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Quiz Session - Attempts With Random Questions

California Real Estate Exam Questions

Page 5 of 25

81.

A homeowner attempts to refinance their home only to find out that the home has a lien from the previous owner that was never paid. What should the current homeowner do?

  • Contact the title insurance company

  • Contact the salesperson

  • Contact the mayor

  • Nothing (the lien doesn't apply)

Correct answer: Contact the title insurance company

Title insurance seeks to protect a real property owner or lender up to a specified amount against certain types of loss (e.g., defective or unmarketable title). Standard coverage includes protection against fraudulent documents, defects in the chain of title, and other title defects. Extended coverage protects against all of these, as well as liabilities that are not included in the public record and other adverse circumstances. 

Not all title insurance policies will cover the loss caused by this newfound lien, but some will. Therefore, contacting the title insurance company is the best option.

82.

One discount point is equal to how much of a loan?

  • Each point is one percent of the loan amount

  • Each point is one-half of one percent of the loan amount

  • Each point is two percent of the loan amount

  • Each point is one-hundredth of one percent of the loan amount

Correct answer: Each point is one percent of the loan amount

A discount point is one percent of the loan amount. Lenders will charge discount points upfront to raise the overall yield of the loan. If a lender is charging 5 points on a $100,000 loan, the borrower must pay $5,000 to the lender at the start of the loan. By paying these upfront discount points, the lender's cost basis is reduced to $95,000, while their returns are unchanged. Thus, the yield of the loan for the lender has increased.

83.

Which of the following could lead to the termination of an agency relationship?

  • All of these

  • Expired contract terms

  • Death of the principal or broker

  • Property destruction

Correct answer: All of these

An agency may be terminated in the following ways:

  1. The expiration of its term
  2. The death of the principal
  3. The death of the agent
  4. The agent's renunciation of the agency
  5. Destruction of the subject property
  6. The incapacity of the agent to act as such

84.

Owner A states that his house is worth $95,000. Buyers in the market can obtain Owner B's house with the same features and utilities for only $90,000. Therefore, Owner A's house has a value of approximately $90,000, not $95,000.

Of the twelve principles of valuation, which of the following does this scenario represent?

  • Principle of substitution

  • Principle of supply

  • Principle of demand

  • Principle of power

Correct answer: Principle of substitution

Principle of substitution: This principle is the basis of the appraisal process. Simply stated, the value will tend to be set by the cost of acquiring an equally desirable substitute. The value of a property to its owner cannot ordinarily exceed the value in the market to persons generally when it can be substituted without undue expense or serious delay.

Principle of supply and demand: This holds that price varies directly but not necessarily proportionately with demand, and inversely but not necessarily proportionately with supply. Increasing supply or decreasing demand tends to reduce prices in the market. The opposite is also true.

Principle of conformity: This holds that maximum value is realized when land uses are compatible and a reasonable degree of architectural harmony is present. Zoning ordinances help set conformity standards.

Principle of competition: Competition is created where substantial profits are being made. If there is a profitable demand for residential construction, competition among builders will become very apparent. This could lead to an increase in supply in relation to the demand, resulting in lower selling prices and unprofitable competition, leading to a renewed decline in supply.

85.

One of the purposes of RESPA is to protect buyers from which of the following?

  • Unnecessarily high closing costs

  • Inflated home prices

  • Faulty electrical work

  • Faulty surveys

Correct answer: Unnecessarily high closing costs

Prior to the Real Estate Settlement Procedures Act (RESPA), home buyers often paid unnecessarily high closing costs because they were unwittingly funding realtor referrals to a few closing-related service providers. 

RESPA was created to provide consumers with greater transparency regarding real estate settlement costs. Examples of such costs include loan fees, recording fees, escrow fees, appraisal costs, and home warranties. Beyond the obvious contract sales price, there are many additional costs that factor into a home purchase.  

RESPA helps consumers make informed decisions regarding these fees and encourages them to compare fees to find the best deal.

86.

An appraiser who holds a Certified General Real Estate Appraiser license is permitted to appraise which of the following?

  • Any type of real property

  • Commercial properties only

  • Residential properties only

  • None of these

Correct answer: Any type of real property

There are four levels of licensing for real estate appraisers in California:

  • Certified General License (may appraise any type of real property)
  • Certified Residential License
  • Residential License
  • Trainee License

87.

What is the maximum use of a property that is legally allowed, which typically produces the most income?

  • Highest and best use

  • Highest and greatest income 

  • Full use

  • Full utility

Correct answer: Highest and best use

The highest and best use of a piece of real estate is that which will most likely produce the greatest net return over time. This return can come in the form of cash flow (rent, other income), capital gains (profit on a sale), or both.

The application of this principle is flexible. It reflects the appraiser’s opinion of the best use for the property as of the date of the appraiser's appraisal. At one period of time, the highest and best use of a parcel of land in a downtown business district might be for the development of an office building; at another time, a parking lot may be the highest and best use.

A single-family house on a commercial lot may not be the highest and best use for the site. A four-unit apartment on land zoned for 30 units is probably not the long-term highest and best use of the land.

Determining the highest and best use includes assessing potential buyers’ motives, the existing use of the property, potential benefits of ownership, the market’s behavior, community or environmental factors, and the tax effects of different uses.

88.

Why does a single-family property located in an industrial area have minimal value?

  • Conformity

  • Contribution

  • Balance

  • Diminishing returns

Correct answer: Conformity

The principle of conformity is that, to retain value, the property should be located within an area of similar properties. This single-family property would likely increase in value if it was in a residential area with similar properties.

The principle of contribution is that values will increase when properties are improved. The principle of balance states that values will improve when all elements are balanced. According to diminishing, if one factor increases while another factor remains constant, then the variable factor will begin to diminish.

