CA Real Estate Exam Cram

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CA Real Estate Exam Cram
2015-04-30 17:49:46
Real Estate DRE CA

Real Estate Exam Cram
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  1. Define property

    (3 facts...)
    Property is something that can be owned.  

    Property is real or personal.

    Rights or interest in what is owned.
  2. Define real property
    Immovable property
  3. What is the "bundle of rights" associated with ownership of property

    • C - control
    • P - possession
    • U - use
    • D - disposition
  4. Name the 3 aspects of real property
    • 1) land
    • 2) things affixed to the land
    • 3)things incidental to the land, or appurtenances
  5. What does land include?
    • - material of the Earth
    • - rock
    • - soil 
    • - other substances
  6. Define fixtures
    Things that are affixed to the land.
  7. What are the 5 ways to test if something has become a fixture?
    M - A - R - I - A

    • M - method of attachment
    • A - adaptability of the item
    • R - relationship of the parties
    • I - intention
    • A - agreement between the parties
  8. Are naturally growing plans on a property considered  real or personal property?
    They are considered real property because they are attached to the land by roots.
  9. Define appurtenances

    (give examples)
    Additional things or benefits that are incidental to the land. They do not exist without the land.

    Ex. covenants (promises or agreements), stock in a water company, water rights, mineral rights, and easements
  10. Define appropriation
    The private taking and use of public property, such as water from a lake or river.
  11. What are riparian rights?
    Rights of a landowner to water flowing adjacent to his or her land within the normal activities of a stream or river.

    R - Riparian, River
  12. What are littoral rights?
    Rights of a landowner to water abutting their and (a shoreline), such as an ocean or lake.

    L - Littoral, Lake
  13. Define personal property
    • Movable property.
    • Sometimes referred to as "chose"
  14. Define emblements
    A tenant's crops growing and produced annually  through labor and industry.

    They must be replanted every year and when the fruit is removed or sold, it is considered personal property.
  15. Define leasehold estates
    AKA - "chattle real"

    They are considered personal property.
  16. What does the concept of an estate tell us?
    It tells us how long someone has an interest in the property and what kind of interest it is.
  17. What are the two basic categories of estates?
    1) freehold estates

    2) less than freehold estates
  18. Who holds an estate?
    Estates can be held by both tenants in a rented apartment and by owners who live in their own condominiums.
  19. What does a freehold estate involve?
    It involves some kind of ownership interest of the property.
  20. What is a fee simple absolute estate?  

    What is it's duration?
    A freehold estate that represents the highest degree of ownership available.

    It's duration is indefinite.
  21. What is a fee simple defeasible estate?
    A freehold estate where title can be defeated because ownership has been qualified by a condition.
  22. What is a life estate?
    A type of freehold estate where a party holds the right of use and possession of another parties' estate until death. 

    During this time, the life estate holder can sell, lease, or encumber the property.

    But, whatever happens, upon death of the life estate holder, the property reverts back to the original owner.
  23. What does a less than freehold estate involve?
    It involves some kind of leasing or renting interest in the property.

    It involves the rights of tenants who rent or lease property.
  24. Is a less-than-freehold estate considered real or personal property?
    Personal Property
  25. What is a leasehold interest?
    The right to exclusive possession and use of real property for a fixed period of time held by the lessee tenant.
  26. In a leasehold estate name the parties involved:

    - landlord?
    - tenant?
    • Landlord = Lessor
    • Tenant = Lessee
  27. In a leasehold estate what rights does the lessor give up?
    The lessor (landlord) parts with all rights of exclusive possession during the lease.
  28. What is an estate for years?
    A lease that continues for a definite period of time fixed in advance, as agreed between the landlord and the tenant.

    *This can be for shorten than a year, like 6 months.
  29. What is an estate from period to period?
    One that continues for certain periods of time as agreed between landlord and tenant.

    * The most common type of this lease is the month-to-month tenancy.
  30. What is an estate at sufferance?
    When a tenant (someone who has rightfully come into possession of the property), but remains in possession (doesn't move out) after the term has expired.
  31. Can a tenant (someone who rents) hold title?
    Yes, tenancy is a method of holding title.
  32. What is ownership in severalty?
    Ownership by ONE PERSON, a single individual.

  33. What is a joint tenancy?
    A way of holding title by 2 OR MORE persons who's interest in the same real property is joint and equal.
  34. What 4 items must come together to form a joint tenancy?
    T - T I P

    • T - time
    • T - title
    • I - interest
    • P - possession
  35. What is the most important characteristic of joint tenancy?

    Explain it...

    If 2 joint tenants own property and one dies, the surviving tenant immediately becomes the sole owner. 

    You cannot will your part of a joint tenancy to another party, and the estate is not subject to probate.
  36. Does the phrase "with the right of survivorship" need to appear in deeds expressing joint tenancy?

    A joint tenancy IS a right of survivorship no matter what.
  37. Could a surviving joint tenant be liable for unforeclosed liens on the property against the deceased tenant?
  38. Can a joint tenant sell his or her interest in the property?

    But this changes the relationship to a tenancy in common.
  39. If there are three joint tenants and one of them sells their share to a new tenant, then what is the new relationship between the three people?
    The new tenant holds "tenancy in common",

    but the existing 2 tenants still hold "joint tenancy"
  40. What is tenancy in common?
    When 2 OR MORE people hold undivided ownership or unequal ownership in a property.
  41. Is there a "right of survivorship" in a tenancy in common?
  42. Can a tenant in common will their rights or interest in a property to another?
    Yes, because there is no right of survivorship in this type of relationship, they can will.
  43. What is the only unity with tenancy in common?
  44. What is community property?
    All property acquired by a husband and a wife during their marriage except separate property
  45. If a husband and wife are named in a deed and the deed does not specifically state that they have take title as joint tenancy, or with the right of survivorship, then what do they take title as?
    They take title as community property.

    They did not stipulate what they want for rights of survivorship.
  46. Technical definition of "property"
    Rights or interest in the thing owned.
  47. What does it mean to be hypothecated?
    It means to put the item's pink slip up for trade for something (usually a loan).
  48. Why is it sometimes difficult to determine ownership of personal property?
    • Because personal property can :
    • - be hypothecated (pink slipped to someone)
    • - be alienated (titled to someone else)
    • - become real property
  49. Would the airspace above the land be considered real or personal property?
    Real - Immovable
  50. What would a running stream adjacent to land be considered?
    It would be considered real property (immovable to the land). 

    It is considered an appurtenance
  51. What is chattle real?
    Look up the answer to this later.
  52. Would an existing mortgage be considered real or personal property?
    Personal, movable. Can move with the person.
  53. How are a joint tenancy and a community property alike?
    Ownership interests are equal in both relationships.
  54. Regarding community property, can one spouse sell the property without the other's consent?
  55. What do you know about a riparian owner?
    - They can convey any part of their land, adjacent to the river or not, but if they do convey part that is not adjacent to the river, then the riparian rights are not transferred.

    - An owner of riparian rights cannot change the river to deprive other owners of it's use. 

    - Riparian rights can be revoked by prescription or condemnation
  56. Explain reversion
    Need to look this up. 

    If I give George a portion of my rental for 6 months and i have it for 10 years, then my interest would be classified as reversion???
  57. If an estate is left 2/3 to Party A, and 1/3 to Party B jointly and without the right of survivorship,  then how do the new parties take title?
    They take title as tenants in common.
  58. What is an encumbrance?
    A burden on property. 

    Rights or interest held by someone else who has no ownership, affecting  the value or use of the estate.

    * An encumbrance does not prevent an owner from transferring their interest.
  59. What are the 2 types of encumbrances?
    1) money encumbrances (those that affect title)

    2) non-money encumbrances (those that affect the physical condition and use of the property)
  60. What do we call a money encumbrance (one that affects title)?
    A lien
  61. Define lien
    - When a charge is imposed on property because the property is being used as security for something (usually the repayment of a debt)

    • - A money encumbrance
    • - An encumbrance that affects title
  62. What happens when a lender records a deed of trust to secure a purchase money loan?
    A lender creates a lien against the property for which the buyer is buying as a way of securing the repayment of the loan which is used to buy the property.
  63. A deed of trust is also called:
    - trust deed
  64. Define deed of trust
    When a buyer borrows money from a lender to purchase a home, the deed of trust is created to place a lien against the home as security for the repayment of the loan.
  65. Who holds the title to a property while a loan is active?
    The neutral 3rd party holds title until the loan is completely paid off.
  66. When dealing with a deed of trust, what information is public?
    The deed of trust must be recorded in public records and a it is shown that there is a lien against the property.
  67. How many parties are involved with a deed of trust?

    Name them:
    3 parties

    • buyer - borrower/trustor
    • lender - beneficiary
    • neutral 3rd party who holds title trustee
  68. What is the process of removing a trust deed lien?
    Assuming the loan has been paid off, the trustee will RECONVEY the property back to the trustor
  69. Which party would sign a reconveyance deed?
    The trustee (the neutral third party who has been holding title) would be giving up ownership of title, so they would be the ones to sign the deed.
  70. Explain what it means when a seller carries back a second trust deed.
    For example: If a buyer got a loan and the loan was just a little too short for the purchase of the home. The seller of the home can choose to create a sort of "loan" agreement for this amount and it would be a SECOND trust deed, that they would "carry back" with them. A lien against the property would be created separately for this by the seller.
  71. Explain what a general lien is:
    When the IRS creates a lien due to unpaid taxes. 

    This type of lien would be against ANY real property that the person owns.
  72. Explain what a specific lien is:
    When a tax assessor creates a lien against a specific property that you own, due to unpaid property taxes on that property only.

    If you have other properties, they are not affected by this lien.
  73. Explain what a mechanic's lien is:
    When someone who has provided labor or material for a property and has not been paid, they can create a mechanic's lien.
  74. What 2 things are required to make a mechanic's lien valid?
    It must be verified and recorded.
  75. Can a mechanic's lien take priority earlier than the date on which it was recorded?
  76. What notice must a claimant file before they record a mechanic's lien?
    A preliminary 20-day notice.
  77. Besides the obvious 20-day notice, what are some other notices that can be given when dealing with mechanic's liens?
    • - notice of non responsibility
    • - notice of cessation
    • - notice of completion
  78. How long after the filed notice of completion does a contractor or any other claimant have to file a mechanic's lien?

    And what if a notice of completion is not filed?
    The original contractor has 60 days, but any other claimant has 30 days. 

