that it is irrevocable;

B. Provided the offer is not supported by a deposit;

C. Provided the offeree has breached the offer;

D. For any reason.

To create a binding contract there must be a three step process:
(1) Offeror makes an offer/bid;
(2) Offeree receives it and accepts it;
(3) Offeree's acceptance must be communicated back to the offeror; Until this takes place, the offeror may revoke or withdraw the offer and no reason is required.

2. A broker's ad in a loan newspaper says that if a buyer or seller will bring this ad to his office and either list or buy a property through him, that he will give that person $50. Which of the following is true:

A. The broker cannot give $50 to the buyer or seller;

B. The broker cannot give $50 to the buyer;

C. This would violate the real estate law because he would be compensating unlicensed persons for performing real estate acts;

D. The broker can give $50 to the buyer or seller.

The broker can share a commission with or give money or anything else of value to anyone he wants to, as long as he informs his principal.

3. A federal income tax advantage could be gained from:

A. A deduction for depreciation on income property;

B. An installment sale;

C. A tax-free exchange;

D. Any of the above.

All of the choices could result in a tax advantage.

4. The most essential element to the creation of an enforceable broker-principal relationship in matters affecting any right, title, or interest in real property is a:

A written employment contract;

B broker's written authority to accept a deposit

C. written offer to purchase

D. bilateral agreement as to the legal rate of consideration.

A written employment contract would be, of the items listed, most essential to create an enforceable contract.

5. The state Board of Equalization:

A. Equalizes the flow of mortgage money throughout California;

B. Appraises all public utility properties for tax assessment;

C. Appraises all real property where a liquor license is located;

D. Is the Board to which one appeals in case of excessive tax assessment on his property.

Statement of fact.

6. A listing agreement is:

A. A promise for a promise;

B. A bilateral contract;

C. An employment contract;

D. All of the above.

A listing agreement is a contract whereby a principal employs an agent. The listing contract that is commonly used is a bilateral contract in which a promise is given for a promise.

7. In housing construction, a joist is a:

A. Batten;

B. Girder;

C. Parallel;

D. Jamb.

Statement of fact.

8. The Subdivision Map Act requires:

A. Delivery of a copy of the Real Estate Commissioner's public report to all prospective purchasers;

B. The subdivider to prepare a tentative map and file it with the city or county;

C. Insertion of release clauses in all blanket mortgages covering subdivision property;

D. Submission of proposed sales contracts for subdivision lots that a local governing agency had approved.

The Subdivision Map Act allows the allows the local authorities to control the physical aspects of the subdivision. This is done by means of a map. The delivery of the Commissioner's public report to prospective purchasers, release clauses, and the approval of the proposed sales contracts are required by the Subdivided Lands Act.

9. In order to be entitled to a commission, a broker must show that he/she was the procuring cause of the sale under all of the following types of listings, except:

A. Exclusive agency;

B. Exclusive authorization and right to sell;

C. Open listing;

D. Nonexclusive listing.

Under an exclusive authorization and right to sell listing, the seller agrees to pay the broker if the property is sold at any time during the term of the listing by anyone. Therefore, the broker would not need to prove that the broker was the procuring cause.

10. Enforcement of sanitation requirements in connection with the sewage disposal from subdivisions is usually the responsibility of the local:

A. Health officer;

B. Plumbing inspector;

C. Building inspector;

D. Public works director.

The enforcement of sanitary requirements, in connection with sewage disposal from subdivisions, comes under the control of the State department of Health Services and it is usually enforced by the local city or county health officer.

11. When the deposit receipt on the sale of a house states that the property is being sold "as is," it:

A. Also requires a real estate transfer disclosure statement;

B. Provides that the buyer should beware;

C. Means that nothing is warranted;

D. Does not require a real estate transfer disclosure statement.

The use of the phrase "as is" in a real estate purchase contract really means nothing. The seller still must deliver the real estate transfer disclosure statement to the buyer revealing anything that is wrong with the property.

12. What is the highest construction member of a frame house:

A. Header;

B. Ridge board;

C. Collar beam;

D. Girder.

The ridge board is the highest construction member of the house to which the rafters tie.

13. All of the following are sufficient to convey an interest in real property, except:

A. Agreement of sale;

B. Bill of sale;

C. Lease;

D. Deed.

A bill of sale is used to convey an interest in personal property, not real property.

