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50 Cards in this Set
- Front
- Back
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A person invested $5,000 in a limited partnership. One of his concerns was the amount of his liability. Since he is one of the limited partners, can he be held liable for more than his initial investment?
A) No, because he is guaranteed a 25% return on his investment. B) No, because he is only liable for his initial investment. C) Yes, because he is liable for three times the initial investment. D) Yes, because limited partners are responsible for a limited amount of all debts. |
The correct answer is "B - No, because he is only liable for his initial investment. " One of the attractions of a limited partnership in a real estate investment is that it allows the person to participate in real estate development deals without risking more than his or her initial investment. (It's the general partners who have more than their initial stake at risk.)
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A city took a property through eminent domain so they could build a sports complex and then lease it to four private sports franchises. Would this be allowed?
A) Yes, as long as the homeowners were paid compensation for the properties. B) Yes, because sports franchises do not fall under federal laws. C) No, because land taken by eminent domain must be for public use. D) No, because this cannot be done within the boundaries of the city. |
The correct answer is "A - Yes, as long as the homeowners were paid compensation for the properties. " So long as fair compensation is paid, how "the public good" is defined is left largely up to individual communities.
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A subdivision has a deed restriction that does not allow tree houses. An architect moves into the subdivision and builds a tree house in the back yard. How many neighbors will it take to enforce the deed restriction and what action should be taken?
A) 75% of the neighbors must sign a petition that will be given to the local zoning board. B) Only 1 neighbor needs to take action through the local zoning board. C) Only 1 neighbor needs to take action through a court action. D) 75% of the neighbors must take action through a private court action. |
The correct answer is "C - Only 1 neighbor needs to take action through a court action. " As practical matter, a complaint to the community association is often enough to convince the owner to remove the tree house. Failing that, however, the court will enforce the requires on a single complaint.
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Which best describes ownership in severalty?
A) ownership of several properties by one person B) ownership of one property by two or more persons C) ownership of one property by one single person D) ownership of several properties by two or more persons |
The correct answer is "C - ownership of one property by one single person " The root of "severality" in legal terms has to do with the state of being separate and distinct, thus representing sole ownership.
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In an appurtenant easement, the party that benefits is known as the:
A) lessee B) leaser C) servient tenement D) dominant tenement |
The correct answer is "D - dominant tenement " The person whose land is benefited by the easement, and therefore is the DOMINATING PARTY, is considered the dominant tenement. The servient tenement is the opposite of this. Leaser and lessee involve lease agreements, and have nothing to do with easements.
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An encumbrance that affects the title, usually related to money, is known as:
A) a lien. B) an easement in gross. C) an easement by necessity. D) an easement by prescription. |
The correct answer is "A - a lien. " A lien is a charge against a property--a financial encumbrance. The other easements listed here do not deal with finances, but are considered usage encumbrances and affect the way in which the land may be USED.
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A recorded legal document that gives constructive notice that an action affecting a certain property has been filed in court is called:
A) a habendum clause. B) a general warranty deed. C) an estoppel certificate. D) a lis pendens. |
The correct answer is "D - a lis pendens. " Lis pendens is Latin for "litigation pending," which will help you to remember that while a lis pendens isn't a lien, it is notice that litigation (a possible lien) is pending. The other terms listed deal with deeds (habendum clause and general warranty deed), or mortgages (estoppel certificate).
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The document that defines the relationship between the real estate firm and the seller is the:
A) listing agreement. B) exclusive agency contract. C) purchase contract. D) disclosure statement. |
The correct answer is "A - listing agreement. " While disclosure statements, purchase contracts, and even exclusive agency contracts are also legal documents that the broker or salesperson enters into with the clients, it is the listing agreement that clearly defines the relationships and agreements between the broker and principal.
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The rights of a landowner to use waters of an adjacent stream or river are known as:
A) riparian rights. B) zoning rights. C) littoral rights. D) livery of seisin. |
The correct answer is "A - riparian rights. " While both riparian and littoral rights have to do with water, remember that riparian rights have to do with FLOWING bodies of water, such as rivers. (You might keep in mind that River and Riparian both begin the same way.) Zoning and seisin both deal with land control.
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The absolute ownership of an apartment or a unit, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other unit owners, is called:
A) cooperative. B) condominium. C) leasehold. D) fee simple. |
The correct answer is "B - condominium. " Said another way, it means a condominium owner owns his own unit plus a share (usually based on the square footage of his or her unit) of all the common property in the complex.