    If a notice of completion is not filed, then anyone has 90 days.
  79. Define involuntary lien
    Not voluntary.

    A lien is imposed without the owners consent.
  80. What are some examples of involuntary liens?

    • - lis pendens
    • - attachment liens
    • - tax liens
    • - judgement liens

    • Example of voluntary liens would be:
    • - a deed of trust
    • - a mortgage.
  81. What does lis pendens mean?
    Latin = pending lawsuit

    Judicial action brought by one party against another. (One party is suing the other party in court).
  82. What is an attachment lien and how long can it last?
    When the asset is frozen because it is pending an outcome of a lawsuit. 

    It is good for 3 years.
  83. What is a judgement?
    A monetary decision against a defendant to a lawsuit.

    ex. The court decides that the defendant owes $50,000.00, this is a judgement.
  84. What is an abstract of judgement?
    When a judgement is made an abstract of judgement is recorded and it creates a general lien against the defendant for the payment of the judgement (the amount they are sued for).
  85. What is the homestead exemption and how much does it cover?
    Could be known as the anti-lien.

    It's purpose is to protect homeowners from judgement liens filed by creditors. 

    It protects the head of household up to $75,000 and all others in household up to $50,000.
  86. What is an easement?
    A non-money encumbrance.

    An encumbrance that affects the physical condition or use of the land.

    It is a right to enter and use another's land by persons other than the owner.
  87. In an easement, what do we call:

    - the land burdened by the easement?

    - the land benefited by the easement?
    Burdened - servient tenement

    Benefited - dominant tenement
  88. What are the 2 basic types of easements?
    • 1) appurtenants
    • 2) easements in gross
  89. What is required for an easement to be obtained by prescription?
    • 1) Continuous and uninterrupted use for 5 years.
    • 2) The use is hostile and adverse (without license or permission from the owner)
    • 3) The use is open and notorious (the owner knows of the use or may have been presumed to have known)
  90. How long is an easement created for?
    It can be created for ANY period of time.
  91. What is a restriction and where do they originate?
    It's a type of encumbrance that restricts the owner from the free use of the land.

    • They can originate from public or private sources. 
    • Ex. a direct neighbor needing use to get to and from their property, or a public walkway to get to a beach...
  92. Where would you find private restrictions?
    In the deed, the CC&R's, or the memorandum of agreement.
  93. Where might you find public restrictions?
    In zoning ordinances.
  94. What are the CC&R's?
    Covenants, convictions, and restrictions - usually exists whenever there is an HOA.
  95. What is a covenant?
    It is a promise and it can be held up to financial sanctions.
  96. What is a condition?
    A restriction that involves more serious consequences than a covenant, because a condition may contain a forfeiture clause that could bring about a change of ownership.
  97. If public restrictions and private restrictions exist regarding the same property, but they do not match, then which party controls?
    The most restrictive party controls.
  98. Who are private restrictions usually placed by?
    By the developer on a new subdivision.
  99. What are injuctions?
    An instrument used to enforce private restrictions.
  100. Who do public restrictions benefit?
    • They benefit the public. 
    • They cannot be discriminatory in any way. 

    They must be developed for the overall benefit of the public, particularly, for the protection of public health, safety, morals, or general welfare.
  101. What is encroachment?
    A form of trespass. 

    Not by a person, but by a structure.
  102. What can a person do if their property is being encroached upon?
    They have 3 years to take action against the encroachment.

    If a friendly agreement cannot be reached with the neighbor, your other option is to sue for trespass.
  103. What is the principe instrument of transfer today?
    the deed
  104. What is an instrument?
    It is a device used to accomplish something.

    In Real Estate it is usually in the form of a legal document created to encourage an agreement.
  105. Define deed
    The legal document that transfers ownership of a piece of property.
  106. When does a deed transfer title?
    When it is a valid deed that is executed, delivered, and accepted.
  107. When is a deed executed?
    When the GRANTOR (original owner) signs it (thus voluntarily giving up title).
  108. What does "et al." mean and where do we usually hear this phrase?
    We usually hear it in deeds and it means "and others"
  109. What does "et ux." mean and where do we usually hear this phrase?
    We usually hear it in deeds and it means "and wife"
  110. What does alienation mean?
    It is transfer of title. 

  111. What is an acknowledgment in Real Estate?
    A formal declaration before a duly authorized officer by a person who has executed an instrument that such execution is indeed his or her doing. 

    Formally declaring responsibility in front of a notary public.
  112. What is a notary public in Real Estate?
    Typically, it is the authorized officer to receive an acknowledgement and notarize a deed.
  113. Does a deed have to be acknowledged, notarized, or recorded to be valid for the transfer of property?
  114. What is constructive notice?
    • - Recording the deed
    • - Taking possession of the property (moving in)
  115. If an individual is ignorant of the recording or possession, has he still received constructive notice?
    Yes he has.

    For example, if the other deed holder moves into the house and you don't notice, you still have been officially given constructive notice.
  116. In a court of law, if 2 people receive a deed for the same property, who is granted ownership?
    The one who gave constructive notice first.
  117. If Bob sells a house to Jane and she moves in, then 2 weeks later Bob sells the same house to Doug and Doug immediately goes out and records the deed, who will be granted ownership and why?
    Jane will be granted ownership because she gave constructive notice first by moving in and taking possession.
  118. When does someone give actual notice?
    When an individual actually knows of a thing or fact, then actual notice is given. 

    It is notice given and received.
  119. What word must a grant deed contain and what implied warranties?
    It must contain the word GRANT

    • 1) that the grantor has not already conveyed to another person
    • 2) that the estate is free from encumbrances suffered be the grantor
  120. What is a quitclaim deed and what warranties does it contain?
    • It transfers only the interest the grantor has at the time the conveyance is executed
    • -and-
    • It contains NO express or implied warranties
  121. When does a will become effective?

    Until then, what effect does it have on property interest?
    During it's life, the will has no effect on property until it is executed, which happens upon death of the creator.
  122. What happens if a person dies without a will?
    If a person dies without a will the estate is disposed of through intestate succession.
  123. What does intestate succession provide for when a person dies without a will?
    All community property goes to the spouse. 

    Separate property is divided equally among surviving spouse and children.
  124. What is a holographic will?
    A will that is entirely written in the maker's own handwriting.
  125. What do we use to help us remember adverse possession?
    P A N C H O = Adverse possessions

    • P - possession
    • A - adverse & actual
    • N - notorious
    • C - continuous
    • H - hostile
    • O - open
  126. Explain adverse possession and what can happen with it?
    Someone who has been living on your property openly, actually and notoriously, has had continuous, adverse, and hostile possession, and has been paying the property taxes for at least 5 years - they could legally acquire legal title.
  127. What is a quiet title action?
    A court process by which title issues are resolved and rights of ownership are clarified.
  128. What is accession?
    Addition to property by man or natural forces. 

    • Ex.
    • Man - building a fence on your neighbors property
    • Nature - a tree naturally growing on your property
  129. If a man builds a fence on his neighbors property without consent, what is this called and how is it resolved?
    This is called accession (by man)

    They can reach a friendly agreement and the builder can remove the fence, or the fence becomes part of the man's property. 

  130. What is accretion?
    An addition to land through natural causes only.

    Usually by water adding soil to land bordering a river, lake, ocean or other moving water.
  131. What is alluvion?

    The gradual increase of the earth on the shore of a moving water source.

    Alluvium - the soil that is deposited in this process.
  132. What is reliction?
    An increase in land due to the permanent withdrawal of a body of water such as a river or lake.
  133. What is avulsion?
    The sudden and perceptible loss of land by action of water. 

    Ex. Like a cliff being knocked away by the sea.
  134. What is erosion?
    The gradual wearing away of land by wind or water.
  135. What happens when a lis pendens is recorded?
    It clouds the title and affects the properties marketability.
  137. What would it be called if I had a personal, revocable, unassignable permission to use property of another without having any possessory interest in it?
    I would have a license.
  138. To be binding between a buyer and a seller, what must happen with the deed?
    It must be delivered and accepted.
  139. Does the location of the easement need to be specified in the deed for it to be enforced?
    No, if it does not need to be specified, then it does not need to be included, the easement is enforceable.
  140. What does a quiet title action do?
    It settles all disputes and removes and clouds there may be on the title.
  141. What is an easement in gross?
    An easement that is attached to an individual rather than to a property. 

    Ex. a neighbors right to cross through your property to get to the street.
  142. What is an effective delivery of a deed?

    (Officially delivered)
    When the grantee signs it. 

    Thus acknowledging and accepting delivery.
  143. Define contract
    An agreement to do or not to do something.
  144. In what two manners can a contract be created?
    Express or Implied
  145. What is an express contract?
    The parties declare the terms and put their intentions in words, either oral or written.

    Ex. Signed rental lease
  146. What is an implied contract?
    The agreement is shown by acts and conduct rather than words.

    Ex. A tenant moves in and begins paying rent
  147. What are the 2 basic types of contracts?
    bilateral and unilateral
  148. What is a bilateral contract?
    One in which the promise of one party is given in exchange for the promise of the other. Both parties have made a commitment.
  149. What is a unilateral contract?
    Only one of the parties has made a commitment in the hopes that the other will accept.
  150. What is the difference between and executory and an executed contract?
    Executed - both parties have completely performed

    Executory - a contract in which something remains to be done
  151. In regard to its legal effect, what 4 classifications can a contract have?
    • - void
    • - voidable
    • - unenforceable

    - valid
  152. What is a void contract?
    An agreement that lacks any legal effect and is not a contract at all.
  153. What is a voidable contract?
    A valid and enforceable contract that could be rejected by any of the parties involved.
  154. What is an unenforceable contract?
    A valid contract that for some reason cannot be proved or sued upon by any of the parties.
  155. What is a valid contract?
    One that is binding and enforceable and has all the essential elements required by law.
  156. What 4 essential elements must a contract have according to the Civil Code of California?
    • 1) capable parties
    • 2) mutual consent
    • 3) lawful object
    • 4) consideration
  157. Who would be considered parties capable of legally entering into a contract?
    Anyone except minors, convicts, and people with mental health issues.
  158. How could a minor or incompetent person acquire a property legally?
    By gift or inheritance only.
  159. What is involved when we say "mutual consent"?
    It is an offer that is delivered by one party and accepted by another party.

    It must be genuine, of free will, and not involved in fraud, duress, or mistake.
  160. What happens if a contract is found to be influenced by fraud, duress, or mistake?
    The contract becomes voidable.
  161. What is actual fraud?
    It is the intent to deceive.
  162. What is duress?
    Coercion and confinement are examples of duress. 