14. Under the Uniform Commercial Code, the proper document to use in mortgaging articles of personal property is a:

A. Chattel mortgage;

B. Financing statement;

C. Security agreement;

D. Bill of sale.

The Uniform Commercial Code provides for the use of a security agreement in place of the older practice of using a chattel mortgage in mortgaging articles of personal property. A financing statement is filed with the Secretary of State in order to give notice that a creditor has an interest in personal property. A bill of sale is used to Convey the personal property.

15. Potential buyer Marshall seeks to purchase a home in a new subdivision. A licensee assists Marshall in securing a loan for such purpose from a savings and loan association, explaining to Marshall the loan processing costs that will be involved at closing. Under these conditions, when the loan is arranged, a copy of the HUD Booklet, "Settlement Costs and You":

A. need not be provided to Marshall if the procedures and costs of the loan have been adequately explained;

B. Must be provided immediately by the licensee;

C. Must be provided to Marshall within one week;

D. Must be provided to Marshall by the lender within three days of the loan application.

The law requires that the HUD Booklet be given to the borrower within three days of the loan application. The lender is normally responsible for this service.

16. None of the following would automatically terminate an offer to buy real property except:

A. Revocation of the offer by the offeree;

B. Rejection of the offer by the offeror;

C. An inquiry by the offeree as to whether the offeror will accept different terms;

D. Rejection of the offer by the offeree.

If the one to whom the offer is made (the offeree) rejects the offer, the offer is terminated. The offeror can revoke (call back) the offer, the offeree cannot.

17. In a real estate purchase contract, the liquidated damages clause is initialed and the buyer defaults. The deposit will be:

A. No more than 3% of the selling price or the amount of deposit, whichever is less;

B. Used to pay any escrow expenses and the balance returned to the buyer;

C. Divided equally between the seller and the listing agent;

D. Given to the seller when escrow in opened.

According to the liquidated damages clause the deposit is used to pay any expenses (escrow, etc.) and then given to the seller who divides it with the broker. The deposit can be more than 3% but the liquidated damages cannot be more than 3% if the property is residential and will be occupied by the buyer.

18. How many feet are on one side of a section:

A. 1,000;

B. 2,640;

C. 5,280;

D. 43,560.

A section is one mile on each side. One mile equals 5,280 lineal feet.

19. Carter purchased a parcel of real property for $200,000, paying 25% cash and 75% in a purchase-money mortgage. Over a ten-year period, the property doubled in value. Exclusive of equity buildup, Carter's original cash investment is now worth:

A. $100,000;

B. $120,000;

C. $200,000;

D. $250,000.

(1) $200,000 x .25 = $50,000; (2) $200,000 - $50,000 = $150,000 loan; (3) $200,000 x 2 = $400,000; (4) $400,000 - $150,000 = $250,000.

20. In the capitalization method of appraising, the most difficult step is to:

A. Establish the gross income;

B. Establish the effective gross income;

C. Establish the net income;

D. Select a capitalization rate.

When selecting a capitalization rate for a property many subjective factors are used. One of them would be the investor's desired rate of return.

21. The Internal Revenue Service would define the marginal tax rate as:

A. The tax rate which is used for the next dollar of taxable income earned;

B. The 15% tax rate;

C. The tax rate used for your state income taxes;

D. None of the above.

The marginal tax rate is the tax rate that applies to the next taxable dollar that a person earns.

22. A man borrowed $2,500 on a straight note. In eight months, he paid $150. What was the interest rate:

A. 8.4%;

B. 9%;

C. 10%;

D. None of the above.

(1) $150.00 amount paid divided by 8 months = $18,75; (2) $18.75 x 12 = $225; (3) $225.00 divided by $2,500 = .09.

23. A square parcel of land, 1,780 feet long and 1,780 feet wide, will be most nearly equal in size to:

A. 73 acres;

B. 65 acres;

C. 43 acres;

D. 27 acres.

(1) 1,780 x 1,780 = 3,168,400; (2) 3,168,400 divided by 43,560 = 72.7+.

24. Which of the following is the largest parcel of land:

A. 10% of a township;

B. 2 sections;

C. 2 miles square;

D. 5,280 feet x 10,560 feet.

A two mile square would be a square two miles on each side. It would contain four sections. The other choices are all smaller.

25. Which of the following is the largest in area:

A. 4,047 square yards;

B. 1 acre;

C. 196 foot square;

D. 41,640 square feet.

(1) 4,047 sq. yd. x 9 sq. ft. per sq. yd. = 36,423 sq. ft.; (2) 1 acre = 43,560 sq. ft.; (3) 196 x 196 = 38,416 sq. ft.