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A condominium homeowners' association would have the right to do all EXCEPT:
A) Set the monthly charge for maintenance. B) Make swimming pool regulations. C) Make repairs to the common driveways. D) Interview potential buyers. |
The correct answer is "D - Interview potential buyers. " Just as neighbors in a single-family neighborhood do not get to interview potential buyers, neither do homeowners' associations in a condominium development.
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What can a person NOT do with his/her complete bundle of rights?
A) Mortgage. B) Devise. C) Sell. D) Condemn. |
The correct answer is "D - Condemn. " Condemning property is the exclusive right of government. Usually that means local municipalities under eminent domain, though it can also include state as well as federal action, especially for national defense or hazardous waste conditions.
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Which of the following liens is highest in priority?
A) special assessment B) mechanic's C) judgment D) mortgage |
The correct answer is "A - special assessment " Special assessments are usually additional property taxes levied for things such as road and sewer repairs. A special assessment lien is filed when those taxes go unpaid and does take priority (is paid first) over all other liens, including mortgages in the event of foreclosure.
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Which of the following does NOT accurately describe an encroachment?
A) It can be classified as a nuisance. B) An undisclosed encroachment can render a title unmarketable. C) A prescriptive easement can result from an encroachment. D) Encroachments are normally revealed in the chain of title. |
The correct answer is "D - Encroachments are normally revealed in the chain of title. " Encroachments are accidental by nature and so are usually discovered only by inspection or survey.
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A woman bought a house and wanted to bring along her pet cougar to keep in the backyard. Which would most likely keep her from doing this?
A) Police power, because the police have authority over types of animals for pets. B) Urban development regulations, since they list allowable animals for the properties. C) Zoning ordinances, because sometimes these contain which animals may be kept. D) Building codes, since they would contain the most restrictions for city dwellings. |
The correct answer is "C - Zoning ordinances, because sometimes these contain which animals may be kept. " It's common for zoning ordinances to regulate the kinds of animals that may be kept. For example, in urban and heavily populated suburban areas, housepets only may be allowed. In more country-like settings, only housepets may be allowed in one zoning category, while housepets and horses in another. Other than zoos and wilderness areas, cougars are out of luck when it comes to being welcomed into the community.
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A sale-leaseback converts a fee simple estate to a(n):
A) easement by necessity. B) fee simple defeasible estate. C) less then freehold estate. D) life estate. |
The correct answer is "C - less then freehold estate. " A person who enters into a sale-leaseback transaction becomes a tenant on property he used to own. It's typically done to improve cash-flow in a business situation.
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Which of the following would constitute a judgment?
A) easement B) special assessment C) the official decision of a court on the respective rights and claims of the parties to an action or lawsuit D) mechanic's lien |
The correct answer is "C - the official decision of a court on the respective rights and claims of the parties to an action or lawsuit " "Judgments" refer specifically to court actions, such as suing to enforce a lien and divide property after a bankruptcy.
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A buyer and seller entered into a contract for the purchase of a house. The seller purposely did not disclose the fact that the roof leaked. The buyer has recourse under which of the following concepts?
A) statute of frauds B) Regulation Z C) RESPA D) latent defects |
The correct answer is "D - latent defects " "Latent defects" refer to hidden structural flaws that are both known to the owner and not readily obvious to the buyer. Further, they are "material facts" which both the owner and, especially, the broker or salesperson are obligated to disclose.
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A loan company was referring loan applicants to a particular insurance company, which in turn paid the loan company a referral fee. This is:
A) legal, as long as it is a set fee and not based on the amount of business referred. B) legal, as long as the loan company does not require a loan applicant to purchase insurance from a particular company. C) illegal, since the Real Estate Settlement Procedures Act prohibits kickbacks. D) illegal due to the Truth in Lending Law (Regulation Z). |
The correct answer is "C - illegal, since the Real Estate Settlement Procedures Act prohibits kickbacks. " Under RESPA guidelines, "referral fees" are considered illegal kickbacks.
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Which of the following must be disclosed to be in compliance with Regulation Z (Truth in Lending)?
A) the cost of credit B) closing costs C) the tax bill D) the broker's commission |
The correct answer is "A - the cost of credit " Regulation Z (Truth In Lending) creates a disclosure device only, and does not establish any set interest rates or required charges for credit such as closing costs or broker's commissions.
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Which is NOT a purpose of the Truth in Lending Laws (Regulation Z)?
A) to provide a competitive environment for mortgage lenders B) to allow the buyer to shop around for credit C) to help buyers be aware of the total cost of credit D) to set the interest rate |
The correct answer is "D - to set the interest rate " Regulation Z is concerned with interest rates only to the extent that its "sunshine" provisions force lenders to fully disclose all costs, thus providing a degree more competition.
