California Real Estate Exam Questions

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61.

When a buyer pays for a property in installments without a mortgage, it is known as which of the following?

  • Land contract

  • Balloon mortgage

  • Mortgage avoidance

  • Partial deed

Correct answer: Land contract

A land contract, also called a contract for deed, lets buyers purchase land without a mortgage. When a buyer and seller sign a land contract, the buyer agrees to pay for the property in installments. The buyer receives an equitable title, and the seller retains the legal title until all the installments have been paid.

62.

Which of the following is not a listing type?

  • Single-agency listing

  • Exclusive agency listing

  • Net listing

  • Open listing

Correct answer: Single-agency listing

Single agency is not a listing type used in real estate transactions.

The four kinds of listing agreements most commonly used are open listing, exclusive agency listing, exclusive right-to-sell listing, and net listing.

63.

An appraiser is using the cost approach to determine the value of a new construction. Which of the following will the appraiser not take into account?

  • Recent sales of similar properties

  • Accrued sales in the neighborhood 

  • The cost of a neighbor's house

  • Value of the total development

Correct answer: Recent sales of similar properties

An appraiser using the cost approach arrives at a property value by taking the current estimated cost to reproduce or replace the subject property, subtracting depreciation, and adding in the value of the underlying land.

Recent sales of similar properties would be valuable information to an appraiser using the sales comparison approach (also known as the market approach).

64.

Which of the following college courses would not qualify as a DRE-approved course for an original salesperson's license?

  • Computer Science

  • General Accounting

  • Business Law

  • Common Interest Developments

Correct answer: Computer Science

Computer Science is not a DRE-approved course. 

DRE-approved courses include Legal Aspects of Real Estate, Real Estate Appraisal, Real Estate Finance, Property Management, Escrows, Mortgage Loan Brokering, Business Law, Common Interest Developments, and General Accounting.

65.

What is a property in which ownership is in shares of a common residential building, allowing the owners to live there?

  • Cooperative

  • Townhome

  • Two-family home

  • Primary property

Correct answer: Cooperative

A cooperative is an apartment building owned by a corporation in which tenancy in an apartment unit is obtained by purchasing shares of the stock of the corporation. Owners of these shares are entitled to occupy a specific apartment in the building.

66.

In California, which of the following is permissible in terms of a deed?

  • A deed to a person who is using a known fictitious name

  • A deed to a fictitious person

  • A deed to an individual who has died

  • None of these

Correct answer: A deed to a person who is using a known fictitious name

A deed cannot be granted to a fictitious person (e.g., Spiderman) but can be granted to an entity using a known fictitious name (Google, perhaps).

67.

If a seller is not satisfied with the initial offer made by a buyer, the seller will typically do which of the following?

  • Reject the offer and make a counteroffer

  • Refuse to sell to that buyer at any price

  • Take the property off the market

  • List the property with another agency

Correct answer: Reject the offer and make a counteroffer

A counteroffer is a response to a contractual offer. Typically, if a seller is not satisfied with the initial offer, the seller will respond with a counteroffer to see if a mutually agreed-upon offer can be reached. 

A buyer and seller may counter several times before reaching an agreement.

68.

A Certified General Real Estate Appraiser license requires which of the following?

  • Minimum of 300 hours of appraisal-related education

  • An associate's degree

  • A master's degree

  • Minimum of 1,000 hours of appraisal-related education

Correct answer: Minimum of 300 hours of appraisal-related education

A Certified General Appraisal license is the highest-ranking appraisal license. Appraisers holding this license may appraise any type of real property, including complex commercial properties that would be beyond the skill set of certified residential licensees. At least 300 hours of appraisal-related education is required for the Certified General License. A bachelor's degree (or higher) is also required for the Certified General Appraisal License.

69.

How common is judicial foreclosure in California?

  • Rare

  • About half of properties in default in California are judicially foreclosed

  • Judicial foreclosure is the only remedy for default in California

  • None of these

Correct answer: Rare

When a borrower is in default, the lender may foreclose on their real estate. Via an acceleration clause, the lender can declare the entire balance of the loan, plus any missed payments and fees, immediately due. If there is a power of sale clause in the deed of trust, the lender can sell a house to pay the debt without going through the courts. 

If there is not a power of sale clause, the lender's only option is to go through the process of judicial foreclosure (court-supervised sale of the foreclosed property), which is usually more expensive and takes longer to complete.

70.

A property loses value because a maximum-security prison is built nearby. This is an example of which of the following?

  • Economic obsolescence

  • Functional obsolescence

  • Societal policymaking 

  • Punitive depreciation

Correct answer: Economic obsolescence

Economic obsolescence is a loss of value caused by factors outside of the property itself. Rezoning of the surrounding area, blighted homes, or a large employer leaving town would all contribute to economic obsolescence. 