    Anything that deprives the individual of their own free will.
  163. What is consideration?
    Something of value offered in an agreement. 

    Consideration is required in every executory contract.
  164. What are some words that refer to consideration?
    • - good
    • - sufficient 
    • - adequate 
    • - valuable
  165. What does the Statute of Frauds say about an agreement that will not be performed within one year?
    It must be in writing to be effective.
  166. What is novation?
    When a former obligation or contract is extinguished with the agreement of a new obligation or contract to replace it.

    NOVA = NEW
  167. What is the statute of limitation for inverse condemnation and encroachment?
    3 years
  168. What is the statue of limitation for a written contract?
    4 years
  169. What is mutual assent?

    Meeting of the minds.
  170. In a contract, the presence of 'a promise to perform an act', 'an exchange of money', or 'a service rendered' are all examples of what?
  171. Is an oral agreement for the sale of a business valid?
  172. What does it mean to rescind?
    To annul. 

    To retract, make go away, backtrack, etc...
  173. Does a valid contract need to be in writing?
  174. Give an example of a contract that must be in writing to be binding?
    An employment contract for the sale of any right, title, or interest in real property. 

    (A contract with an agent to sell property.)
  175. What does the parol evidence rule state?
    That a written contract takes precedence over oral agreements
  176. What is a waiver?
    The relinquishment or the refusal to accept a right.
  177. Where is the concept of agency found?
    In the Civil Code
  178. What is the laws definition of an agent?
    One (agent) who represents another (the principle) in dealings with third persons. 

    Such representation is called agency.
  179. What are the agent's duties to the principal?
    C O A L D 

    • C - care
    • O - obedience
    • A - accounting
    • L - loyalty
    • D - disclosure
  180. In an agency relationship, what authority does the agent have?
    The authority to do everything necessary and proper to effect the purpose of the agency, and to make representations as to relevant facts pertaining to the transaction. 

    Basically anything in their power that is lawful to get the job done.
  181. What kind of agreement/contract is usually used to establish an agency relationship?
    An express agreement or contract. 

    This is because it can be oral and be valid (implied), but must be written (express) to receive a commission.
  182. Is consideration and essential element in the creation of agency?
    It is not.
  183. What is actual authority?
    The authority that a principal intentionally gives to an agent, or allows that agent to believe that they possess.
  184. What is ostensible authority?
    The authority that a principal either intentionally or allows third parties to believe an agent has.
  185. What can happen if an agent acts without authority of the principal, but the principal agrees to the action?
    The agency can be ratified by this friendly agreement.
  186. What is another name for a listing?
    An employment contract. 

    The employment is that of the agent who is commissioned to sell the house and thus creates a listing.
  187. What kind of contract is a listing and who is promising what?
    A bilateral employment contract.

    Seller is promising compensation.

    Broker is promising diligence.
  188. What does it mean to have an exclusive agency listing?
    It means that the seller can sell the property to his own customers and not pay a commission to the agent.

    But, if the agent finds the customers, then they get the commission.
  189. What does it mean to have an exclusive right to sell listing?
    It means that no matter who finds the buyers, the listing broker still receives a commission.

  190. What does procuring cause mean?
    The procuring cause is the action or person that causes the desired action (the sale) to take place. 

    If the agent is the person who finds the buyer of the house, then the agent is the procuring cause.
  191. In what kind of listing is a procuring cause not an issue?
    In an exclusive right to sell because the procuring cause doesn't affect the broker getting paid.
  192. What is a single agency relationship?
    One where the agent represent a single client (the principal).

    The principal could be a buyer or a seller in this agency.
  193. Define client
    The principal to whom the agent owes fiduciary responsibilities.
  194. What are fiduciary responsibilities?
    Acting with the utmost care, integrity, honesty, and loyalty towards your client.
  195. In a single agency relationship, what is the principal classified as?

    A customer or a client?
    A customer

    - no fiduciary responsibilities, but the responsibility to be honest and fair
  196. Define customer
    the principal to whom the agent owes honest and fairness
  197. What is the difference between a client and a customer?
    You owe fiduciary responsibilities to a client, but only honesty and fairness to a customer.
  198. What does it mean to have a dual agency relationship?
    The agent represents both principals (the buyer and the seller) in the transaction.
  199. What is a subagent?
    The agent of someone who is already in an agency relationship with a principal.
  200. What is an exclusive listing?
    A contract between the seller and the broker.
  201. What does an agent (employed by a principal in a transaction) owe to the other party?
    They have a duty to make a complete and full disclosure of all material facts.
  202. What is a secret profit?
    A secret profit is when a broker creates an imaginary buyer who makes an "offer" and then, the agent sells it to a real buyer for a higher offer. This is morally wrong and illegal.
  203. What is true regarding compensation and agents?
    When received, compensations must be moral, disclosed, earned, etc.
  204. What can happen if an agent acts in excess of their agreed authority?
    They could be held liable for whatever is caused.
  205. What 3 horrible things can happen if a licensee misrepresents a property to a buyer?
    • 1) they could be disciplined by the DRE
    • 2) they could have a civil suit filed against them by the property owner for money damages
    • 3) they could be criminally prosecuted (like fraud)
  206. What can result from a broker failing to disclose material facts about a property?
    They could face civil liability.

    They could face disciplinary action.

    They could face criminal prosecution.
  207. What is constructive fraud?
    It is not actual fraud, which is the meaningful intent to deceive. 

    Constructive fraud is negligence.
  208. If a licensee misrepresents a property and is criminally prosecuted, is this for actual fraud or constructive fraud?
    They could be charged for either depending on the case.
  209. What is puffing?
    When an agent makes an exaggerated statement about the sale and the buyer takes it literally.
  210. When a broker receives a check on behalf of the principal, what are the steps that must be taken and when?
    • The broker has 3 business days to do one of the following:
    • - place the check into the hands of the seller
    • - deposit the check into escrow
    • - deposit the check into a trust account
  211. When a buyer gives an agent a check, what does this act represent?
    It represents acceptance of an offer.
  212. What is co-mingling?
    When a broker places a client's money into their own personal or business banking account. 

    No exceptions.
  213. What is true about the type of deposit received from the client?
    No matter what type of deposit it is, the broker must fully disclose this information to the seller.
  214. What is an earnest money deposit in Real Estate?

    Who can accept them?
    It is the deposit placed for the purchase of real property. 

    When a listing agreement is made, the agent automatically is fully authorized to accept these deposits on behalf of their seller.
  215. Can a seller be held responsible for false information that is given by their agent?
    Yes, they can.
  216. What is an attorney in fact?
    A person who is appointed to act on behalf of another person under a power of attorney document.
  217. When can an attorney in fact not act on behalf of their principal?
    When their principal dies or is declared to be incompetent.
  218. Does a listing agent need to disclose to their buyer/seller when they are acting in a dual agency relationship?
    Yes, as soon as is practicable.
  219. What happens when an agent fails to disclose that they are acting as a dual agency in the transaction?
    The seller is at a disadvantage in this relationship, so they need to know this. 

    If one does not disclose, this is a violation of agency disclosure law.
  220. If an agent is a buyer or sellers "exclusive agent", does this mean that the agent only has one client?
    No, an agent can have any number of clients and other deals going on at the same time.
  221. What do we use to help remember the rules for agents representing clients?
    D E C 

    • D - disclose
    • E - elect
    • C - confirm

    * Agency relationships need to be clear, and all parties need to be in mutual consent.
  222. What are the rules about a salesperson or broker acting on their own account in a transaction?

    (Buying property for themselves and being their own agents.)
    This is ok as long as they act in good faith and without fraud or deceit.
  223. What happens if a licensee has a listing on a property and also an option on that same property, then they decided they want to buy the property?
    They must relinquish their agency roles and disclose their intention to act as principal in the transaction.
  224. What terminates an agency relationship?
    • - completion or accomplishment of the goal
    • - agreement between the parties
    • - expiration of the listing
    • - revokation by the buyer/seller
    • - death
    • - sudden mental incapacity of either party
    • - extinction (the property suddenly disappears)
  225. If a member of a corporation dies, does this terminate the agency relationship?
  226. When does the principal have and not have the right to revoke an agency agreement and fire their agent?
    Anytime except if the broker has found a buyer. This could hold the seller liable for damages (commissions received anyway)
  227. Define ratification
    When an agent acts on behalf of a principal, but without their consent, and then the result is a binding consent with the principal
  228. Define estoppel
    Being stopped from being able to deny something that is said and established to be true. 

    Ex. a tenant verbally telling a tenant rent is reduced due to construction - estoppel could stop this person from trying to collect the full rent
  229. If an agent voluntarily offers to represent a principal, does this create an agency relationship?
    No, it wouldn't be a relationship until the principal agreed to it.
  230. What is the duration (as stated by law) of an exclusive agency listing?
    Whatever term the parties agree upon.
  231. If Jordan goes into an open listing agreement with a broker for the sale of her house for $65,000 and the agent spends a lot of time and energy and presents a few different sellers to Jordan, but she rejects all of them and instead sells the house to a friend. Is the broker entitled to a commission and why?
    No, because it is an OPEN LISTING
  232. If an agent is inspecting a seller's property and notices cracks in the walls or floor, or a lot of doors and windows that are jammed and do not open properly, then what is the agent's duty to do?
    The agent must advise the owner to obtain a soil report from a licensed engineer.
  233. What are the basic authorities that an agent has when entering into a listing contract?
    They have the basic authority to find a purchaser, receive an offer of purchase and a deposit - all on behalf of the seller.
  234. Joe hired Me to sell his property with a 90-day exclusive agency listing. After 30 days the property had not sold and Joe made a written notice to end our agency listing. A few days later a different agency sold Joe's property? What happens and why?
    Joe's subagent and myself are both entitled to a commission. 

    The subagent because of the contract that they entered into with Joe, and myself because of the contract that I entered with Joe. 

