California Real Estate Exam Questions

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21.

Which of the following contracts would allow a buyer to use and occupy a property while the seller retains the title until certain conditions are met?

  • Conditional sale contract

  • Consideration

  • Implied contract

  • Express contract

Correct answer: Conditional sale contract

A conditional sale contract is one in which the buyer is permitted to use and occupy a property while the seller retains the title until certain conditions are met.

22.

Kaj, a real estate investor, is targeting a 5% capitalization rate on the next investment property. Kaj presents an offer for $1,000,000, which is accepted by the seller.

What amount of NOI must Kaj achieve to hit the target cap rate? 

  • $50,000

  • $20,000

  • $20,000,000

  • $4,167

Correct answer: $50,000

Our stock cap rate formula is the following: NOI/Cap Rate = Property Value

Therefore,

NOI = Property Value * Cap Rate

NOI = $1,000,000 * 0.05 = $50,000

23.

If a salesperson does not receive their renewal form from the DRE prior to their license expiration date, what does that mean?

  • The salesperson is still responsible for renewing their license

  • The salesperson is exempt from renewing their license

  • The salesperson's license will automatically renew

  • The salesperson's license has been revoked

Correct answer: Nothing, the salesperson is still responsible for renewing their license

A renewal form should come in the mail. Even if it doesn't, it is the salesperson's responsibility to make sure they complete all the necessary requirements for license renewal before their license expires.

24.

A buyer lacks enough cash for a down payment and needs additional credit to qualify for a loan. To make the deal work, the buyer and the seller enter into a contract where the buyer will acquire equitable title and pay regular payments of principal and interest to the seller, while the seller retains the legal title. 

What is this type of agreement called?

  • Contract for deed

  • Wraparound

  • Option-to-sell

  • Purchase mortgage power

Correct answer: Contract for deed

A contract for deed is a form of seller financing where the buyer obtains an equitable title and makes payments to the seller, while the seller retains legal title.

It's easy to get a contract for deed confused with a purchase money mortgage. Both are forms of seller financing. In the simplest terms, a contract for deed is like a deed of trust and is secured by legal title. A purchase money mortgage, like any mortgage, is secured by a lien.

Someone who has a legal title has actual ownership of the property. Someone with an equitable title has the right to obtain legal title after the satisfaction of some agreement (commonly, a contract for deed).

A contract for deed can also be called a land contract, installment sale, conditional sales contract, or an agreement for deed.

25.

Which of the following is not a basic real estate course that would qualify a candidate for a salesperson license?

  • Microeconomics

  • Real Estate Office Administration

  • Real Estate Appraisal

  • Computer Applications in Real Estate Surveying

Correct answer: Microeconomics

Microeconomics is not a DRE-approved course for an original salesperson license.

The DRE-approved courses are the following: Real Estate Appraisal, Accounting, Business Law, Property Management, Mortgage Loan Brokering and Lending, Common Interest Developments, Legal Aspects of Real Estate, Real Estate Finance, Real Estate Economics, Escrows, Real Estate Office Administration, and Computer Applications in Real Estate.

26.

Which of the following is a requirement to be licensed as a salesperson in California?

  • Age at least 18 years old

  • Age at least 21 years old

  • Associate's degree

  • At least 10 years of real estate experience 

Correct answer: Age at least 18 years old

A real estate salesperson license in California requires an individual to be 18 years old or older, a legal citizen of the US, and honest, as well as complete three college-level real estate courses and pass a qualifying exam.

27.

For the sale of personal property to be enforceable, the agreement for the sale must be which of the following?

  • In writing if the amount is greater than $500

  • In writing if the amount is more than $5

  • In writing for any amount 

  • In writing for any amount greater than $100

Correct answer: In writing if the amount is greater than $500

In a sale of personal property, the agreement for the sale must be in writing if the amount or value of the personal property is over $500.

28.

What are the rights of a landowner whose land borders a stream or river to use and enjoy the water that is adjacent to or flows over the owner's land, provided such use does not injure other landowners?