Functional obsolescence occurs when features are no longer desirable to current users.

71.

If a piece of property has a "clouded title," what is the property owner permitted to do?

  • Use the property

  • Sell the property

  • Transfer the property

  • Convey a marketable title

Correct answer: Use the property

A “clouded title” is defined as any outstanding claim or encumbrance that would, if valid, affect or impair the owner’s title to a particular property. While the cloud remains, the owner is prevented from selling, transferring, or conveying a marketable title. However, the owner is still able to use the property.

72.

Many purchase agreements give buyers the right to assign the contract to someone else. This is known as which of the following?

  • Assignment

  • Novation

  • Encroachment

  • Estoppel

Correct answer: Assignment

Assigning a contract transfers the rights and obligations under the contract to another person. Not all contracts can be assigned; for example, a listing agreement cannot be assigned. Purchase agreements are assignable.

The assignor (the one who assigns the contract to another party) is potentially liable if the assignee does not fulfill their obligations under the contract. The assignor is said to have secondary liability.

73.

Which type of deed guarantees that a title is free and clear of other claims against it for the protection of the buyer?

  • Warranty deed

  • Foreclosure deed

  • Sheriff's deed

  • Special deed

Correct answer: Warranty deed

A warranty deed is used to convey real property and contains warranties of title and quiet possession. By providing a warranty deed, the grantor agrees to defend the premises against the lawful claims of third persons. 

It is commonly used in many states, but in California, the grant deed is now more commonly used, largely due to the advent of effective title insurance policies.

74.

An appraiser is using the income approach to determine the value of an investment property. The capitalization rate is 14%, and the net operating income is $34,000. 

What is the resulting property value (rounded to the nearest 1,000)?

  • $243,000

  • $250,000

  • $400,000

  • $236,000

Correct answer: $243,000

Appraisers use the income approach to determine the value of real estate that produces a cash flow. Central to this is the capitalization rate (cap rate), which is given by the formula below:

Capitalization Rate = NOI/Property Value

The formula can be rewritten as:

Property Value = NOI/Capitalization Rate

From that, we get:

$34,000/0.14 = $242,857 = $243,000 (rounded)

75.

Which type of mortgage allows the seller of the property to provide financing for the buyer?

  • Purchase money mortgage

  • Balloon mortgage

  • Conventional mortgage

  • Underwater mortgage

Correct answer: Purchase money mortgage

A purchase money mortgage is a common method of seller financing. Instead of providing a down payment and monthly installments to a bank, the buyer will provide a down payment and monthly installments to the seller. 

Purchase money mortgages are useful in situations where the buyer does not qualify for a conventional loan.

76.

Which of the following represents the primary source of funds used for lending purposes?

  • Savings

  • Unearned income

  • Trust funds

  • Investments

Correct answer: Savings

Money serves as a medium of exchange. The potential to exchange money for goods and services can be stored in the form of savings, which are the primary source of funds for lending. 

If the value of money is relatively stable, people are more inclined to save because their stored capacity to exchange (with interest) is not being eroded by inflation.

77.

Which of the following is not an example of real property?

  • Washer/dryer

  • Pond

  • Swimming pool

  • Trees

Correct answer: Washer/dryer

A washer and/or dryer are personal property, not real property. Items that are affixed to land are considered real property. These include buildings, bridges, and trees, as well as anything that is affixed to them (e.g., the doors of a building, permanently installed cabinets, or built-in appliances).

The other choices are each a permanent part of the land and are considered real property.

78.

What does MLS mean?

  • Multiple Listing Service

  • Mortgage Loan Servicing

  • Multi-Listing Spreadsheet

  • Multiple Listing Server

Correct answer: Multiple Listing Service

A multiple listing service is a marketing tool used by real estate professionals. It usually takes the form of an online tool with an interface similar to Zillow that shows listings in a certain area and the commission offered to buyers' agents. Pertinent information is provided with the listing, usually in much more detail than on a website like Zillow. 

Most MLS options are only available to licensed appraisers, licensed brokers, and licensed real estate salespeople.

79.

If no notice of completion is filed, a contractor has how long to file a mechanic's lien?

  • 90 days

  • 1 year

  • 6 months

  • No time limit

Correct answer: 90 days

If a notice of completion is not recorded, the contractor must file a mechanic’s lien within 90 days after the completion of the work.

If a notice has been filed, contractors have 60 days to file, and subcontractors have 30 days.

80.

If a land description states the name of the county and state, which of the following methods was most likely used to create the land's legal description?

  • Recorded plat

  • Contractor's sketches

  • Landmarks

  • General construction plan

Correct answer: Recorded plat

A recorded plat provides a legal description of land by including the name of the county and state. A property description using the recorded plat method might look something like this:

Lot 5, Block 9, Cedar Springs Subdivision, City of Costa Mesa, County of Orange, State of California