    I was not given the full 90 days of the contract to fulfill the desired action, so I am not at fault.
  235. When is a broker not obligated to present an offer to purchase real property?
    When the offer is patently frivolous, or when the broker is acting on written instructions from the principal
  236. If a broker sells a property to a buyer based on false information that was given to them from the seller, but the agent is acting in good faith and reasonable manner, and the buyer rescinded the contract on the grounds of fraud, what happens to the agent?
    The agent is entitled to a full commission and indemnity for losses caused by related legal action by the defrauded buyer against the broker.
  237. If a broker is an agent in a listing agreement and they owe their seller fiduciary responsibilities, what do they owe the buyer?
    Honesty and fair dealings (like a customer)
  238. What are the 4 real estate contracts that must be in writing to be enforceable?
    • 1) leasing real property for more than a year
    • 2) purchasing real property
    • 3) listing real property
    • 4) an agreement to pay the debt of another
  239. What are some oral real estate contracts that are enforceable?
    • 1) a lease of real property for one year or less
    • 2) a listing for personal property or a business opportunity
    • 3) brokers sharing a commission
  240. Generally, what is true about "Advance Fee" contracts?
    They must be approved by the DRE before being used.

    They must include the dollar amount and due date, and they must include wording that does not guarantee the transaction.
  241. What advance fees that are collected do not require approval from the DRE?
    Advanced Fees collected for credit reports, independent appraisal fees, with the unused portion being returned.
  242. What makes a purchase contract binding?
    An offer and an acceptance.
  243. What is a counteroffer?
    A rejection of the original offer to purchase with a modified offer sent back.
  244. If a seller is working with multiple counteroffers, does this information need to be disclosed?
  245. Does a printed copy of contract or a copy with handwritten changes take precedence?
    The copy with the handwritten changes.
  246. What is the effective date of a purchase contract?
    The date that the final acceptance is delivered to the offeror.

    When the seller delivers the acceptance to the buyer. Done deal.
  247. Where do we usually find the concept "time is of the essence"?
    It is found in a purchase contract or deposit receipts.
  248. If a buyer dies before the seller accepts the offer, what happens to the offer?
    It is considered revoked upon death.
  249. If a buyer dies before the seller is able to communicate the acceptance of an offer, then what happens to the offer?
    The contract is terminated upon death.
  250. If a buyer withdraws before the seller accepts the offer, then what happens?
    The buyer gets their deposit back free and clear. It is as if the offer was not made.
  251. In a case of breach of contract, what can the offended party sue for?
    They can sue for specific performance or liquidated damages.
  252. What are liquidated damages?
    When the buyer does not get the deposit back because of a breach of contract.

    The standard amount for liquidated damages according to the CAR (CA Assoc. of Realtors) is 3% of the purchase price or the amount of the deposit (whichever is less)
  253. What is an interpleder action?
    When a broker who is holding a deposit for a client and is facing some legal action, the broker can turn the check over to the court until the resolution is made between the parties.
  254. Who would be most likely to file and interpleder action?
    An escrow company who is holding a check during a dispute and thinks that the parties won't find a resolution.
  255. What is abrogation?
    It is the rescission or annulling of a contract by mutual consent or for cause. 

    The cancelation of a contract by mutual consent.
  256. What parties are involved in a listing agreement?
    Seller - (the principal)

    Broker - (the agency)
  257. In an exclusive agency listing, if the owner sells the property by their own efforts, do they owe a commission to the listing agency?
  258. In an exclusive right to sell listing, what happens?
    Procuring cause makes no difference.

    The broker receives a commission no matter who makes the sale.
  259. What is an open listing?
    Where the seller of the property can list with multiple brokers and whoever makes the sale gets the commission.
  260. Regarding duration, what must be included in an exclusive listing?
    A definite termination date.
  261. What is the protection period clause?
    It is the protection period after a contract has expired where a broker could still be allowed a commission if one of their prospective buyers ended up buying the property.
  262. How could a broker receive a commission on a sale that took place after the listing had expired?
    Because the protection period clause entitles the broker to the sale if it was one of the buyers that the broker had given the seller.
  263. How is the protection period clause enforced?
    Usually within 5 days of the expiration of the listing, the broker submits a list of prospective buyers for which the broker is responsible.
  264. What is the hold harmless clause?
    It protects the agent from liability when a seller give false information.
  265. When should someone receive a copy of a contract?
    Immediately after they sign it.
  266. What relationship does the buyer-broker resemble?
    The exclusive listing between a seller and a broker
  267. What is a buyer-broker agreement?
    A single agency relationship between a buyer and a broker.
  268. Can a seller sue a broker for not fulfilling an oral promise?
  269. What is an option to purchase real property?
    A written agreement stating that the buyer shall have the right to purchase the property at a fixed price within a certain time.

    This does not bind the optionee, it only gives them the OPTION if they want it.
  270. What is a leasehold interest?
    The right to exclusive possession and use of real property for a fixed period of time held by the lessee or tenant.
  271. Who/what is the landlord in a lease agreement?
    The landlord is the lessor.

    They part with the right of exclusive possession during the existence of the lease.
  272. Explain a leasehold estate.
    AKA="Chattle Real"

    Personal property.

    The right to exclusive possession and use of real property for a fixed period of time.
  273. What is an estate for years?
    A lease that continues for a definite period of time, fixed in advance, as agreed between the landlord and the tenant.

    It is not necessarily "years", it could be for 6 months.
  274. What happens if you do not sign a lease, but you move in and take occupancy? Could you be bound by your actions?
  275. What is an estate from period to period?
    A month to month lease is the most common example. 

    Could be different periods of time than a month.
  276. Explain what an estate at sufferance is.
    When a tenant has rightfully come into possession of the property, but remains in possession after the expiration of the term.

    The tenant is holding an estate at sufferance.
  277. Name the landlord and tenant in the leasehold agreement.
    • Landlord = Lessor
    • Tenant = Lessee
  278. In a leasehold agreement, what does it mean to surrender?
    It means to give up a lease by mutual agreement.
  279. Regarding leases, what does it mean to assign?
    It means for a lessee to transfer complete leasehold interest to someone else.
  280. Can a tenant transfer all or a portion of their interest in a leasehold estate if they want to?
    As long as it does not prohibit it in the contract, yes.
  281. If a tenant transfers all of his rights and interests in a property, but may still have some obligations under the lease, then what is this called?
    An assignment
  282. Explain a sublease.
    When a lessee is the lessor of a portion of a prior lease on the same property.

    If a tenant transfers rights to a portion of the premises for a period of time that it is less than their lease. 

    The original tenant is solely liable to the landlord for obligations under the lease and for all acts and omissions committed by the sub-tenant.
  283. If a landlord signs and delivers a lease to a tenant, but the tenant never signs it, is that lease enforceable?
  284. What four conditions make a lease valid?
    L A N D

    • L - length of time
    • A - amount of rent
    • N - name of parties
    • D - description of property
  285. How much can a landlord charge as a security deposit for both furnished and unfurnished residential properties?
    • Unfurnished = 2 months of rent (first and last)
    • Furnished = 3 months of rent
  286. What law implied covenant is in every lease?
    That the landlord provide the tenant with possession and quiet enjoyment of the premises.
  287. What does "quiet enjoyment" mean in a leasehold agreement?
    It means possession without disturbances by the holder of paramount title (the landlord).
  288. What is a landlord's legal duty to a residential dwelling?
    To keep it in a habitable condition for the lessee.
  289. What is an unlawful detainer action?
    An action against a defaulting tenant to remove them from the premises.
  290. If a landlord seeks to remove a defaulting tenant from possession of the premises, what can they do?
    They can bring and unlawful detainer action against the tenant.
  291. The Statute of Frauds states that a lease must be in writing if what?
    If it is longer than one year.
  292. What is constructive eviction?
    When circumstances arrive that allow the tenant to lawfully break the lease.

    Ex. If the landlord were not making the necessary repairs, making unwarranted and extensive alterations, actual eviction, or the property being condemned through eminent domain.
  293. What is abandonment in a lease?
    When a tenant voluntarily relinquishes possession of a leased property with no intention of fulfilling the terms of the lease.

    Moves out in the middle of a lease.
  294. You have a lease agreement with Joe for your apartment. Joe decides to lease his interest in the apartment to Sam. What happens to your lease with Joe?
    Your lease is still enforceable and in effect.
  295. In a leasehold agreement, what is attornment?
    When a tenant agrees to pay rent to a new owner.
  296. When purchasing property, how do we know how much the buyer's earnest money deposit is?
    It is an agreement made between the buyer and seller.
  297. What is the status of a contract when both parties have signed it, but the title has not yet passed? Is it executed or executory?

    The contract has not been executed until all actions are completed and that means the passing of title as well.
  298. What do you call it when you have an agreement with a seller not to close the offer?
    This is an option
  299. Is an optionee obligated to purchase property?
    No, they merely have an option to if they want to.
  300. What are we describing when we say "a mode or method of holding title to real property by a lessee or an owner"?
    We are describing tenancy
  301. If an owner grants possession of real property to another person for less than the owner's interest, what do we call this?
    This is a lease.
  302. What are the factors involved when figuring out how much a landlord can charge you as a security deposit?
    The term of the lease.

    If the unit is furnished or not.
  303. What is a sandwich lease?
    This is a sublease.

    A lessee has rented a portion of their lease to someone else for a period less than their lease.

    You hold a sandwich lease when you are the one subleasing the space.
  304. What party would bring an unlawful detainer action against the other party?
    The LESSOR (landlord) would bring this against a tenant.
  305. How does eviction happen?
    By pursuing an action in court.
  306. A prospective buyer made an offer and gave the broker a $500 check as a deposit. Before the offer was given to the seller, the buyer contacted the broker and withdrew the offer. What should the broker do with the check?
    The broker should give the check back to the buyer ASAP. This offer does not exist.
  307. If I made an offer on a house and then the seller made a counteroffer, am I still obligated under my original offer?
  308. Is a deposit receipt a unilateral or bilateral contract?
    This is a purchase contract, it is bilateral.
  309. Is an option a bilateral or unilateral contract?
    It is unilateral.
  310. Is a net listing a bilateral or unilateral contract?
    It is bilateral
  311. Is an exclusive listing a unilateral or bilateral contract?
    It is bilateral
  312. What is the Easton vs. Strassburger decision and why is it important in Real Estate?
    It set the rule that in a transaction, a broker is required to make a reasonably competent and diligent visual inspection of the property and disclose to a buyer all facts materially affecting the value or desirability of the property that such an investigation would reveal.

    * Red flag items must be disclosed!

