California Real Estate Exam Questions

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1.

Shopping centers will likely use which of the following leases?

  • Percentage lease

  • Point lease

  • Net lease

  • Graduated lease

Correct answer: Percentage lease

With a percentage lease, the landlord's rent is tied to the business performance of the lessee. For example, if a sporting goods store with a percentage lease has a fantastic month, their rent payment will be higher. If they have a month of dismal sales, their rent will decrease.

A percentage lease can take different forms. Some percentage leases have a fixed base payment with the percentage on top, while others are based solely on a percentage of gross income.

2.

California law requires how many days' notice of termination for an estate at will?

  • 30

  • 7

  • 365

  • 21

Correct answer: 30

An estate at will is terminable at the will or unilateral decision of either party with no designated duration. California, and some other states, require at least a 30-day notice from either party for termination.

3.

If a broker is selling real property to a business purchaser, which agency should they suggest the purchaser contact for a sales tax permit?

  • The California Department of Tax and Fee Administration

  • Internal Revenue Service

  • State Department of Industrial Relations

  • State Department of Benefits and Payroll

Correct answer: The California Department of Tax and Fee Administration

The broker should be prepared to inform the purchaser of the various federal, state, and local government agencies that the purchaser should contact for required permits, licenses, and clearances. Such agencies include:

  • Internal Revenue Service (for employer identification number in connection with federal withholding taxes, etc.)
  • The California Department of Tax and Fee Administration (for sales tax permit)
  • State Department of Benefit Payments (state payroll tax withholding)
  • State Department of Industrial Relations (workers’ compensation insurance and California Occupational Safety and Health Act)
  • County and Municipal Agencies (licenses and permits, such as a business license)

4.

An emancipated minor has the power to buy or sell real property. Which of the following best describes an emancipated minor?

  • An individual under the age of 18 who is on active duty for the US armed forces

  • An individual under the age of 18 who has dropped out of high school

  • An individual under the age of 18 who has had a child

  • An individual under the age of 18 who has both parents

Correct answer: An individual under the age of 18 who is on active duty for the US armed forces

When a minor (person under the age of 18) becomes "emancipated," they gain the ability to enter into contracts as an adult would. A minor can become emancipated in three ways:

  • Court ruling
  • Marriage
  • Current or former service in the US armed forces

5.

In the state of California, a notary public's official seal must contain all except which of the following?

  • The date that the notary public's commission was issued

  • The notary's name

  • The words "Notary Public"

  • The State Seal

Correct answer: The date that the notary public's commission was issued

California's Secretary of State gives notary publics the authorization to witness the acknowledgment of documents. When a notary notarizes any document, the document is stamped with the notary's seal, which must include the following:

  • The words "Notary Public"
  • The expiration date
  • The state seal of California
  • The name of the county
  • The name of the notary

6.

When a broker or salesperson has an "expired" license, they are prohibited from doing which of the following?

  • Practicing real estate

  • Viewing properties

  • Completing the required continuing education courses

  • Seeking other employment

Correct answer: Practicing real estate

A broker or salesperson cannot practice real estate with an expired license. "Practicing real estate" includes the following:

  • obtaining listings
  • negotiating the sale of real property
  • guiding buyers through the buying process

7.

In what year did it become a requirement to have a real estate license to participate in the sale of business opportunities in California?

  • 1966

  • 1956

  • 1785

  • 1995

Correct answer: 1966

In 1966, the California "business opportunity license" was merged with the real estate license. Since this merger, a real estate license has been required to broker the sale of a business in California.

8.

When the rate of an adjustable-rate mortgage increases but the payment each month remains the same, which of the following occurs?

  • Negative amortization

  • Positive amortization

  • Depreciation

  • Appreciation

Correct answer: Negative amortization

Negative amortization occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance, so the unpaid interest must be added to the principal due.

9.

When does California's Statute of Frauds require a lease agreement to be in writing?

  • When the lease's term is greater than one year

  • When it is an estate from period-to-period

  • When the lease requires a termination notice

  • When the lease includes payment of utilities

Correct answer: When the lease's term is greater than one year

A lease with a term of one year or below may be created by verbal agreement.

California’s Statute of Frauds requires a lease to be in writing if it either has a term longer than one year OR has a term shorter than one year that expires more than one year after the agreement is reached.

For the sake of clarity and to reduce the risk of disagreement, all leases should be put in writing.

10.

How many days are California brokers given to cancel an RLA?

  • 5

  • 1

  • 30

  • Unlimited time

Correct answer: 5

The California Residential Listing Agreement (RLA) allows five days for management approval. If a salesperson creates an RLA that the broker does not approve of, the broker has five days to cancel the agreement.

11.

When is it possible to refuse to rent to a person based solely on age?

  • If the housing is government-designated retirement housing and/or in a retirement community that meets certain requirements

  • If the tenant is a college student

  • If the tenant has children under the age of five

  • Discrimination based on age is never permitted

Correct Answer: If the housing is government-designated retirement housing and/or in a retirement community that meets certain requirements

One goal accomplished by the Fair Housing Amendments Act of 1988 was the expansion of age-based protections for renters and buyers. Discriminating on the basis of age and/or familial status is almost always prohibited, but one important exception is in the case of elderly/retirement housing.

