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CA REAL ESTATE PREP EXAM QUESTIONS
AND ACCURATE SOLUTIONS ALREADY GRADED A+
"The fact that land has a number of important uses is the basis for what essential element of value? a. Demand b. Utility c. Scarcity
d. Transferability - CORRECT ANSWER b. Utility
Remember DUST and your essential elements of value. Demand: This means the desire to buy and an ability to pay. Utility: The item satisfies a human need or desire; such as shelter, income, or recreation. Scarcity: Limited in supply, as supply diminishes, value increases. Transferability: Able to transfer from one owner to another." "An example of functional obsolescence in real estate is a. outdated plumbing b. a house not having a pool c. a house in a lower class area
d. an agent not being able to sell a property - CORRECT ANSWER a. outdated plumbing
Functional obsolescence refers to the loss of property value due to an obsolete design feature. Outdated plumbing would be considered functionally obsolete because it is outdated. Who determines what is obsolete or not? Usually the buyer or homeowners. If a neighborhood is filled houses with new bathrooms and/or new plumbing, and your's isn't, It would be considered functionally obsolete." "One individual or married couple in business alone (The most common form of business structure): a. Sole Proprietorship b. Limited Partnership c. Single Co-operation
d. (LLC) or Limited Liability Company - CORRECT ANSWER a. Sole Proprietorship
A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorship's are the most common form of business structure. This type of business is simple to form and operate and may enjoy greater flexibility of management, fewer legal controls, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business. A sole proprietor may purchase property for both personal and business use through his own name or through the name of his business. However, only personal property used in direct relation to business operations is viewed as a tax-deductible business expense." "Which of the following would MOST likely be considered a fixture? a. Window Blinds b. Toaster Oven c. Couch
d. TV - CORRECT ANSWER a. Window Blinds
Fixtures are personal property attached to the land to count as real property. Window blinds are screwed into the house, therefore they are considered a fixture in this example." "In common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferring title to property. Within deeds, covenants are: a. types of property b. forms of money or payment c. agreements or promises
d. property listings or values - CORRECT ANSWER c. agreements or promises
Covenants are agreements or promises within deeds. For example, a warranty deed can include six forms of covenants. Those six are a series of legally binding promises and warranties to the grantee agreeing to protect the grantee against any prior claims and demands of all persons whomsoever in regards to the conveyed land." "When, if all, can an executed contract be assigned? a. Never. Under no circumstances. b. If the contract has a clause mentioning assignment. c. Only if the seller prohibits it.
Trade fixtures refer to items installed in connection with the business, such as stoves or refrigerators in a restaurant." "Which of the following best describes the acceleration clause? a. A provision in a mortgage or deed of trust signed with the lender that states that the borrower must pay the mortgage in full before the borrower can transfer the property. b. A contract provision that requires a borrower to repay all of an outstanding loan if upon a breach of the contract. c. The statement that a lender can penalize a borrower if the borrower pays off the mortgage much sooner than usual.
d. A contract provision in real estate that establishes the order of priorities of financial claims. -
CORRECT ANSWER b. A contract provision that requires a borrower to repay all of an
outstanding loan if upon a breach of the contract. The acceleration clause is a contract provision that requires a borrower to repay all of an outstanding loan if upon a breach of the contract." "In California, redlining is prohibited by which state specific law? a. Transfer and Settlement Act b. Unruh Civil Rights Act c. Fair Housing Act
d. Holden Act - CORRECT ANSWER d. Holden Act
In California, the Holden Act prohibits discrimination related to housing financing. The Holden Act is state specific. Within this Act are additional requirements that licensees who provide financing services post a fair lending notice within public view and also provide a copy of that notice to financing applicants." "Which type of property would an appraisal use a depth table to estimate the property value? a. Government owned property b. Commercial property c. Special-use property
d. Residential property - CORRECT ANSWER b. Commercial property
A depth table is used to estimate the value of commercial properties. A depth table is a table used by real estate appraisers to show land values in percentages based on variations in the depth of the lot." "Market value is a. the price set by the homeowner. b. the price set by the home purchaser. c. the price set by an agent using the house history to determine its worth.