Quiz 11

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Correct answers are highlighted in green.

Incorrect Answers are highlighted in red.

1. If a person owns two personal residences and sells one and buys another one under conditions that comply with the gain deferral rules, which of the following is true?

A. The person must sell both residences in order to qualify for deferral;

B. Only the residence that has the greater value can use the deferral rules;

C. Deferral of the gain can only be done on the principal place of residence;

D. Deferral of the gain can be used for either residence.

According to income tax laws, the deferral of gain when an owner-occupant sells his personal residence and buys another one applies only to the principal residence. A person can have only one principal residence at a time.

2. Which of the following appraisal reports would be the most comprehensive and complete:

A. Narrative;

B. Certificate;

C. Letter;

D. Form.

A narrative appraisal report is usually very lengthy. The appraiser would investigate every factor which might influence the value of the property. He would consider the neighborhood, schools, churches, library, and the city, among other things.

3. All of the following would be considered essential to making an appraisal of old family residences, except:

A. Purpose of the appraisal;

B. Suitability of the residence to the site;

C. Physical condition of the building;

D. Original cost of the residence.

The original cost of a property, especially an old one, is the least important factor in determining its present value.

4. Which of the following would not be considered one of the great special forces influencing value:

A. Social ideals and standards;

B. Private restrictions;

C. Economic adjustments;

D. Government regulations.

The special forces influencing value are physical characteristics, social ideals and standards, economic adjustments, and political or governmental regulations.

5. In analyzing a parcel of vacant land to estimate its value, what is the first thing necessary to determine:

A. Price at which it should be listed;

B. Price at which it was purchased;

C. Highest and best use of the land;

D. Prices of comparable properties.

The first thing to do when appraising a parcel of vacant land is to determine its highest and best use.

6. The basis of the market data approach to appraising is found in:

A. The principle of change;

B. The principle of substitution;

C. The principle of conformity;

D. The principle of anticipation.

The principle of substitution says that the value of a property tends to be set by the cost of acquiring an equally desirable substitute property.

7. An appraiser is appraising a two-year-old, single-family, owner-occupied home in a good neighborhood. If he is trying to determine the sales price, which of the following would normally be given the greatest weight:

A. Determining the value received from direct use of the property by the owner-occupant;

B. Determining the present cost to replace the dwelling, plus the depreciation to date and the land value;

C. Capitalizing the rental income from an apartment property that is comparable, using the capitalization rate that is common in the neighborhood;

D. Carefully comparing the property with similar properties that have sold recently in the neighborhood.

The best method to appraise a residential single-family home is the comparison approach.

8. When appraising amenity-type properties, the method generally used is know as:

A. Risk rating method;

B. Replacement cost;

C. Market comparison;

D. Capitalization of income.

The market comparison method is used primarily when appraising amenity properties such as swimming pools, tennis courts, high-rise parking, etc.

9. The income approach would not be used when appraising:

A. Commercial retail properties;

B. Residences in new subdivisions;

C. Industrial buildings on long-term lease;

D. Neighborhood shopping centers.

The income approach considers the annual net income in arriving at the value of the property. Residences in a new subdivision would not be considered rental property.

10. The maximum potential income which any income-producing property is capable of generating is known as:

A. Gross scheduled income;

B. Gross effective income;

C. Net operating income;

D. Net spendable income.

The gross scheduled income is the maximum potential income that an income-producing property is capable of producing under ideal conditions, i.e., 100% occupancy at 100% maximum rental rate.

11. Which of the following is not a proper charge in determining net income for capitalization purposes;

A. Vacancy and collection losses;

B. Maintenance expenses;

C. Management agent's fees;

D. Mortgage interest.

In determining the net income for capitalization purposes, only the following items can be subtracted from gross income: Vacancies, taxes, utilities, maintenance, management, and insurance. Financing costs cannot.

12. Wolfman is considering a extensive modernization program for an older apartment building which she owns. Her decision should give most emphasis to:

A. The cost involved;

B. The history of vacancy;

C. The potential increase in real property taxes;

D. Net effect on the net income.

In determining whether to do an extensive modernization program, a property owner should carefully analyze the effect this will have on net income.

13. Larson's property has a fair market value of $39,000 and is currently renting for $300 per month. Gilman's property, which is located in the same neighborhood, is more expensive, and therefore, will rent for $345 per month. Using the same percentage rate of return as Larson's property, what is the value of Gilman's property:

A. $44,850;

B. $44,220;

C. $43,000;

D. $42,930.

(1) $39,000 Larson's value divided by $300 monthly rent = 130 gross rent multiplier; (2) 130 gross rent multiplier x $345 monthly rent (Gilman's property) = $44,850 approximate value.