12.

After a trustee's sale, which of the following receives the first priority of the sale's proceeds?

  • Trustee

  • Lender

  • Junior lien holders

  • None of these

Correct answer: Trustee

The trustee distributes the sale proceeds in the following order:

  1. To the authorized trustee’s fees, costs, and sale expenses
  2. To the lender to satisfy the full amount of unpaid principal and interest and any charges, penalties, costs, expenses, attorney’s fees, and advances that may be lawfully due
  3. To junior lien holders in order of priority
  4. Any surplus that remains to the trustor/mortgagor

13.

California's Subdivision Map Act requires all new subdivisions to be mapped to show the relationship of the new subdivision to other lands and to identify each parcel of the subdivision. 

If an individual wanted to view the accepted map, where could they find it?

  • At the county recorder's office

  • At the city's municipal building

  • At the state capital building

  • At the state auditor's office

Correct answer: At the county recorder's office

The Subdivision Map Act requires all new subdivisions to be mapped to show relationships between the new subdivision and other parcels and to identify each parcel in the subdivision. After the subdivision is approved, the subdivision map is filed with the county recorder. 

The other buildings listed would not house these maps. 

14.

There are two types of deed restrictions: ____ and ____.

  • covenants; conditions

  • conditions; convictions

  • surveys; cohorts

  • wills; convictions

Correct answer: covenants; conditions

There are two types of deed restrictions: covenants and conditions.

A covenant is an agreement by two parties to do or not to do something. If this is broken, the damaged party can seek damages or go to court to force compliance.

A condition means that, when a deed is transferred, the grantor gives title to the grantee conditionally. If the deed condition is violated, the property may revert to the original grantor.

The main difference between covenants and conditions is that only conditions leave open the possibility that the original grantor may repossess the property.

15.

Which baseline-meridian intersection is used in the central part of California?

  • Mt. Diablo Base Line and Meridian

  • San Francisco Base Line and Meridian

  • Any Base Line and Meridian

  • San Andreas Base Line and Meridian

Correct answer: Mt. Diablo Base Line and Meridian

The Mt. Diablo Base Line and Meridian are used for property descriptions in the central part of California. California has three sets of baselines and meridians:

  • The Humboldt Base Line and Meridian for the northwestern part of the state
  • The Mt. Diablo Base Line and Meridian for the central part of the state
  • The San Bernardino Base Line and Meridian for the southern part of the state

Baselines are horizontal, and meridians are vertical. They are used in the US Government Survey (section and township) method of property description.

16.

What kind of market exists in a city flooded with buyers?

  • A seller’s market

  • A buyer's market

  • A supplier's market

  • A bear market

Correct answer: A seller’s market

When there are lots of buyers in the market, there will likely be competition on every listing. This will drive prices up and give sellers the confidence to wait for an offer at or above asking. A market flooded with buyers creates favorable conditions for sellers; therefore, the term for this is a "seller's market."

17.

What type of loan requires small payments to be made for a specified period with a lump sum payment at the end of the loan?

  • Balloon payment loan

  • Wraparound mortgage

  • Open-end mortgage

  • Blanket mortgage

Correct answer: Balloon payment loan

With a balloon payment loan, monthly installments are not sufficient to pay the principal balance over the loan's term. Therefore, a lump sum to cover the remaining principal will be owed at the end of the loan term.

18.

Which of the following acts as an intermediary for the transfer of funds between a buyer and a seller?

  • Escrow

  • Estoppel

  • Ad valorem

  • Rescission

Correct answer: Escrow

Escrow is used for the transfer of funds between buyers and sellers using a short-lived trust agreement. A licensed escrow agent or individual broker may serve as the escrow agent. 

Estoppel is a principle that prevents someone from claiming a right that is at odds with that person's previous actions. Ad valorem refers to general property taxes that are based on the assessed value of the property. Rescission refers to times that allow buyers to reclaim deposits and cancel the contract due to sellers who fail to follow through on the contract.

19.

Which of the following describes a subdivision?

  • A housing development in which large tracts of land have been divided into individual lots

  • A neighborhood in which all houses are the same style and color

  • A neighborhood in a community-revitalized area

  • A neighborhood with a homeowners' association board (HOA)

Correct answer: A housing development in which large tracts of land have been divided into individual lots

A subdivision is any parcel of land that has been divided into smaller lots that can be independently sold and leased. A real estate developer might subdivide a large tract of land with the intention of selling individual lots or building rows of homes and then selling them to individual buyers.

20.

Which type of deed is most commonly used in California?

  • Grant deed

  • Bargain and sale deed

  • Tax deed

  • None of these 

Correct answer: Grant deed

A grant deed is the most commonly used deed type in California, where it has mostly replaced the warranty deed. The warranty deed theoretically offers a higher level of protection, but in practice, title insurance policies have made warranty deeds obsolete in many states. Grant deeds provide assurance that the real property has not already been conveyed to another party and that it is free from encumbrances.