d. the price the property is sold for or an estimate of the present property plus future potential. -
CORRECT ANSWER d. the price the property is sold for or an estimate of the present property
plus future potential. You'll hear a lot of people use the word Market Value or Market Price. This just means the actual selling price of the property. So if your home sells for $250,000. Its market value is $250,000." "A buyer was negotiating the purchase of a lot to build a new family house, the seller indicated that the land was firm enough to support the construction of a building when, in fact, the seller knew it was not. The contract is a. voidable by the seller because of the mistake. b. voidable by the buyer because of fraud. c. valid.
d. void. - CORRECT ANSWER b. voidable by the buyer because of fraud.
In this case, the contract would be voidable by the buyer because of fraud. Voidable contracts have the necessary elements to be enforceable, so they appear to be valid, but can be rejected by one party if the contract is discovered to have any number of defects. Fraud is the act of intentionally deceiving another party for financial or personal gain." "Which of the following would NOT be covered under a builder's new home warranty? a. Poor workmanship b. Disheveled masonry c. Dysfunctional carpentry
- Indestructibility, meaning land cannot be destroyed or worn out. Its appearance may be altered but it always continues to exist.
- Immobility, meaning geographical location of the property remains the same & can never be changed, it is fixed.
- Uniqueness or non-homogeneity, meaning no parcels of real estate are exactly alike. Scarcity, improvements and permanence of investment are all economic characteristics of real estate." "The EPA requires real estate professionals to give purchasers and tenants of residential dwelling a pamphlet about Lead-Based paint if the dwelling was built before when? a. 1968 b. 1978 c. 1983
d. 1992 - CORRECT ANSWER b. 1978
Lead-Based Paint Disclosure Rule (Section 1018 of Title X) requires that potential buyers and renters of housing built prior to 1978 receive certain information about lead and lead hazards in the residence prior to becoming obligated to buy or rent, and provides the opportunity for an independent lead inspection for buyers. Sellers, landlords, and agents are responsible for compliance." "An interest in real property which is held for the duration of the life of a designated person is called a a. Life Estate b. Fee Simple Absolute c. Fee Simple Defeasible
d. Estate at Will - CORRECT ANSWER a. Life Estate
A life estate is an interest in real property which is held for the duration of the life of a designated person. It may be limited by the life of the person holding it or by the life of another person. This designated person is called a life tenant." "When you buy real property, you gain several different kinds of rights. One of which are rights called "subsurface rights." What are subsurface rights? a. the rights to the natural resources lying below the earth's surface. b. the rights to use the surface of the earth.
c. the rights to use any rock, soil, or hard object.
d. the rights to the trees, ferns, and other plants. - CORRECT ANSWER a. the rights to the
natural resources lying below the earth's surface. The surface rights are the rights to use the surface of the earth. Subsurface rights are the rights to the natural resources lying below the earth's surface. Interestingly an owner may transfer rights without transferring the subsurface rights. For example, a landowner can sell his rights to an oil and gas company in his land but still can own the land itself." "Which of the following consumers would most likely qualify and be able to derive the most benefit from refinancing their mortgage? a. A young homeowner with a low credit score whose property is free of any encumbrances. b. A young couple who wants to own a house but doesn't have a high enough credit to qualify yet. c. A middle aged couple, with high credit, whose mortgage loan has a higher interest rate than the current rate for new loans. d. A couple in their late 60s who need to tap their home equity to help cover their expenses but do
not want to sell their house. - CORRECT ANSWER c. A middle aged couple, with high credit,
whose mortgage loan has a higher interest rate than the current rate for new loans. In this instance age doesn't really matter. What does matter is that the middle age couple has a mortgage with a high interest rate and at the current rates at much lower. They would most likely qualify for a refinance and they would definitely derive the most value from it. Bonus tip. The rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. Generally speaking, homeowners should have a solid credit score to refinance, although there are a few exceptions in government run loan assistance programs." "It is the _____ duty to explain the purchase agreement and to not mislead any parties. a. buyer's b. seller's c. agent's