    Transfer disclosure statement required.
  313. What is a transfer disclosure statement?
    It is a disclosure concerning the condition of the property that must be provided whenever someone is buying a residential property (1-4 units).
  314. Is a transfer disclosure statement regarding the condition of the property required when a property is being sold "as is"?
    Yes, still required.
  315. When is a transfer disclosure statement not needed?
    When the property is being transferred due to divorce, court order, or probate.
  316. How long does a buyer have to seek damages if they find that the transfer disclosure statement they received is defective (incorrect)?
    They have 2 years.
  317. What does it mean to make a Mello-Roos Assessment?
    The seller makes a good faith effort to obtain from the Community Facilities District a notice concerning the special tax and give the notice to a prospective buyer.
  318. If you are selling a home built before 1978, what are you required to disclose to the prospective buyers?
    The presence of lead-based paint.

    Real Estate Disclosure and Notification Rule
  319. What is the Real Estate Disclosure and Notification Rule about?
    If you sell a home built before 1978, you must disclose to buyers the presence of lead based paint.
  320. What are the rules about disclosing environmental hazards when selling a property?
    • Unless a specific environmental hazard is known, then all the owner has to do is to enclose the "Environmental Hazards: Guide for Homeowners, Buyers, Landlords, and Tenants" pamphlet.
  321. What does the Alquist-Priolo Earthquake Fault Zoning Act require?
    That a homeowner disclose to a buyer when the property is situated on an earthquake fault zone.
  322. What Act passed that requires a seller to disclose when a property is situated on an earthquake fault zone?
    The Alquist-Priolo Earthquake Fault Zoning Act
  323. How wide are earthquake fault lines on a map?
    1/4 mile wide
  324. What disclosure statement is included regarding earthquake fault zones?
    The Natural Hazards Zone Disclosure Statement
  325. What is the Natural Hazards Zone Disclosure Statement?
    A statement about earthquakes and other natural hazards that must be included when a home is sold.
  326. When is the booklet "Homeowner's Guide to Earthquake Safety" required in the sale of a home?
    When the home is of conventional light frame construction and built before 1960.

    When the home is a masonry building with wood-frame floor or roof and built before 1975.
  327. What sellers need to disclose the potential for flooding?
    All sellers.

    It is a legitimate concern for all potential buyers of residential property.
  328. Who provides Flood Hazard and Boundary Maps?
    FEMA - (federal emergency management agency)
  329. Define
    - Frequent flooding.
    - Flood zone area.
    - Moderate flood hazard
    - Minimal Risk
    Frequent flooding = more than once in 10 years

    Flood Zone Area = within a 100-year flood boundary.

    Moderate Flood Hazard = in an area between a 100 and 500-year flood boundary

    Minimal Risk = in an area above a 500-year flood boundary
  330. What does the phrase "as is" in real estate refer to?
    Observable conditions.
  331. Chris sold a house to Joe and I was the broker. Shortly after buying the house, Joe discovered a serious leak in the roof. Chris stated that he had told me about the roof. What happens next?
    Chris sues me.

    Joe sues us both.
  332. When a condominium is sold, what can the buyer request that the seller provide regarding documents?
    • - the CC&R's
    • - the bylaws
    • - the financial statements
  333. In the sale of real property, must the seller give the buyer a copy of the structural pest control certification report?
    If requested, yes
  334. How/Where can you get a copy of an inspection report filed by a licensed structural pest control operator?
    For a fee, anyone can obtain one from the Structural Pest Control Board
  335. Which of the following is not a natural hazard?
    A. Flood
    B. Mold
    C. Fire
    D. Seismic
    B. Mold
    (this multiple choice question has been scrambled)
  336. If a broker has a listing where a person died from AIDS, then do they need to disclose this information to their buyers?
    No, not voluntarily.
  337. What are 2 essential elements of escrow?
    1) a binding contract

    2) conditional delivery of transfer instruments to a third party (a trust deed)
  338. What is the purpose of escrow?
    To implement and sometimes supplement the original contract.

    To ensure that the conditions and instructions of the agreement are satisfied.
  339. If escrow instructions are in conflict with the original contract, which prevails?
    Signed escrow instructions usually prevail.
  340. What is a good way to think of an escrow holder?
    A stakeholder who is not legally concerned with the controversies between the parties.

    A neutral third party.
  341. When is a broker allowed to conduct an escrow?
    When the broker is a party in the transaction. 

    So basically, if they are the broker selling the house, then they can handle the escrow on it.
  342. What do we mean when we say that escrow holders do not have discretionary authority?
    We mean that they need to stay out of the disputes between the parties. 

    They cannot act as mediator or advisor or arbitrate disputes between the parties. 

    If they want to get involved, they must file and interpleder action to force the litigation of disputes.
  343. Can an escrow holder suggest that their clients seek an attorney for legal advice?
    Yes, but they cannot give their clients legal advice.
  344. When does an escrow become effective?
    When identical escrow instructions have been signed by all parties.
  345. What are the ways that escrow is voluntarily completed?
    • - full performance and closing
    • - terminated by mutual consent
    • - canceled
  346. Does cancelation of escrow cancel the purchase contract?
    Not necessarily
  347. In the closing statements for escrow:

    who receives them?
    who is debited for the purchase price?
    who is credited for pre-paid sales tax?
    Buyer and Seller receive them.

    Buyer is debited for the purchase price.

    Seller is credited for pre-paid sales taxes that they had already paid.
  348. What does it mean to prorate?
    To assess, distribute, or divide proportionately.
  349. What items are usually prorated in escrow?
    This that are recurring costs like insurance and interest.
  350. Why do we prorate items?
    To make sure that each party pays for their fair share of recurring costs attached to the property.
  351. With an insurance policy, what is a short rate?
    Less than prorated refund for the policy being canceled early in its term.
  352. What do we call it when an insurance company give us a less than prorated refund for an insurance policy canceled early in its term?
    its called a short rate
  353. What is an abstract of title?
    A summary statement of successive conveyances and other facts by which chain of title is established. 

    Basically a summary of all the owners that the property has held.
  354. What is the Standard Policy of Title Insurance?
    The most common type of policy acquired by most people purchasing a home.

    It protects against the risk of record forgery or a deed not being properly delivered.
  355. What is the A.L.T.A. Policy of Title Insurance and what does it do?
    ALTA is the American Land Title Association Policy of Title Insurance.

    It goes beyond CLTA standards to insure out-of-state lenders 

    It guards against location of property lines as a result of a formal SURVEY
  356. Who does the ALTA protect?
    Owners of homes.

  357. Will policy of title insurance protect against defects in the title that are known exist, but were not communicated in writing to the insurer?
    No, no policy of title insurance can protect against this.
  358. Does title insurance protect agains zoning?
    No, because zoning is land condition, not title condition.
  359. Do escrow instructions need to be notarized?
  360. Do escrow instructions need to be recorded?
  361. Can the escrow agent make changes to the escrow instructions with written consent?
  362. If a buyer is purchasing a home and assuming the existing loan, how does this loan show on the closing statements?
    • Debit to the seller.
    • Credit to the buyer. 

    * The loan is a negative number. A debit to the seller is actually a credit if you think about it ;-)
  363. What exactly is an impound account?
    An account held by escrow to handle the recurring costs on the property while the house is in escrow. That way we can be sure the property is not at risk. 

    Ex. recurring costs - taxes, insurance
  364. Are escrow fees, recording fees, and premiums for title insurance all examples of recurring costs in an escrow closing statement?
  365. When conducting a title search, where might a title company find the documents needed?
    • - the County Clerk's office
    • - the federal land office
    • - the County Recorder's office
  366. Is it possible for the buyer to need to pay more than the escrow instructions stated?
  367. When the escrow requirements have been met, how does the escrow agency's relationship with the clients change?
    The escrow goes from agency of both parties, to agency of each party separately.
  368. What should the escrow agent do if conflicting documents are received?
    They should ask the buyer and the seller for instruction.

  369. What type of title insurance company provides full protection against risks?
    No such thing.
  370. Can a title insurance company protect you against liens placed on the property?
  371. What is financing to the Real Estate business?
    It is the lifeblood of the business.
  372. Explain what the CPI is.
    CPI = Consume Price Index

    A government economic index showing the living costs for the average consumer on a monthly basis.
  373. What is the clause that commercial leases often tie to the CPI?
    The escalator clause
  374. What does it mean to place an item as collateral for a loan without giving up use of the item?

    Ex. Giving the pink slip up for your car as collateral, but still driving the car until you repay.
    It means to hypothecate the item
  375. What is a pledge in real estate?
    To deposit personal property with a lender as security for the debt.
  376. Explain a tight money market.
    Money is scarce and expensive.
  377. What ways can sellers do to help sell their homes in a tight money market?
    They can carry back second trust deeds.
  378. What is the difference between lenders who are regulated by the DRE and lenders who are regulated by the DOC?
    You must have a real estate license if regulated by the DRE.

    But, if you are, for example, a bank and you are regulated by the Department of Corporations, then you don't need to have a real estate license.
  379. What is a construction loan?
    An interim loan, a short-term loan designed to pay for the construction of a building.
  380. What is a take-out loan?
    The long term loan by which the construction loan is paid off.
  381. What does it mean to have an All Inclusive Trust Deed (AITD)?
    It is a junior mortgage with a face value of the amount that it secures, plus the balance of any senior liens on the property.

    It includes all of that indebtedness.

    Initial seller continues to pay their loan, and the new owner pays the old seller for a loan.
  382. Who does the trustor on an AITD pay?
    The trustor pays the seller of the property.
  383. Which party is responsible for making the payment to the lender of a senior loan involving an AITD?
    The person who signed the note, the initial owner of the home.
  384. What is a hard money loan?
    It is a real estate loan secured by the borrower's existing property.

    This means you are taking a cash loan out of the equity of your home and the lender can obtain a deficiency judgment against you if you don't repay.
  385. What is a purchase money loan?
    A loan used to purchase the property and no deficiency judgment is allowed.
  386. Explain ARM
    The Adjustable Rate Mortgage

    Allows interest rate to increase or decrease according to a published index.

    Allows interest rate to adjust periodically by a set margin to a certain index.
  387. Explain RRM
    Renegotiable Rate Mortgage

    Allows the borrow to either prepay or renew (with renegotiation of the interest rate) every 3-5 years
  388. Explain the fixed rate mortgage.
    Offers a borrower a fully amortized, long term loan. 

    Amortization = equal payment each month that includes the principal and the interest
  389. What do we call the method of repaying a loan in equal installments which covers both the principal and the interest?
  390. Explain what amortization is.
    The repayment of a loan where someone pays an equal amount each month for long term.