  • Riparian rights

  • Littoral rights

  • Navigable water rights

  • Riptide rights

Correct answer: Riparian rights

Riparian rights are the rights of a landowner whose land borders a stream or river to use and enjoy the water that is adjacent to or flows over the owner's land, provided such use does not injure other landowners abutting the stream. The specific riparian rights granted to landowners depend on whether the water is "navigable" (a river that can be used by boats is navigable, while a rocky brook is not).

One way to remember riparian is to remember that river and riparian both start with "ri."

29.

Which of the following is true of a chain of title?

  • It involves investigating the line of previous owners up to the current owner

  • It is an alphabetical list of sellers of the property

  • It is a list of all properties for sale in a given area

  • It is a list of neighbors of the property

Correct answer: It involves investigating the line of previous owners up to the current owner

A chain of title is the chain of transfers of a title on a property and includes the entire line of previous owners up to the present owner. The chain of title dates back to the original date when the property was granted by the state to its first private owner.

30.

Are fiduciary duties limited to agents, or can principals have fiduciary duties as well? If so, what is an example of a fiduciary duty of a principal?

  • Principals do have fiduciary duties; an example is compensation

  • Principals do have fiduciary duties; an example is skill

  • Principals and agents have the same fiduciary duties

  • Principals do not have fiduciary duties to their agents

Correct answer: Principals do have fiduciary duties; an example is compensation

Principals do have fiduciary duties to their agents. These duties include being available (being reachable if the agent needs the principal's input), giving information (providing the agent with the necessary information to complete the job), and providing compensation (payment for services performed by the agent, usually in the form of a commission).

Principals do not have a fiduciary duty to be skilled, nor do they have the same fiduciary duties as agents.

31.

RESPA only applies to which of the following?

  • Residential properties

  • Commercial properties

  • Equity loans

  • Foreclosures

Correct answer: Residential properties

The Real Estate Settlement Procedures Act (RESPA) applies to any real property containing 1 to 4 residential units that are involved in federally related mortgage loans (i.e., FHA or VA loans or a loan from a bank with federally insured deposits).

32.

Functional obsolescence refers to which of the following?

  • Features of the property that are no longer desirable

  • Features that are not yet made or done

  • Aspects that the owner cannot control, such as economic shifts

  • Poorly completed work by a contractor

Correct answer: Features of the property that are no longer desirable

Functional obsolescence is a loss of value due to adverse factors from within the structure that affect the utility of the structure, value, and marketability. An 1800s home without plumbing or central air could be considered to have functional obsolescence.

33.

Jai makes an offer on Binh's house, which Binh accepts. Halfway through escrow, Jai finds another house that they much prefer to Binh's house. The only problem is that Jai can't afford to buy two houses. To solve this, Jai attempts to rescind the contract with Bihn. Binh wants to retain Jai's earnest money deposit. 

What remedy for breach is Binh seeking? 

  • Forfeiture

  • Breach sell-off

  • Specific performance

  • Rescission

Correct answer: Forfeiture

Forfeiture requires Jai to forfeit the earnest money deposit as a remedy for the breach.

If Jai was a bit savvier, they might have looked for a way to use their contingencies to break free of the contract without committing a breach. If an inspection uncovered some serious flaw in the house, Jai might have been able to use the inspection contingency as an avenue to get out of the contract without breaching it and therefore would not have been accountable to Binh for forfeiture or any other remedy for breach.

34.

What does a restrictive covenant do?

  • Restricts a future owner's use of the property

  • Restricts the mortgage amount a new owner may seek approval for

  • Restricts the property from being used by individuals who are disabled

  • Restricts the amount of property tax the owner will have to pay

Correct answer: Restricts a future owner's use of the property

A restrictive covenant restricts a future owner's use of the property. Restrictive covenants are used by property owners to control the property even after they have passed ownership to another person or party. 

Restrictive covenants are not allowed to discriminate on the basis of religion, race, sex, age, or any other protected class.

35.

Micah moves to a neighborhood with a clearly defined style. Nearly all the houses have a Spanish architectural style and red tile roofs and are painted in modest, earthy shades. Micah, however, feels no pressure to fit the area's consistent aesthetic. He spends his life savings building a Garfield-shaped home, filling it with Garfield memorabilia, a Garfield recliner, Garfield wallpaper, and even a Garfield jacuzzi. To top it off, Micah commissions a local artist to cover the exterior of the home in a striking Garfield mural. Unfortunately, there is no art jury in the neighborhood, HOA, or any restrictive covenants that prevent Micah from building such a tribute to his favorite cartoon cat.