14. When comparing the physical and the economic life of an improvement, the economic life usually is:

A. Shorter;

B. Longer;

C. The same;

D. Shorter or longer, depending on the type of improvement.

The economic life is usually shorter than the physical life. The economic life is the period during which the improvement will sow a return on the investment. A building will usually be worn out and unrentable a year or two before it falls down.

15. Mr. Smith, who owns an apartment, sustained a $3,000 operational loss for the tax year. For income tax purposes, he may:

A. Deduct only $1,000 of the loss on his income tax return;

B. Offset the loss against any capital gains;

C. Deduct the full amount from his ordinary income;

D. Deduct only one-half of the loss from his ordinary income.

Rent is ordinary income and an operational loss can be deducted.

16. When trying to determine the amount of economic obsolescence suffered by a commercial property, the answer to which of the following questions would be of most benefit:

A. Can a building be operated efficiently?

B. Are the tenants in the neighborhood prospering;

C. Should a fire escape be installed;

D. Is the rental schedule of the building equitably charged to the tenants?

Economic obsolescence, i.e., social obsolescence, concerns factors of the surrounding properties within the same geographic area; such as, are the tenants in the general neighborhood prospering, or is it a depressed area, etc.

17. Which of the following would be contained in a plot map:

A. Thickness of exterior walls;

B. Concrete foundation;

C. Location of the improvement on the lot and relationship to surrounding features;

D. All of the above.

The plot map would show the location of the improvement on the lot.

18. The effectiveness of insulation is referred to as its "R-value." The R stands for:

A. Required minimums;

B. Resistance to heat flow;

C. Replacement values;

D. None of the above.

This is what the R stands for.

19. According to income tax laws, which of the following is true about depreciation of land?

A. Land has a residual value but improvements do not;

B. The ACRS method of depreciation can be used when depreciating land;

C. Land is considered to be 25% of the total value and is depreciated;

D. Land is not depreciated.

Under income tax laws, land never depreciates.

20. An offer to purchase real estate could be terminated in all of the following ways, except:

A A conditional acceptance of the offer by the offeree;

B Failure to communicate notice of revocation before the other party has communicated his acceptance;

C Death or insanity of the offeror or offeree;

D Failure to accept the offer within the prescribed period of time.

Read carefully. A binding contract would result if the offer has been accepted, and the acceptance communicated to the offeror prior to the revocation of that offer. A conditional acceptance would, in effect, be a counter offer, and answers C and D would not result in a valid contract.

21. A deposit receipt said, "Seller to provide and pay for a structural pest control inspection report on improvements and pay for corrective work, if any." The broker must be certain that the buyer receives a copy of the structural pest control report:

A. Within 10 days of opening escrow;

B. Within 5 working days of the date of the termite report;

C. As soon as practicable before close of escrow;

D. None of the above.

The law requires the report to be delivered as soon as practicable.

22. When a trust deed is sold, the parties often use an escrow in order to:

A. Obey the civil code;

B. Be a witness for the transaction;

C. Make sure that the conditions and terms are met prior to the closing of the transaction;

D. Provide a legal recourse against the escrow company for the two parties involved.

The purpose of any escrow is to make sure that all of the details of the agreement are completed before the closing of the transaction.

23. When a licensee is the buyer's agent, the licensee will tell others:

A. As soon as possible;

B. After the offer has been presented and accepted;

C. When the loan is funded;

D. After the licensee receives his commission.

An agent must reveal who his principal is as soon as possible.

24. An offer on listed property was accepted and the acceptance was communicated to the buyer. However, before going to escrow, the seller found a buyer who was willing to pay all cash and notified the broker that the original deal was rescinded:

A The buyer must be refunded the amount of the deposit, but he has no further claim or right against the seller;

B The broker would not be entitled to compensation since escrow had not opened and the transaction had not closed;

C The broker has good legal basis for a commission claim;

D The broker could probably void the transaction which the seller made with the all-cash buyer.

Since the broker did the job he was hired to do in finding a buyer with an offer acceptable to the seller, he is entitled to his commission, even if the seller cannot or will not sell the property.

25. Of the following, which best defines a fee simple estate?

A Title in owner without limitations;

B Estate for years;

C Life estate;

D Most interest one can hold in land.