    This amount takes care of the principal and the interest in one amount each month.
  391. What is a level payment plan loan?
    • Principal increases over the term of the loan.
    • Interest decreases over the term of the loan.
  392. Explain a partially amortized loan?
    One pays principal and interest each month for a determined time, but at the end of the term the debt has not been liquidated (not been fully paid back).
  393. What do the use of alternative financing instruments do in a transaction?
    It shifts the risk of changes in the market rate of interest from the lender to the borrower.
  394. When a borrower obtains a real estate loan, what two documents do they sign?
    • - the promissory note
    • - the trust deed
  395. What is a promissory note?
    It is a written commitment to repay a loan.

    An IOU
  396. Explain what a security instrument is.
    An instrument (in the form of a written legal document) that is used to secure the payment of a debt. 

    For example: A trust deed is a security instrument that uses a property as collateral to secure a mortgage payment.
  397. Explain what a negotiable instrument is.
    It is a written, unconditional promise or order to pay a certain amount of money, at a definite time, on demand.

    Ex. Checks, bank drafts, and promissory notes
  398. What is a straight note?
    A note in which no principal payments are made during the term of the note but are due and payable on a certain date.
  399. What is an installment note?
    Demands periodic payments of fixed amounts including both interest and principal. 

    It is a fully amortized note.
  400. What kind of payment is often due at the end of a straight note or a partially amortized note?
    A balloon payment.
  401. What is a balloon payment?
    The a substantial payment of principal and interest on the last payment of a loan.

    The lump sum amount that you pay at the end of the loan to completely pay it off. 

    These are present in partially amortized and straight notes.

    Not present in fully amortized loans!
  402. What does it mean to discount a note?
    It means to sell the note for less than the balance due. 

    The difference between the face value and the cash value.
  403. What is a holder in due course?
    A party who has taken a negotiable instrument for value and in good faith, without knowledge of any defects.
  404. What is the most common security instrument used in California Real Estate?
    The trust deed
  405. What is a first trust deed?
    A trust deed that has priority over any trust deeds recorded after.
  406. What happens in a judicial foreclosure?
    The borrower has a one-year right of redemption after the sale if the sale proceeds do not satisfy the amount of the debt plus interest.
  407. What happens after a trust deed obligation (mortgage) has been paid off?
    The beneficiary will have the trustee prepare, sign, and record a deed of full reconveyance.
  408. Who is the beneficiary in a trust deed?
    The lender of the money.
  409. Who is the trustee in a trust deed loan?
    The neutral third party. 

    Holds title with the right to sell in the event of default.
  410. At the end of a trust deed loan, the trustee can do one of what 2 things?
    Either reconvey the title or foreclose.
  411. What happens when a trustor faults in a trust deed loan?
    The beneficiary instructs the trustee to record a notice of default.
  412. When a trustor defaults their trust deed loan, what happens after the notice of default is recorded?

    Finish the chain...
    Assuming non payment, the beneficiary will wait 90 days and then publish the property for sale in a newspaper of general circulation and post notices on the property. 

    The trustor has up until 5 days before the date of sale to either redeem or sell the property. 

    If this does not happen, then the trustee conduct's a trustee's sale and issues a trustee's deed to the highest bidder.
  413. When does a trustor authorize the sale of their home in an event of foreclosure?

    Name the clause.
    They authorize this when they originally sign the deed of trust and take out the loan. 

    Power of sale clause.
  414. If the beneficiary elects a judicial foreclosure in a deed of trust, does the trustor have any equity rights of redemption?
    Yes, one year
  415. What does a trustor convey when they sign a deed of trust and what do they retain?
    They convey the essence of legal title to the trustee and they retain the equitable title.
  416. What can a trustor do with a note secured by a trust deed after a notice of default?

    What can they do after the judicial foreclosure?
    Before foreclosure and after a notice of default, the trustor can reinstate a note, but after the judicial foreclosure they cannot reinstate a note, but they do have rights of redemption.
  417. When is a junior loan obtained?
    When the first trust deed and the buyer's down payment are not sufficient to meet the purchase price.
  418. Often times, who is doing the lending in junior loans?
    Private individuals with each other or through a mortgage company.
  419. If a seller carries back a note secured by a trust deed, then who is the source of the funding?
    The seller is the source of funding.
  420. What is a blanket trust deed?
    A loan that secures more than one property as collateral and contains a release clause that releases specific parcels from the encumbrance upon the repayment of part of the loan. 

    The blanket slowly removes as you repay the loan.
  421. What are the ways for a buyer to transfer property (with an existing loan present)?

    Note: You are not paying cash.
    • - with a new purchase money loan
    • - to assume the existing loan
    • - take title subject to the existing loan
  422. What happens when a buyer assumes an existing loan?
    It relieves the seller from being the principal debtor on the property. 

    The existing loan is transfered from seller to buyer and releases the seller from all liabilities.
  423. What happens when a buyer takes title subject to an existing loan?
    The seller remains partly liable to the lender for the loan repayment, but the buyer is now making the payments on the loan.
  424. When there are different liens on the same property, which ones have priority?
    The ones that were recorded first.
  425. Do government liens take priority over an existing mortgage?
  426. What is an acceleration clause in a loan?
    Gives the lender the right to declare the full amount of the debt due and payable based on the happening of a certain event.
  427. What is an alienation clause and when is it not enforced?
    Aka = Due on sale clause.

    A type of acceleration clause, that requires full repayment of the loan if the property is sold or the title to the property changes to another person. Nearly all mortgages have one.

    These are not enforced in a tight money market or when houses are not selling well.
  428. What is a subordination clause in a trust deed?
    An agreement whereby a trust deed is made subordinate to a trust deed recorded later.
  429. What is the basic simple interest formula?
    i = prt                    

    interest = principal x rate x time
  430. What is the nominal interest rate in a loan?
    The rate stated in the loan documents.
  431. What is the effective interest rate in a loan?
    The APR (Annual Percentage Rate).

    The rate that the borrower is actually paying.
  432. If there is a conflict in the terms of the note and the deed of trust, which one controls?
    Usually the note.
  433. When is private mortgage insurance (PMI) required by a lender?
    Sometimes required by a lender for conventional loans.
  434. What is the FHA?
    The FHA is the Federal Housing Administration

    It is part of the U.S. Department of Housing and Urban Development (HUD).

    It was established in 1934.
  435. What does the FHA do?
    • They insure home loans (mortgages) for:
    • - the purchase of existing and newly built single-family homes and condominiums,
    • - home improvements,
    • - the purchase and repair of houses needing rehab,
    • - the purchase of 2-4 unit properties, and
    • - the refinancing of existing mortgages.
  436. What does the FHA charge to insure a mortgage?
    They charge a mortgage insurance premium (MIP).
  437. Can you prepay your mortgage insurance premiums?

    Is there a penalty fee?
    Yes, you can.

    There is no prepayment penalty.
  438. Who pays the loan discount points on a VA loan, the buyer or the seller?
    It could be either or.
  439. What does the veteran buyer have a right to receive before making a purchase under a VA loan?
    A CRV - certificate of reasonable value
  440. Who completes a CRV?
    A certificate of reasonable value can be obtained through any lending agency.

    A licensed appraiser completes the document upon request.
  441. Where does someone need to go to obtain a VA loan?
    Any lending agency
  442. Who offer the CalVet loan and when was it established?
    The Veterans Farm and Home Purchase Program, established in 1921
  443. Explain the process of arranging a CalVet loan.
    It is arranged under a contract of sale between a veteran and the Department of Veterans Affairs.

    The house is purchased by DoVA and owned, but the veteran is allowed to live in it and pay the mortgage. 

    Once the veteran pays off the loan in it's entirety, title is conveyed to them.
  444. What is a promissory note evidence of?
    A debt.
  445. Is a trust deed a negotiable instrument?
    No, a trust deed is not the money in the arrangement. The negotiable instrument would be the promissory note attached to the deed.
  446. What is a mortgage loan with an interest rate that changes along with money market rates referred to as?
    An adjustable rate mortgage.
  447. In a deed of trust, who gives the power of sale in the event of default?
    The trustor does.

    They give it to the trustee in the original contract.
  448. What is an "or more" clause?
    A type of acceleration clause.
  449. The law states that a mortgage payment is late after how many days?
    More than 10 days
  450. Would adding an acceleration clause to a note make it more negotiable or less?
  451. What kind of foreclosure usually establishes a right-of-redemption period?
    A foreclosure by court action
  452. When a property is foreclosed judicially, how long can the mortgagor remain in the house after the close of the sale?
    One year
  453. What is the main purpose of the FHA?
    To promote home ownership by insuring home loans.
  454. In VA financing, what is the down payment on a home?
    No down payment as long as the sale price does not exceed the CRV.
  455. What is "the liquidation of financial obligation on an installment basis"?
  456. What is negative amortization?
    If the payments on a loan are insufficient to service the debt.

    When the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases
  457. Not including the down payment, what kind of loan would be most likely to pay the lowest closing costs for the buyer?
    A CalVet loan
  458. What is a hard-money second deed of trust?
    Equity in real property is the collateral for a cash loan.
  459. What is the primary mortgage market and what does it include (3)?
    It is where the consumer originates a real estate loan.

    It includes savings & loans, commercial banks, and mortgage bankers.
  460. How has deregulation changed the mortgage market?
    It has eliminated most of the differences between savings and loans and commercial banks, and allowed institutional lender to be competitive in the interest rates they pay on deposits.
  461. Who does the primary mortgage market lend to?
    Directly to borrowers
  462. What are mortgage bankers?
    Privately owned companies often affiliated with banks or savings & loans.

    They originate conventional and FHA/VA loans.
  463. What kind of loans do insurance companies like to make and to who?
    Large commercial loans for the long term.

    They like to work through mortgage companies and not directly with the buyer.
  464. What kinds of loans have been the primary source of residential financing?
    Savings & loans
  465. How do lenders in the primary mortgage market replenish their funds?
    By selling loans in the secondary market.
  466. What is the secondary mortgage market?
    Where investors purchase real estate loans originated by other lenders.
  467. Who are the players in the secondary mortgage market?
    Fannie Mae - The Federal National Mortgage Association (FNMA)

    Freddie Mac - The Federal Home Loan Mortgage Corporation (FHLMC

    Ginnie Mae - The Government National Mortgage Association (GNMA)
  468. Explain Fannie Mae.
    FNMA - Federal National Mortgage Association

    Purchases FHA, VA, and Conventional loans in the secondary market from approved lenders and sets property guidelines for acceptance.
  469. What are sub-prime loans?
    Loans in the secondary market that do not qualify for sale to Fannie Mae or Freddie Mac and cannot be securitized into a pool guaranteed by Ginnie Mae.
  470. What is a land contract of sale?
    A device whereby the seller (vendor) agrees to convey title to real property after the buyer (vendee) has met conditions specific in the contract. 