Within a few years, Micah calls a real estate agent to list the home for sale, hoping to get enough money to pay his gambling debts. Homes in the neighborhood have been selling for $600k–$800k, so Micah is disappointed when the agent tells him that he'd be lucky to get $300k for his home. 

Which principle of real estate value can explain why Micah's home has such a low value compared to the homes of his neighbors?

  • Conformity

  • Decor disaster

  • Compliance

  • Subprime lending 

Correct answer: Conformity

The principle of conformity holds that the maximum value is realized when a reasonable degree of homogeneity of improvements is present. The opposite is also true: when a property is starkly different from its neighbors, value is negatively impacted.

36.

What type of ownership exists when several (i.e., two or more) persons are owners of undivided interests in the title to real property without the right of survivorship?

  • Tenancy in common

  • Tenancy in power

  • Community property

  • Sole or several ownership

Correct answer: Tenancy in common

All property has an owner, such as the government—federal, state, or local—or some private party or entity (typically referred to as persons). An estate in real property may be owned in many different ways. Tenancy in common is the co-ownership of property by two or more persons who each hold an undivided interest without the right of survivorship; interests do not need to be equal. 

Tenancy in common is created if an instrument conveying an interest in real property to two or more persons does not specify that the interest is acquired by them in joint tenancy, in partnership, or as community property. Some instruments of transfer/deeds of conveyance clearly state that the intentions of the persons acquiring are to hold the title as tenants in common.

37.

A lender who is originating a loan wants to boost their yield without raising the interest rate. What device might they use to achieve this?

  • Discount points

  • Origination power

  • Refund points

  • Discount payments

Correct answer: Discount points

A discount point is one percent of the loan amount. Lenders will charge discount points upfront to raise the overall yield of a loan. The monthly payment on the loan remains unchanged. 

Because of the discount points paid by the borrower, the lender has to invest less of their own money to earn the same return; therefore, their yield is increased.

38.

Piotr is working with a contractor to expand their driveway. The contractor places boundary markers for the driveway addition, which will extend the driveway three feet beyond the property line and onto a vacant lot owned by Olga. Olga doesn't live in the area and is completely unaware that Piotr is about to build improvements on the lot. The contractor proceeds with building the driveway. As designed, the driveway extends well beyond Piotr's property line. 

What has Piotr done?

  • Encroachment

  • Nonconforming use

  • Easement in gross

  • Encumbrance

Correct answer: Encroachment

An encroachment is an unlawful intrusion onto another’s adjacent property by improvements to real property (e.g., a swimming pool built across a property line). Adjoining owners of real property often find themselves involved with encroachments in the form of fences or walls and buildings extending over the boundary lines.

39.

If Juan and Antonio own their home as joint tenants and Juan dies, what happens to Antonio's ownership of the home?

  • Antonio will become the sole owner

  • Antonio will be forced to sell the home

  • Juan's heirs and Antonio will own the home jointly

  • The home will pass to Juan's heirs

Correct answer: Antonio will become the sole owner

Antonio will become the sole owner because joint tenancy includes the right of survivorship. The surviving co-owners share equally in the deceased owner's interest.

Joint tenancy exists if two or more persons are joint and equal owners of the same undivided interest in real property. Generally, to establish a joint tenancy, a fourfold unity must exist (i.e., interest, title, time, and possession). Joint tenants have the same interest, acquired by the same conveyance, commencing at the same time and held by the same possession.

40.

Which of the following is true regarding a unilateral contract?

  • Only one party has responsibilities to fulfill

  • Both parties promise to perform their parts

  • Neither party has responsibilities to fulfill

  • It does not have to be signed

Correct answer: Only one party has responsibilities to fulfill

A unilateral contract is a contract in which one party promises to do something if the other party performs a certain act, but the other party does not promise to perform it; the contract is formed only if the other party does perform the requested act. An example in real estate is an option contract: the buyer holding the option is not obligated to buy, but the seller must sell if the buyer exercises their option.