The "A" answer is eliminated because all property is going to have some limitations; for example, the police powers of zoning and building codes may limit title to property, whereas the fee simple estate is the most interest that one can hold in property.

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Quiz 12

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Correct answers are highlighted in green.

Incorrect Answers are highlighted in red.

1. Which of the following type of transactions would most frequently allows the real estate agent to collect a commission from more than one party:

A Long-term open-end listings;

B Business opportunity sales;

C Short term leases;

D "Tax-Free" exchanges.

An exchange might reasonably involve a commission from more than one party, since each seller might well have contracted to pay a commission in the original listing.

2. Which of the following statements is true with respect to options: An option is:

A Valid without consideration;

B Valid if the consideration is exactly $10, but not delivered;

C Valid if consideration is delivered, even if it is less than $10;

D Not valid if the delivered consideration is less than $10.

An option, to be valid, must have actual consideration and the consideration must be delivered. The amount does not matter, as long as it is delivered.

3. Concerning option contracts, which of the following statements is most incorrect:

A If the optionee does not exercise the option right, the optionee loses the option money that was given the optionor for the right to purchase during the option period;

B If the optionee decides to buy the property, it will be necessary to enter into a separate sales contract before the expiration of the option in order for the two parties to be legally bound;

C The optionee must give the optionor some amount of valuable consideration;

D Separate from the purchase of real property owned by a business, an option may be used to buy the business separate from the property.

An option contract should spell out the complete terms and conditions of the option, the time in which it is to be exercised, etc. Therefore, no additional agreement would be required. It is true that there must be some amount of valuable consideration involved in the option, and that if the option is not exercised during the specified time period, the optionee loses the amount of the option monies. Options can be used to purchase business opportunities.

4. In which of the following contracts does one of the parties agree not to revoke an offer for a certain period of time?

A An exchange listing;

B An option;

C A ratification;

D An exclusive right to sell listing.

In an option, the optionor, or giver of the option, agrees to keep the offer open for a specified period of time.

5. When a broker sells a property on which he holds an option, he must inform the buyer that he is acting as:

A An optionor;

B A grantor;

C An agent;

D A principal.

Any party holding an option is an optionee and a principal. If the broker decides to sell his interest, he must disclose this to the buyer.

6. A contract is best defined as:

A a deliberate agreement between two or more persons to perform or abstain from an act;

B a deliberate agreement between two competent persons to perform or abstain from a legal act;

C a deliberate agreement, based upon a legal consideration, between two or more parties who have legal capacity, to perform or abstain from doing a legal act;

D a deliberate agreement, based upon a legal consideration between two or more parties, to perform or abstain from doing an act.

This is the best answer given because it includes the four legal essentials and is therefore the most complete. Can you find the four legal essentials?

7. If a contract is considered voidable, it is:

A Invalid,

B Void

C Valid until voided;

D None of the above.

A voidable contract is valid until voided by the injured party.

8. An executed contract is a contract:

A Completed and fully performed by both parties;

B Under the jurisdiction of the probate court;

C Signed, notarized, and recorded;

D That requires a novation.

This is a good definition of an executed contract.

9. Which of the following is required for a valid contract:

A Legal capacity;

B Consideration;

C Lawful object;

D All of the above.

The four requirements for a valid contract are: (1) legal capacity; (2) mutual consent, usually an offer an unqualified acceptance of the offer; (3) lawful object; and (4) consideration.

10. Joanie James, a minor wanted to hire Broker Stone to assist in a real estate transaction. Legally, a broker may not be employed by a minor, because the minor:

A Is legally incapable of appointing an agent;

B Is prohibited by law from making any contract relating to real property under any conditions;

C May disaffirm contracts within a 25-year period;

D Is considered incapable of making adult decisions and the broker breaches fiduciary responsibility in representing the minor.

An unemancipated minor lacks legal competence; and in the eyes of the law, is legally incapable of appointing an agent.

11. All of the following are essential elements of every valid contract, except:

A A meeting of the minds;

B Adequate capability of parties;

C A legal act;

D The payment of money.

The consideration required for a valid contract could be the payment of money, but it could also be, for example, the performance of an act.

12. A voidable contract is a contract that:

A Was valid at the time that it was signed, but for some reason cannot be proved or sued upon by either or both parties;

B Contains all of the legal essentials that are required for its existence;

C Has no legal effect because it really is not a contract;

D Is valid and enforceable on its face, but it may be rejected by one of the parties.

This is a classic definition of a voidable contract.