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Which of the following is NOT a purpose of the Federal Reserve System ("The Fed")?
A) to help banks determine how much money to keep on hand (reserves) B) to make more money available so lenders can make loans (open market operations) C) to buy loans in a depressed area or in times of a tight money market D) set the "discount rates" of interest, which is the rate it charges for loans to its members. |
The correct answer is "C - to buy loans in a depressed area or in times of a tight money market " The Fed provides loan mechanisms and helps maintain an orderly marketplace, but it does not make, buy or sell actual loan instruments.
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If a builder wanted to obtain a mortgage for several pieces of property with a release clause, which type would be best?
A) purchase money mortgage B) package mortgage C) blanket mortgage D) shared appreciation mortgage |
The correct answer is "C - blanket mortgage " A blanket mortgage, as the name implies, is a single loan for a number of properties. The release clause allows the builder to make additional or accelerated payments and thus release or partially release some of those properties as security on the loan.
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How would a construction loan differ from a VA or FHA loan on an existing home?
A) A construction loan cannot be amortized. B) A construction loan is generally a higher risk than a residential loan. C) A construction loan can NOT have discount points. D) A construction loan usually does have discount points. |
The correct answer is "B - A construction loan is generally a higher risk than a residential loan. " From the lender's perspective, construction loans are higher risk on two counts. First, they carry no guarantees, as is the case with VA and FHA loans. Second, a house under construction is riskier than a completed one since any number of events, including material shortages, delivery issues, unexpected financial difficulties for the builder or owner and many others, can impact its completion.
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What is the BEST definition of interest?
A) an upfront fee charged by a lender to process a loan B) the fee a borrower pays to a lender for the use of the money C) a fee charged by the lender to increase their equity position D) the degree and extent of the lender's holdings |
The correct answer is "B - the fee a borrower pays to a lender for the use of the money " Said another way, interest is the profit on money in the same way mark-up is the profit stores make on the goods they sell.
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In a repayment of a mortgage loan, which type of interest is used?
A) simple B) discount C) compound D) floating |
The correct answer is "A - simple " Compound interest is the interest paid depositors for their savings while "discount" and "floating" are associated with the business-to-business financial markets.
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Which would NOT fall under a blanket mortgage?
A) industrial development B) single unit in a condominium C) residential development D) private residence and an adjoining lot |
The correct answer is "B - single unit in a condominium " Blanket mortgages, by definition, are for multiple properties--usually within a business context, such as a land or housing developer.
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Which of the following items protects a lender from having the loan assumed by another party?
A) defeasance B) subordination C) due on sale D) acceleration clause |
The correct answer is "C - due on sale " By declaring the entire balance due on the transfer of property, lenders control who owns the note because homeowners can't sell or transfer the mortgage without first selling the property.
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A borrower obtained a $10,000 term loan with 16 1/2% interest paid yearly. A $1,000 principal reduction was to be paid with each yearly installment. What would be the amount of the principal and interest payment for the second year?
A) $1,485 B) $1,650 C) $2,485 D) $2,650 |
The correct answer is "C - $2,485 " Since a $1,000 principal balance was paid in year one, the balance on which the 16.5% interest would be based for year two is $9,000, or $1,485. Adding in the additional $1,000, the principal payment equals $2,485.
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A property had an area of 920 square yards with a 40-foot frontage. What was the depth of the lot?
A) 23 feet B) 69 feet C) 207 feet D) 408 feet |
The correct answer is "C - 207 feet " We know the total square yardage as well as the frontage expressed in feet. Since area is a function of length times width, and since there are 9 square feet in each square yard, we know that 40 times X divided by 9 will give us our answer. To make the calculation, multiplying 920 yards by 9 will allow us to divide the result by 40 to find the depth, which is 207 feet.
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A seller netted $55,350 after closing expenses of $450 and a 7% commission. What was the sale price?
A) $56,048 B) $58,232 C) $59,516 D) $60,000 |
The correct answer is "D - $60,000 " Anytime you see the words, "Seller wants to net" or "After paying a commission" the problem must be done in the following order: 1. Add expenses (closing costs, mortgage) to what the seller wants to net. 2. Subtract any refunds (prepaid rents, insurance assumption) due to the seller. 3. Divide the amount above by the aggregate of the commission. (100% minus 7% =93%) So in this problem $55,350 + 450.00 =$55,800 divided by 93% = $60,000.00 Using your % key will be a big help if you do not like to convert % to decimals, the process is done for you internally in the calculator.
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A 50-unit apartment building rented units for $200 per month. The annual gross income multiplier is 10. What is the value?