    • Seller has legal title.
    • Buyer has equitable title until legal title is conveyed.
  471. What is equitable title?
    It is the legal right to obtain ownership in property, when title is held by another, by fulfilling conditions in the contract of sale.
  472. What happens when there is a breach of a land contract by the vendee?
    This causes a cloud on title.

    The vendee can then sign a quitclaim deed.

    If the vendee does not sign one, then the vendor can initiate a quiet title suit to resolve.
  473. What are some other names for a land contact of sale?
    • - a installment sales contract
    • - a contract of sale
    • - an agreement of sale
    • - a conditional sales contract
    • - a land sales contract
  474. In a land contract, what is the relationship between the seller and the buyer?
    Vendor and Vendee

    Similar to beneficiary (lender) and trustor (borrower)
  475. In a land contract, what can the vendor use the vendee's impound money for?
    Any purpose, but only after given permission by the vendee.
  476. Who holds legal title in a CalVet contract?
    The Department of Veterans Affairs
  477. What is RESPA?
    RESPA - The Real Estate Settlement Procedures Act

    Requires that borrowers, buyers, and sellers receive closing cost information for federally related loans for the purchase or refinance of 1-4 owner-occupied residential units.
  478. Under RESPA, what  can the lender charge for the preparation of the Uniform Settlement Statement?
  479. What does RESPA require that lenders give the borrower within 3 days of the broker's or lender's receipt of the application.
    A Good Faith Estimate of the loan costs
  480. What is RESPA's policy about receiving referral fees (kickbacks) when providing settlement services on residential loans 1-4 units and on federally related loans?
    RESPA prohibits these kickbacks.
  481. Why was The Truth in Lending Act enacted?
    To require creditors to disclose credit terms to consumer to enable consumer to make comparisons between various credit sources and to make better informed decisions.
  482. What was the regulation issued to implement The Truth in Lending Act?
    Regulation Z
  483. What does Regulation Z require?
    It requires the creditor to be responsible for furnishing Truth in Lending disclosures to the consumer.
  484. Who is exempt from coverage under Regulation Z?
    Business, commercial, or agricultural purpose.
  485. Under Regulation Z, what right does the consumer have when the loan is secured by a lien against the consumer's existing principal dwelling?

    When does this right not apply?
    The right to rescind.

    Does not apply when the transaction is to finance the purchase or construction of the consumer's principal dwelling.
  486. Under Regulation Z, if an advertisement refers to the finance charge as a rate, then what else must be stated?
    The APR.
  487. When selling a trust deed, any advertising offering a yield on a note that is different from the interest rate on the note, must also include what information?
    The interest rate and the discount
  488. What would you say is happening if there are more cash offers than normal, land contracts of sale are seeing a greater use than they use to, and more offers to assume a sellers loan are being presented?
    I'd say we were in a tight money market.
  489. What is a mortgage yield?
    The effective return of interest to the investor.

    How much a lender makes in interest on a mortgage loan.
  490. What kind of lender would be most likely to loan funds for construction costs for a single-family residence?
    Savings and loan association
  491. Which real estate lender has lending policies characterized by long-term financing, few construction loans, larger loans preferred, and loans that usually are not serviced by that institution?
    Insurance companies
  492. How does the process of an insurance company using a mortgage company to indirectly loan?
    The insurance company pays a mortgage company to prepare and service the loan.
  493. What does the term "warehousing" mean in real estate financing?
    A mortgage banker collecting loans before selling them.
  494. Why is a mortgage company not an institutional lender?

    Give examples of institutional lenders.
    Because they are private.

    • - commercial banks 
    • - insurance companies
    • - savings and loan associates
  495. If the APR is the only thing listed on an advertisement of real property, then what else must be stated?
  496. According to the federal Truth-in-Lending Act, what fees may not be included in the finance charge?
    Appraisal fees.
  497. What is the main purpose of RESPA?
    Real Estate Settlement Procedure Act of 1974

    To require that disclosures be made by lenders that make loans on 1-4 unit residential dwellings.
  498. How can the Federal Reserve create a tight money market?
    They can sell government bonds and raise the discount rate.
  499. What is the maximum commission that can be charged by a licensee for negotiating a second trust deed of $7,500 for a period of 5 years?
  500. What is the DRE's definition of appraisal?
    Valuation and market analysis.

    (An opinion of value.)
  501. Define value.
    What something is worth in a given marketplace.
  502. What are the two basic categories of value?
    • 1. Utility value
    • 2. Market value
  503. Define utility value.
    Value directed toward a particular use.

    Frequently it is termed a subjective value.
  504. Define market value.
    Represents the amount of money for which a property can be sold in prevailing market conditions at a given time and place, and frequently is termed an objective value.

    The most probable price the property should bring on the open market with a willing buyer and seller.
  505. What are the 4 essential elements of value?
    D U S T 

    • D - demand
    • U - utility
    • S - scarcity
    • T - transferability
  506. Define demand.
    The desire in the marketplace for a particular commodity.

    Demand, to be effective, must be supported by purchasing power.
  507. Define utility.
    The capacity to satisfy a need or a desire.
  508. Define scarcity.
    The present or anticipated supply of a product in relation to demand for it.
  509. Define transferability.
    The ability to convey legally rights or interest to a property.
  510. Define appreciation.
    An increase in value with the passage of time.
  511. Define cost.
    What an individual spent in the past or anticipates spending in the future to acquire or produce property. 

    Cost does not necessarily equal value.
  512. Define price.
    What one pays or asks to receive for a property.

    Does not necessarily equal value.
  513. What is the principle of conformity?
    It states that maximum value is achieved when land uses are compatible and a reasonable degree of architectural harmony is employed.
  514. What are two ways to help stabilize values according to the principle of conformity?
    • 1. Land use regulations
    • 2. Zoning ordinances
  515. What is the principle of substitution?
    States that the value of a property will tend to be set by the cost of acquiring an equally desirable substitute property.
  516. What is the principle of supply and demand?
    States that the values of property will change with fluctuations in supply and demand.

    Generally, if supply increases but demand remains constant, values will decrease. 

    If demand increases, but supply remains constant, values will increase.
  517. What is the principle of highest and best use?
    The first step an appraiser must take when appraising vacant land.
  518. Explain interim use.
    A temporary and acceptable use of land that is not its highest and best use.
  519. What is the principle of progression?
    States that the value of a less expensive house will tend to increase when it is located amongst many more expensive houses.
  520. What is the principle of regression?
    States that the value of a more expensive house will tend to decrease when it is located amongst many less expensive houses.
  521. What is the principle of contribution?
    States that a component part of a property is valued in proportion to it's contribution to the value of the whole property.
  522. What is the principle of anticipation?
    States that value is created by anticipated future benefits to be obtained from the property.
  523. What are the 4 stages that all properties and neighborhoods go through?
    growth -> stability -> decline -> revitalization

    • - growth
    • - stability
    • - decline
    • - revitalization
  524. What are the 4 great forces that have been recognized to create, maintain, modify, and destroy value as they interact?
    P E P S

    • P - physical and environmental characteristics
    • E - economic influences
    • P - political and governmental regulations
    • S - social ideals and standards
  525. What are some examples of physical characteristics?
    • - availability of public transportation
    • - schools
    • - churches 
    • - shopping
    • - the presence of physical hazards in the area
  526. What are some examples of environmental influences?
    • - the climate
    • - the soil
    • - topography
    • - natural barriers to future development
  527. What are some examples of social ideals and standards?
    - population growth and decline

    - rates of birth, death, marriage, divorce

    - attitudes toward education
  528. What are some examples of economic influences?
    • - natural resources
    • - levels of employment
    • - taxation
    • - economic base
    • - development trends
  529. What are some examples of political and governmental regulations?
    • - building codes
    • - zoning laws
    • - environmental restrictions
    • - rent controls
  530. Why is location such an extremely important value factor?
    Because it influences the demand for the property.
  531. What is an added increment of value?
    When two or more contiguous units are placed under one ownership.

    Called plottage increment.
  532. What are the 6 basic steps in the appraisal process?
    • 1. Define the problem
    • 2. Make a preliminary survey
    • 3. Collect general and specific data
    • 4. Analyze the data
    • 5. Reconcile the analysis
    • 6. Estimate and report the value
  533. What is the first step in the appraisal process?
    To define the problem.
  534. What must an appraiser do after they collect and analyze the data?
    They must then reconcile the analysis to be able to then give the value.
  535. What is an appraisal report?
    A written statement of the appraiser's opinion of value.
  536. How long is an appraisal valid for?
    It doesn't work that way. 

    It is valid for a specific date only.
  537. What are the 3 basic types of appraisal reports used in the appraisal profession?
    • 1. The letter form report
    • 2. The short form report
    • 3. The narrative report
  538. In appraisal, what is the letter form report?
    A brief report intended for a single user who is very familiar with the property.
  539. In appraisal, what is the short form report?
    The report most often used to appraise a single family home.
  540. In appraisal, what is the narrative report?
    The most comprehensive type of appraisal report.
  541. What heavily influences the type of appraisal report used?
    The intended use of the report.
  542. What certification does someone need to appraise a commercial property in California, such as a strip mall?
    A certified general license.
  543. What does the narrative appraisal report contain that the other's don't, and where is it found in the report?
    A definition of value, found in the statement of purpose.
  544. When an appraiser is appraising a residential property, what date are they most interested in?
    The date that the parties agreed to the contract.
  545. Regarding appraisals, what date is the lender most interested in?
    The date that the property was inspected.

    This is called the effective date of the appraisal, or the date of value.
  546. What are the 3 approaches to value?
    M C I 

    • M - Market Data Approach
    • C - Cost Approach
    • I - Income Approach
  547. Explain the sales comparison approach to value.
    Aka - The market data method

    The simplest and most common approach used by brokers and salespeople.

    Used to appraise residences and land.
  548. Explain the market data approach to value.
    Aka - The sales comparison approach

    The simplest and most common approach used by brokers and salespeople.