d. mortgage broker's - CORRECT ANSWER c. agent's
Communication of acceptance, because once acceptance is communicated to the offeree an executory contract is formed. Acceptance with communication does not create a contract, all parties must sign the offer to create a valid contract." "Appraiser Leo was hired to prepare a feasibility study for a 12-unit apartment complex in which the owner is considering putting in a swimming pool. Which basic principle of appraising should Leo use? a. Condemnation b. Reconciliation c. Contribution
d. Closing - CORRECT ANSWER c. Contribution
Leo should use Contribution. Contribution is most commonly applied to determine how renovation and property changes may affect the property's overall cost. In this case, since the owner wants a feasibility study, contribution would need to be used. Swimming pools are a common contribution example. It's worth noting the cost doesn't always equal the value to the home. For example, a pool could add $5000 to the value of a home but cost $10,000 to build." "The period over which a property may be profitably utilized is called its: a. Economic life b. Amortized life c. Income life
d. Net life - CORRECT ANSWER a. Economic life
Economic life is the expected period of time during which an asset remains useful to the average owner. When an asset is no longer useful to its owner, then it is said to be past its economic life. The economic life of an asset could be different than its actual physical life." "After smoking, this is the second leading cause of lung cancer in the United States. A naturally occurring gas that forms in rocks, soil, and water. a. Radon b. Chlorine c. Lead Paint
d. Carbon Monoxide - CORRECT ANSWER a. Radon
After smoking, this is the second leading cause of lung cancer in the United States. Radon is a naturally occurring gas that forms in rocks, soil, and water." "Which of the following is a lien?
a. A novation b. A mortgage c. An easement
d. An investment - CORRECT ANSWER b. A mortgage
A lien is a legal claim on an asset. Mortgages are a type of lien as it provides the lender a claim over the borrower's assets and allows the lender the right to detain the assets, property or goods to secure payment." "What is the illegal action or practice of lending money at unreasonably high rates of interest? a. Forgery b. Usury c. Altercation
d. Puffing - CORRECT ANSWER b. Usury
Usury is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. Currently, most states have usury laws in place and set a cap on the maximum amount of interest a lender can charge. These rates can vary significantly by state and may differ depending on the type of financial product you're using. Usury is a form of predatory lending." "If a contract has prepayment penalties, they can be found in which real estate contract clause? a. In the Habendum Clause b. In the Defeasance Clause c. In the Prepayment Penalty Clause
d. In the Penalty and Insurance Clause - CORRECT ANSWER c. In the Prepayment Penalty
Clause A prepayment penalty clause states that a lender can penalize a borrower if the borrower pays off the mortgage much sooner than usual. Lenders are required to disclose prepayment penalties at closing in the form of a prepayment penalty clause." "Which of the following can be achieved by dividing the price of the property by the rent that is produced? a. Gross Rent Multiplier b. Interest Rate c. Capitalization Rate
d. The Economic Value - CORRECT ANSWER a. Gross Rent Multiplier
The Gross Rent Multiplier is found by dividing the price of the property by its rent."
"Which of the following best describes the term "encroachment?" a. Another word for personal property. b. Intrusion on a person's territory or property. c. The failure to complete an agreement per agreed terms.
d. A formal legislative discussion covering zoning adjustments and potential fractions. -
CORRECT ANSWER b. Intrusion on a person's territory or property.
Encroachment is an intrusion on a person's territory or property. For those of you who are football fans, it's pretty much the same thing as the penalty. If a tree grows over someone's property, or when a fence or another piece of your neighbor's property crosses the property lines. Those are all examples of encroachment. Encroachment can lead to some large legal issues and if there are potential encroachment owners and agents should seek a solution immediately." "The ability to buy and sell is also known as what essential element of value? a. Demand b. Utility c. Scarcity
d. Transferability - CORRECT ANSWER d. Transferability
Remember DUST and your essential elements of value.
- Demand: This means the desire to buy and an ability to pay.
- Utility: The item satisfies a human need or desire; such as shelter, income, or recreation.