A) $100,000 B) $120,000 C) $1,000,000 D) $1,200,000 |
The correct answer is "D - $1,200,000 " At $200 per unit, 50 units generate $10,000 per month or $120,000 per year in rental revenue. Since the gross rent multiplier is 10, the value is $1,200,000.
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An appraiser determined that a property needed painting and a new roof. It also lacked adequate sidewall insulation. It was located next to a busy highway, thereby lowering the value $900. He assigned the following values to the needs: painting--$600; roof--$800; and insulation--$850. What was the total physical and economic depreciation?
A) $1,400 B) $2,250 C) $2,300 D) $3,150 |
The correct answer is "C - $2,300 " "Depreciation" is a loss in value due to any cause. Any condition that adversely affects the value of an improvement. Depreciation falls into three classifications which are physical deterioration, functional obsolescence, and external (economic) obsolescence. Painting and the roof are physical, the highway is external (economic), and the insulation is functional. Since the question is asking for only physical and economic (external) you should not have included the insulation (functional) in your answer.
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How does subdividing differ from real estate development?
A) A developer separates it into sections; a subdivider improves the land. B) A developer constructs improvements to the land; a subdivider separates it into sections. C) A developer acts as the general contractor for the land; a subdivider acts as a subcontractor for the land. D) A developer acts as a subcontractor for the land; a subdivider acts as the general contractor for the land. |
The correct answer is "B - A developer constructs improvements to the land; a subdivider separates it into sections. " Subdividers divide large parcels of land into smaller, buildable lots in preparation for subdivision development. Developers manage the process of completing the improvements to the subdivision lots.
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All comparable properties had a fireplace and the subject property did not. The appraiser would:
A) Add to the comparable property. B) Add to the subject property. C) Subtract from the comparable property D) Subtract from the subject property |
The correct answer is "C - Subtract from the comparable property " It's more precise to subtract the estimate value of a feature from a known price than to add it to a speculative one. Thus, price adjustments for features are always made to the comparable properties, never the subject property.
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A salesperson, when doing a comparative market analysis (CMA), would be LEAST concerned with which of the following sets of information?
A) list prices of properties in the area B) sale prices of similar properties in the area C) the original price the owner paid for the property D) number of properties of similar size and style for sale in the area |
The correct answer is "C - the original price the owner paid for the property " Real estate markets always operate in the present tense. Thus, while the original price paid may be of interest, it ranks way below the other variables in importance.
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Which of the following is NEVER used in the market data approach?
A) taxes B) lot size C) location D) house size |
The correct answer is "A - taxes " Taxes, within the relatively narrow area in which market data analyses take place, are somewhat of a constant in terms of rate. Thus, any variation would only serve to cloud the important points of comparison.
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A person was considering buying a house. She looked at two houses that were very comparable to each other. She would not pay more for one house than the other based upon the principle of:
A) substitution. B) competition. C) anticipation. D) increasing returns. |
The correct answer is "A - substitution. " Substitution is one of the guiding principles of real estate valuation. Simply stated, it means the most someone will pay for one property is the highest price for which one may purchase an equally desirable property.
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A metes and bounds description is given as follows: "A piece of property beginning at the cross section of highways 32 and 7, thence South 355 feet, thence West 280 feet, thence North 260 feet, thence East 315 feet." Is this a valid description?
A) Yes, it is perfect, as it begins at the intersection of two highways. B) Yes, it is perfect, as it has a point of beginning. C) No, it is imperfect, as it uses feet instead of rods D) No, it is imperfect, as it does not end at the point of beginning. |
The correct answer is "D - No, it is imperfect, as it does not end at the point of beginning. " Metes and bounds descriptions always begin and end at the same point. Had the last entry read, ". . . thence East 315 feet to the cross section of highways 32 and 7," it would have been a valid description.
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An owner of a 12-unit apartment building lived in one of the apartments. The owner refused to rent to a person because of his national origin. Based on Federal Fair Housing Laws, does the person have a valid complaint?
A) Yes, because it was a 12-unit apartment building. B) Yes, because other tenants were from his homeland. C) No, because the owner lived there. D) No, because the owner did not discriminate in advertising. |
The correct answer is "A - Yes, because it was a 12-unit apartment building. " Although some provisions are made regarding owner-occupied buildngs of 4 units or less, a 12-unit apartment building is subject to all the rules and regulations of the Federal Fair Housing laws.
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When an owner is selling his or her home, to whom would they give a copy of a structural pest control report?