13. In order for an agreement for a transfer of real property to be binding on the buyer and seller, it must:

A Contain an offer and an acceptance;

B Contain an acknowledgment;

C Be recorded;

D All of the above.

Any contract for the transfer of property must contain an offer and an acceptance. It also must be in writing. It does not have to be acknowledged or recorded.

14. Swenson, a 16-year old divorcee, went to Broker Cook trying to list Swenson's portion of community real property. Broker Cook can legally:

A Accept the listing provided the commission is approved by a court of competent jurisdiction;

B Accept the listing and agree to sell according to the instructions of Swenson;

C Not accept the listing unless Swenson is declare emancipated by a court of competent jurisdiction;

D Not accept the listing until Swenson has reached the age of 18.

A minor is considered emancipated if he or she has been legally married. Hence, Broker Cook can legally accept a listing from a 16-year old divorcee.

15. At what minimum age is a single person who has not had any court of guardianship intervention legally capable of entering into an enforceable real estate contract:

A 16 years;

B 18 years;

C 19 years;

D 21 years.

In California, a person becomes legally competent at the age of 18, unless earlier emancipated.

16. Michaels, who is a 15-year-old and an emancipated minor, wants to sell a parcel of land and has submitted documentation of emancipation to the listing broker. After the broker finds a buyer, he should submit the documentation to the:

A Escrow company;

B Title insurer;

C Buyer's lender;

D Buyer.

As holder of documents relating to the transaction, the escrow company would be the logical one to hold the documentation of emancipation.

17. Actual fraud has been described as:

A The suppression of that which is true by a person who has knowledge or belief of the fact;

B The intentional and successful circumventing or cheating or another person;

C A promise which has been made without any intention of performing it;

D All of the above.

All of these are included within the definition of actual fraud.

18. Sometimes in a bilateral contract, the offeror gives a promise expecting a return promise from the offeree. When the return promise is given, each promise is:

A Part performance;

B Consideration for the contract;

C An option to perform;

D A subrogation.

The consideration for a contract can be a promise as well as money or other things of value or love and affection.

19. In order for a contract to be valid, it must have consideration. "Valuable consideration" may be:

A Anything which the parties deem to be of value;

B $1 or more;

C The performing of services by one or both parties;

D Any of the above.

All of these would be considered valuable consideration.

20. An agreement for the transfer of real estate, in order to be binding on buyer and seller, must:

A Contain an acknowledgment of the signature of the buyer;

B Be submitted to the county recorder of the county in which the property is located;

C Contain an offer and acceptance;

D All of the above.

Signatures on an agreement for the transfer of real property need not be acknowledged to be binding; nor need they be recorded. But mutual agreement is essential in the contract, and that is normally evidenced by an offer and acceptance.

21. When a contract has been rescinded, it means that it has been:

A Revised:

B Subrogated;

C Honored;

D Annulled.

When a contract is rescinded, the contract becomes null and void.

22. Sampson offered to fully perform his part of a purchase contract. This would be described as:

A Demand;

B Condition;

C Tender;

D Covenant.

An offer to fully perform is referred to as tender.

23. A remedy in court compelling a vendor to execute a deed in pursuance of a valid written contract is known as:

A Specific performance;

B Foreclosure;

C Execution;

D Equity of redemption.

Specific performance is a court suit where the party to a contract is ordered by the court to perform specifically as promised. Foreclosure refers to a loan. Execution is a court order to sell the property. Equity of redemption refers to the borrower's right to redeem and keep the property within certain time limits.

24. Assume a broker took an open listing. He then made an oral agreement with another broker to share the commission on the commission on the property. The second broker procured an offer resulting in the sale of the property. The first broker refused to share his commission on the sale:

A He need not share the commission, as it was an it was an open listing;

B He need not share the commission, because of the Statute of Frauds;

C The second broker would stand a good chance of winning a court suit for his share of the commission;

D The second broker could sue the seller for his share of the commission.

An agreement between brokers to share a commission need not be in writing, and could be enforced on an open listing. A second broker does not have an agreement with the seller.

25. A seller sued a broker for failing to disclose a material fact to him. In defense, the broker proved that his listing contract with the seller was oral. Under these circumstances:

A The defense is a bar to the lawsuit because of the Statute of Frauds;

B The Statute of Frauds does not apply because the transaction was completed;

C The defense is not a bar to the lawsuit because it is not applicable to the issue of the case;

D The defense does bar the lawsuit unless the seller can show actual damages exceeding $100.

Failure to disclose material facts cannot be justified on the basis that the listing was oral.