- Scarcity: Limited in supply, as supply diminishes, value increases.
- Transferability: Able to transfer from one owner to another." "What party usually pays the loan origination fee on a Federal Housing Administration (FHA) loan? a. the bank. b. the broker. c. the borrower.
d. the real estate agent. - CORRECT ANSWER c. the borrower.
Typically the party who usually pays the loan origination fee on a Federal Housing Administration loan is the borrower. The origination fee covers the borrowers right to obtain FHA-backed financing, so it is traditionally a paid by the borrower. FHA Loans are mortgage issued by an FHA-approved lender and insured by the FHA which is the Federal Housing Administration. FHA loans are sought after because they require lower minimum down payments and credit scores than many conventional loans." "Generally speaking, what is the most common type of contingency? a. Financing or Home Inspection b. Sale of a Prior Home c. Lease Option
d. Title Insurance - CORRECT ANSWER a. Financing or Home inspections
Home inspection contingencies are one of the most common home buying contingencies. According to NAR, around 80% of homebuyers include a home inspection contingency in their purchase agreement. Financing is right behind it, as it allows the buyer to terminate the contract if they cannot obtain a loan." "Which of the following is NOT a main element of a valid real estate contract? a. The contract must have monetary consideration. b. The contract must be legal or hold a legal purpose. c. The contract must hold mutual consent or be agreed upon by both parties.
d. The party must be the legal age of 18 or older and deemed legally competent. - CORRECT
ANSWER a. The contract must have monetary consideration.
This is a bit of a trick question. There are four main elements of a valid real estate contract: The party must be the legal age of 18 or older and deemed legally competent. The contract must be legal or hold a legal purpose. A clear and specific consideration must be included in the agreement. The contract must hold mutual consent or be agreed upon by both parties. Monetary consideration is optional. Consideration is a main element, but it doesn't necessarily have to be money. Remember, consideration is anything of legal value, it could be a promise or promise to perform an action." "Who funds the California Consumer Recovery Account? a. California Taxpayers b. Californian Real Estate Agents c. The Active California Governor
designed to protect professionals from the risk of not being paid for services. A mechanic's lien is involuntary and specific." "What is the maximum paid out (per judgment) from the California Consumer Recovery Account? a. $25,000 for each transaction; and $100,000 for any one licensee. b. $25,000 for each transaction; and $200,000 for any one licensee. c. $50,000 for each transaction; and $250,000 for any one licensee.
d. $70,000 for each transaction; and $300,000 for any one licensee. - CORRECT ANSWER c.
$50,000 for each transaction; and $250,000 for any one licensee. Per California License law the maximum paid out of the Real Estate Recovery Fund is $50,000 for each transaction; and $250,000 for any one licensee." "What is the proper procedure for changing a contract that already has become binding? a. Sign a separate amendment b. Replace the old contract with a new one c. Write the changes in the original contract
d. Write the changes in the original contract, date, and initial the changes. - CORRECT
ANSWER a. Sign a separate amendment
The proper procedure for changing a contract that has already become binding is to sign a separate amendment. Remember, separate amendments are used to modify or change executory contracts." "A mortgagor is also known as the: a. Borrower b. Lender c. Finance Specialist
d. Mortgage Broker - CORRECT ANSWER a. Borrower
A borrower is a mortgagor while the lender is the mortgagee. A mortgagee is an entity that lends money to a borrower (also known as a mortgagor) for the purpose of purchasing real estate."
"When a home is purchased using an adjustable rate mortgage or ARM, the monthly loan payment on the mortgage will: a. be adjusted automatically to ensure that profitability occurs. b. rise slightly in each adjustment period until the cap is reached. c. be based on a very low interest rate, but will rise to the market rate at the first adjustment. d. vary over the life of the loan depending on fluctuations in the interest rate to which the loan is
referenced. - CORRECT ANSWER d. vary over the life of the loan depending on fluctuations in
the interest rate to which the loan is referenced. When a home is purchased using an adjustable rate mortgage or ARM, the monthly loan payment on the mortgage will vary over the life of the loan depending on fluctuations in the interest rate to which the loan is referenced. A variable-rate mortgage, adjustable-rate mortgage, or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets." "The execution date or date executed is the day a contract is signed. The effective date is what? Choose the best answer. a. The day the contract goes into effect. In some cases the execution date and effective date are the same. b. The day the contract goes into effect. In ALL cases the execution date and effective date are the same. c. The day the contract begins its extension.