A) Their broker, at the time of listing. B) To the brokers or salespeople representing potential buyers. C) To the escrow company. D) To the buyer, if requested. |
The correct answer is "D - To the buyer, if requested. " Structural pest inspections and reports are not required by law, but are often a condition of the buyer, the contract or the lender. When requested, the reports must be delivered by the seller or seller's agent before closing.
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David and Paula Alverez take out a mortgage with an acceleration clause. What does this mean?
A) David and Paula's mortgage will be paid off in less time. B) David and Paula's mortgage will be "fast tracked" for quicker approval. C) Their entire mortgage could become due if they fail to make payments. D) Their mortgage will have a balloon payment at the end of five years. |
The correct answer is "C - Their entire mortgage could become due if they fail to make payments. " "Acceleration clauses" are stipulations that if certain events occur, such as not making payments, the entire amount of the mortgage can become due. Most typically, this is seen in "due on sale" clauses that require the mortgage balance be paid in full at the time the house is sold.
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Jake and Tina McIntyre hire PV Pools to install a new spa and deck at the back of their home. However, just after the project is complete, Jake looses his job and refuses to pay for the work to preserve his cash. What recourse does PV Pools have to collect the money they're owed?
A) They may file a specific lien. B) They may file a general lien. C) They can file an attachment. D) The can file a notice of default. |
The correct answer is "A - They may file a specific lien. " A "specific lien" is filed against a specific piece of property, in this case the McIntyre's home. A general lien is one filed against any and all property, including homes, cars, boats, collections and so forth. Attachments and default notices are instruments used by lenders, not fee for service providers such as contractors.
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Nancy Cohen purchased a property with a highly desirable view, which included an easement. Which of these terms best describes an easement?
A) An encroachment. B) An encumbrance. C) Another name for adverse possession. D) An appurtenance. |
The correct answer is "B - An encumbrance. " An encumbrance is something pertaining to a property that might diminish its value… such as an easement which grants rights of use or access. For example, an electric company might have a fifteen-foot easement running across the back of a property for servicing underground lines, which means the homeowner could not build a pool, patio, terrace or other permanent structure in that area.
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If a city develops a plan to control its future growth and development, how does it implement that plan?
A) Through zoning. B) Through variances. C) Through eminent domain. D) Through business and construction permits. |
The correct answer is "A - Through zoning. " Zoning details the specific uses and conditions for areas within a municipality's control. For example: only retail businesses and offices allowed on Main Street... no manufacturing within city limits… apartments and condos in one part of town and only single family homes of a minimum size in another.
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Which of these agencies controls the "Subdivision Map Act?"
A) The real estate commissioner. B) Local government. C) The Department of Real Estate. D) The Department of Housing and Community Development. |
The correct answer is "B - Local government. " The point of the "Map Act" is to allow local governments to control the physical aspects of a subdivision and how they may affect adjoining or nearby properties and the community as a whole.
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What is "deregulation?"
A) Inter-state banking. B) Airline industry consolidation. C) The elimination of government controls. D) The gradual loosening of government controls. |
The correct answer is "D - The gradual loosening of government controls. " The aim of deregulation is to bring increased competition to segments of the economy where varying states of "monopoly" used to exist. For example, with the loosening of restrictions on interstate banking, a Californian can now get a mortgage with Chase Manhattan, while a New York resident can bank with Wells Fargo.
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Why would a new home developer order a "percolation" test?
A) To determine the level of ground-water contaminants. B) To determine soil density for foundation construction. C) To determine suitability for waste disposal. D) To determine geological hazards such as fault lines. |
The correct answer is "C - To determine suitability for waste disposal. " Percolation, or "perk" tests are performed to test how well the soil absorbs fluids and are usually performed in connection with septic systems.
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Marty is a real estate broker and Becky is a minority buyer who tells him she is interested in a particular Palo Alto neighborhood. What assumption can Marty make?
A) That Becky knows the neighborhood, wants to buy there and can afford the typical price. B) That Becky is testing him. C) That Becky doesn't know the neighborhood is predominantly white. D) That Becky might like the neighborhood, but probably can't afford to buy there. |
The correct answer is "A - That Becky knows the neighborhood, wants to buy there and can afford the typical price. " As a matter of courtesy as well as a matter of law, real estate licensees must assume that a person's interest in a particular area is genuine.
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What is the intent of the Financial Discrimination Act of 1977?
A) To provide equal access to mortgage money regardless of income. B) To end the practice of "redlining." C) To allow equal access to rental properties. D) To end the practice of restrictive covenants. |
The correct answer is "B - To end the practice of "redlining." " "Redlining" was the practice by lenders of refusing to write mortgages for properties in certain areas. The act covers single family residences as well as multi-family homes of up to four units.
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