89.

The term "rescission" refers to which of the following?

  • The cancellation of a contract

  • The breach of contract by one of the parties

  • The forfeiture of a contract

  • Default on a contract

Correct answer: The cancellation of a contract

Rescission is the cancellation of a contract. It is one of the legal remedies available to damaged parties when a contract is breached. (The other remedies are forfeiture, suit for damages, and suit for specific performance.) 

Rescission restores all parties to their pre-contract condition. For example, if the buyer had made an earnest money deposit and the contract was rescinded, the deposit would be returned to the buyer.

90.

A salesperson renewing their license for the first time must complete three hours of continuing education courses on which topic?

  • All of these

  • Ethics

  • Fair housing

  • Trust fund handling

Correct answer: All of these

Real estate salesperson licenses must be renewed every four years. The first time a salesperson renews, they must complete the following three-hour continuing education courses:

  • Ethics
  • Agency
  • Trust fund handling
  • Fair housing
  • Risk management

91.

Which of the following defines utility, one of the four elements of value?

  • How effective the item is at doing its job

  • The ability of the consumer to buy the item

  • How valuable the item is to the seller

  • The demand for a product 

Correct answer: How effective the item is at doing its job

Value is established by the interplay of these four factors:

  • Desire: How badly does the consumer want the item?
  • Utility: Is the item effective at doing its job?
  • Scarcity: How much of the item is available to consumers?
  • Affordability: Can the consumer afford to pay for the item?

92.

What is a deferment of interest payment on a loan that is added to the principal and results in an increase in the payments over time and a loss of value on the property?

  • Negative amortization

  • Default

  • Interest-only loan

  • Market trends

Correct answer: Negative amortization

Negative amortization occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance. The unpaid interest is added to the principal due. 

Negative amortization occurs sometimes on adjustable-rate mortgages and graduated payment loans.

93.

A property is sold, and the sale price is more than the price at which it was initially purchased. This is known as which of the following?

  • Capital gain

  • Equity build-up

  • Capital loss

  • Depreciation

Correct answer: Capital gain 

When a property is sold for more than the price at which it was purchased, there is a capital gain. The capital gain is taxable unless the seller participates in a like-kind exchange (1031 exchange).

94.

A property's assessed value is used to determine which of the following?

  • The property taxes that must be paid on the property

  • The minimum an insurance company will pay for a loss

  • What the market will pay for a property regardless of inflation

  • The maximum loan amount that can be secured by the property

Correct answer: The property taxes that must be paid on the property

Types of values for appraisal purposes include, among others, market value, depreciated value, and assessed value. A property's assessed value is used to determine the property taxes that must be paid on the property. A property's assessed value is determined by a government taxing authority (the county assessor, usually).

Insured value is the most an insurance company will pay for a loss. The market value is what the market could reasonably be expected to pay for a property. Mortgage value is the maximum loan amount that can be secured for the property.

95.

If a property in California has a deficiency judgment available, what is the minimum required notice period for the Notice of Sale?

  • 20 days

  • 90 days

  • 365 days

  • None of these

Correct answer: 20 days

A Notice of Sale (NOS) is a document that gives notice to the public that a property in default will be sold. The earliest date that the sale can be scheduled is 20 days after the NOS is posted and recorded.

96.

What is a legal reason for the government to acquire a citizen's private property through eminent domain?

  • All of these

  • To widen highways

  • To construct government buildings

  • To build railroads

Correct answer: All of these

Using eminent domain, the government can acquire private property for public use, paying compensation to the owner based on fair market value. The government may use eminent domain for a variety of purposes that benefit the public. Government buildings, highways, and railroads are all beneficial public uses.

97.

An agent who represents the buyer in all aspects of the transaction and owes all fiduciary duties to the buyer is known as which of the following?

  • Buyer's agent

  • Seller's agent

  • Dual agent

  • Proprietary agent

Correct answer: Buyer's agent

The buyer's agent represents the buyer in all aspects of the transaction and owes all fiduciary duties to the buyer.

A seller's agent represents the seller, and a dual agent represents both the seller and the buyer, with an inherent conflict of interest.

98.

A salesperson informs a potential buyer that a property is "in perfect shape," when it obviously is not. This is an example of which of the following?

  • Puffing

  • Nondisclosure

  • Constructive fraud

  • Gratuitous agent

Correct answer: Puffing

Even in some situations where a licensee honestly believes that representations to the prospective buyer are nothing more than "puffing" or ''sales talk," a problem may develop if the impression made upon the buyer is that the representation is one of fact. 

Statements by a real estate broker that the property being offered is the "best on the street" or that the buyer "will receive handsome profits from the buyer's investment" were at one time almost universally considered to be expressions of opinion. In recent years, there appears to be a growing tendency on the part of the courts to treat such statements as representations of material fact because persons of limited expertise and sophistication tend to rely upon such statements and to purchase property as a result of such reliance.

99.

Which of the following terms means the opposite of assemblage?

  • Subdivision

  • Progression

  • Appraisal

  • Title and deed

Correct answer: Subdivision

Assemblage is the combining of adjacent parcels into one parcel.

Subdivision is the dividing of a single parcel into multiple parcels.

100.

Which of the following is closest to a For Sale by Owner listing?

  • Open listing

  • Net listing

  • Exclusive agency

  • All of these are similar

Correct answer: Open listing

An open listing is similar to a For Sale by Owner listing. In either listing, the home may be sold by the owner. With the open listing, the homeowner has given agents the right to look for a buyer and receive a commission if they procure one without guaranteeing a commission or giving any agent the exclusive right to sell.

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