d. The day the contract ends officially. - CORRECT ANSWER a. The day the contract goes into
effect. In some cases the execution date and effective date are the same. The execution date or date executed is the day the contract is signed. The effective date is the day the contract goes into effect. Both dates can both be found in a contract. In many instances, the execution and effective dates are the same; however, that is not the case in some circumstances. You might sign a lease today to move into an apartment, but you won't be able to move in until the following week. The execution date might be today, but the effective date will be when you move into your brand new home. Many times, the execution date and effective date are the same, but again not always."
d. Location - CORRECT ANSWER c. Time
Estates can be divided into two different sections: freehold estates, and less than freehold estates(or leasehold estates).The key difference between a leasehold estate and a freehold estate is the limitation of time. A freehold estate is an estate in which you have exclusive right to enjoy the possession of a property for an undefined length of time, while a leasehold estate is an estate held by one who rents or leases property for a period of time. Read More Here" "When you buy real property, you gain several different kinds of rights. One of which are rights called "surface rights." What are surface rights? a. the rights to the natural resources lying below the earth's surface. b. the rights to use the surface of the earth. c. the rights to use any rock, soil, or hard object.
d. the rights to the trees, ferns, and other plants. - CORRECT ANSWER b. the rights to use the
surface of the earth. The surface rights are the rights to use the surface of the earth. Subsurface rights are the rights to the natural resources lying below the earth's surface. Interestingly an owner may transfer rights without transferring the subsurface rights. For example, a landowner can sell his rights to an oil and gas company in his land but still can own the land itself." "If a leased premises becomes uninhabitable deliberately in an attempt to remove the tenant. What is this action called? a. Condemnation b. Actual eviction c. Constructive eviction
d. Abandoning lease property - CORRECT ANSWER c. Constructive eviction
Constructive eviction is a term used in the law of real property to describe when a landlord sidesteps the formal, legal eviction process, and instead attempts to force the eviction of the tenant by rendering the property uninhabitable. A tenant who is constructively evicted may terminate the lease and seek damages." "Who dictates trust accounts and when to deposit earnest money or other trust funds? a. State Specific License Law b. The Brokerage Firms c. Federal Law
d. County Law - CORRECT ANSWER a. State Specific License Law
Each state determines the rules for brokerage firm trust accounts and how earnest money must be deposited." "An elderly man in a nursing home, has no family and is suffering from Alzheimer's. Because of his Alzheimers, he doesn't remember much. Eventually, he passes away in his sleep. There is no will for the man, and again he has no family. So what happens to the money left in his savings account and his old farm that has been left untouched since he entered the nursing home? a. Escheat b. Eminent Domain c. Adverse Possession
d. Inverse Condemnation - CORRECT ANSWER a. Escheat
Instead of being handed down to his family(since he has none), his assets (farm included) are going to go to the government in the process called escheat. Escheat is the government's right to take ownership of unclaimed real estate or assets." "During your time as agent you will run into many different types of people from areas across the world. Closing is called many names depending on which region of the U.S you are from. Which of the following is NOT a legal name for closing? a. settlement and transfer b. exchange and transfer c. passing papers
d. closing - CORRECT ANSWER b. exchange and transfer
Closing is known by many names. Some areas of the country may call it settlement and transfer some may call it passing papers. The textbook name is for closing is closing." "Which of the following is an economic characteristic of real estate? a. Scarcity b. Immobility c. Uniqueness
d. Indestructibility - CORRECT ANSWER a. Scarcity
Real estate has three physical characteristics that differentiate it from other assets in the economy:
- Indestructibility meaning land cannot be destroyed or worn out. Its appearance may be altered but it always continues to exist.