    Used to appraise residences and land.
  549. Where is the date for the sales comparison approach obtained?
    • - the appraisers own files
    • - public records
    • - MLS - multiple listing service
    • - buyers and sellers
  550. How do we get an indication of the value of the subject property from sales in the marketplace?
    By making adjustments to the sales price of the comparables.
  551. When making adjustments in sales prices of comparable homes, where do we make the adjustments?
    In areas of property characteristics and also in areas of non-property characteristics.
  552. What do we do if the comparable sale property has a feature that the subject property does not have?
    We subtract the value of that feature from the sales price.

    CBS - comparable better subtract
  553. What do we do if the comparable sale property is lacking a feature that the subject property has?
    We would add the value of that feature to the sales price.

    SBA - subjet better add
  554. When do limitations in the sales comparison approach occur?
    In times of rapidly changing economic conditions.
  555. What are the best comparable sales for the sales comparison approach?
    The most recent and similar.
  556. Explain the cost approach.
    Aka - The replacement cost approach

    Views value as a combination of the value of the land as if vacant, and the cost to reconstruct the building as new, less accrued depreciation.

    Tends to set the upper limits of value.
  557. What is the cost approach used for?
    To appraise unique properties and to offer an additional indication of value on residential properties.
  558. What would be considered a unique property?
    Properties like schools, churches, city halls, and libraries because they have no comparables and produce no income stream.
  559. What does the term "reproduction cost new" mean?
    It is the cost of constructing an exact replica of the appraised building.
  560. What does the term "replacement cost new" mean?
    It is the cost of constructing a building today of the same size, quality of construction, and use.
  561. What are the 4 methods of estimating building cost?
    • - the square foot method
    • - the cubic foot method
    • - the quantity survey method
    • - the unit in place cost method
  562. Explain the square foot method of estimating building cost.
    It applies a dollar value per square foot of floor area based on known costs of similar structures.

    It is the fastest and most common method used by residential appraisers.
  563. Explain the cubic foot method of estimating building cost.
    It is similar to the square foot method, but is used most often on industrial or warehouse buildings.
  564. Explain the unit-in-place cost method of estimating building cost.
    It involves the calculation of the costs for all units of construction installed in the building (walls, floors, heating units, etc.) 

    It is detailed and accurate, but rarely used by appraisers.
  565. Explain the quantity survey method of estimating building cost.
    It involves a detailed estimate of all labor and materials for each component of the building.

    It is commonly used by building contractors and professional cost estimators, but rarely used by appraisers.
  566. Define appraisal depreciation.
    The loss of value from any cause.

    The difference between the replacement cost new of a property, and it's market value.
  567. What are the 3 general influences that cause depreciation?
    • 1. physical deterioration
    • 2. functional obsolescence
    • 3. external/economic obsolescence
  568. What are some examples of physical deterioration?
    • - wear and tear from use
    • - deferred maintenance
    • - damage
  569. What causes of depreciation are inherent within the property itself?
    • - functional obsolescence
    • - physical deterioration 

    (not economic obsolescence)
  570. What are some examples of functional obsolescence?
    • - lack of modern facilities
    • - out-of-date equipment
    • - changes in style
    • - changes in utility
  571. Are functional obsolescence and physical deterioration curable?
    They can be curable or incurable depending on the situation.

    Curable - meaning feasible to correct
  572. Define curable depreciation.
    Loss in value that is physically and economically feasible to correct.
  573. Define incurable depreciation.
    Loss in value that is physically impossible or too expensive to correct.
  574. What is another name for external obsolescence?
    Economic obsolescence.
  575. What is another name for economic obsolescence?
    External obsolescence.
  576. Define external obsolescence and give some examples.
    A cause of depreciation that originates outside the property lines.

    (Ex. Zoning or legislative restrictions, change of locational demand or bad location, backing up to the freeway, airport, or railroad tracks.)
  577. Is external obsolescence curable or incurable?
    It is almost always incurable.
  578. Explain what the effective age is.
    It is an appraisal concept that tells us how old a structure appears to be.

    It is based on the quality of construction and maintenance of the structure.
  579. Explain economic life.
    It is the period of time a building earns sufficient income to justify its continued operation.
  580. What is the age-life method of depreciation?
    Aka - Straight line method.

    Attributes an equal amount of depreciation each year of the economic life of a building.
  581. Explain the income approach to value.
    Aka - The capitalization approach.

    Concerned with the present worth of future benefits that may be derived from the property.
  582. If a commercial lot is divided into 4 pieces (front to back), then how much is the first 25% piece of the lot worth?
    It's worth 40% of the total value.
  583. Name the 3 primary appraisal concepts that the income capitalization approach is based on.
    • 1. comparison
    • 2. substitution
    • 3. anticipation
  584. What is the concept of comparison?
    Utilized in the income capitalization approach as the best way to select the capitalization rate.
  585. What is the concept of substitution?
    Utilized in the capitalization approach as one property can be substituted for another to achieve a desired rate of return.
  586. What is the concept of anticipation?
    Utilized in the capitalization approach in that value is created by anticipated future benefits to be derived from the property.
  587. Define capitalization.
    The process of estimating the present value of an income-producing property on the basis of its capacity to continue to produce a stream of net income.

    It converts income into value.
  588. What is the capitalization rate?
    The rate of return based on the capital value of the property.

    It is the relationship between the annual net income and the property value.
  589. What are the 3 methods used to determine capitalization rates?
    • 1. market comparison
    • 2. band of investment
    • 3. summation
  590. What 2 figures are needed to determine the value of an income-producing property?
    • 1. capitalization rate
    • 2. annual net income (ANI)
  591. If the annual net income is not provided, what 4 things are needed to be able to determine it?
    • 1. gross scheduled income
    • 2. vacancy
    • 3. effective gross income
    • 4. expenses
  592. What is forecasting?
    When an appraiser estimates expenses on an income producing property.
  593. What is the gross scheduled income?
    All of the income the property can possibly produce.
  594. Explain the vacancy factor.
    It is expressed as a % of gross scheduled income.
  595. What is the effective gross income?
    The amount of income the property owner actually collects.
  596. Explain expenses.
    • - fixed expenses (prop. tax, ins., etc.)
    • - variable expenses (management, maintenance, utilities, and replacement reserves)
  597. How do we determine the annual net income using other information?
    Effective Gross Income - Expenses = ANI
  598. How do we determine value using other information?
    • .          ANI
    • _______________ = Value
    • Capitalization Rate
  599. How do we use the mortgage interest to determine the annual net income?
    We do not use it.

    It is not a factor.
  600. What is the gross rent multiplier?
    An indirect method of capitalization, measuring the value of tangible and intangible factors found in small income properties.

    • .         sales price
    • ____________________ = GRM
    • monthly or annual rent
  601. What are we referring to when we say a gross rent multiplier under 20?
    We would be referring to annual net income.
  602. If a small income property renter for $1,200 per month, and sold for $180,000, what would the monthly gross rent multiplier be?
    • (sales price) $180,000
    • __________________ = (GRM) 150
    • (monthly rent) $1,200
  603. If you knew that the annual gross rent multiplier were 12.5 and that the property rented monthly for $1,500, what is the indicated value?
    12.5 x 12 = 150 x $1,500 = $225,000
  604. In the market approach to appraisal, what is the most important as well as the most difficult step?
    Adjusting the data to reflect differences between the subject and comparable properties.
  605. In what kind of market would the comparison approach to appraisal be unreliable?
    In an inactive market.
  606. Why is the replacement-cost approach more difficult to apply to older properties than to newer properties?
    Because depreciation schedules are difficult to estimate on older properties.
  607. What is the one most major cause of loss of value of real property?
  608. What is rent that is received for comparable space in the competitive open market called?
    Economic rent.
  609. The effective annual gross income of a property is the difference between the annual gross income and what?
    Vacancy factor and rent collection losses.
  610. In the capitalization approach, which step is the most difficult?
    Determining the capitalization rate.
  611. What are we defining when we say "the relationship between a thing desired and a potential purchaser"?
  612. What is the ultimate test of functional utility?
  613. What is an increase in value due to population increase called?
    An unearned increment.
  614. What approach is based on the principle of substitution?
    The market comparison approach.
  615. If someone buys land with a building on it that must be torn down, should the appraiser incorporate that into the appraisal?
    Yes, they should deduct the cost of demolition from the value.
  616. What are the most prevalent legal descriptions for real property?
    • - Tract map
    • - U.S. Government Survey System
    • - Metes and Bounds
  617. What is the Tract map system used for?
  618. Describe what Metes and Bounds is.
    The earliest type of land description, currently based on surveying techniques.
  619. Describe the Government Survey System?
    It involves a grid of intersecting horizontal and vertical lines, which create townships and sections.
  620. What is a township?
    A parcel of land that is a square six miles on each side.

    • - 36 square miles
    • - a six mile square
  621. What is a section?

    How many acres does it contain?
    A square parcel of land with each side equaling one mile.

    640 acres
  622. How many acres does a parcel of land that is 1/2 mile on each side contain?

    (Hint: One mile square = 640 acres)
    160 acres

    * Always draw a diagram with the info you know.
  623. How many square feet does 1 acre contain?
    43,560 square feet
  624. How many feet does a mile contain?
    5,280 feet
  625. What are the 4 general categories of government controls?
    • 1. police power
    • 2. eminent domain
    • 3. taxation
    • 4. escheat
  626. What is eminent domain?
    A government right to acquire privately owned real property for necessary public use.
  627. In the exercise of eminent domain, what must be paid to the owner?
    Just compensation.

    (In exchange for their property.)
  628. What is the process by which eminent domain is exercised called?
  629. What is inverse condemnation?
    Legal proceedings to force authorities to purchase an owner's home.

    Example; This can happen when a large airport changes its flight patterns creating excessive noise, which then renders the home unusable.
  630. Define police power.
    The power of the state to enact laws to promote the order, safety, health, morals, and general welfare of society.

    A government right to tell private owners how they may use their property. 

    Ex. - Zoning
  631. Does the government have the power to tax real property?
  632. What is escheat?
    A government power in which a property reverts to the state if a person dies without a will and without heirs.
  633. What is rent control?
    Laws in some communities that prohibit or regulate rent increases and evictions.
  634. What is The Subdivision Map Act?
    It is designed to give local governments control over the types of subdivisions to be built, and the physical improvements to be installed.
  635. How does The Subdivision Map Act define a subdivision?
    A division of improved or unimproved land for the purpose of sale, lease, or financing into 2 or more parcels.
  636. What does The Planning Commission do?
    They develop and maintain the general plan and make recommendations on the zoning of real property.
  637. What are the 2 major tools that the Planning Commission uses to implement the general plan?
    • 1. subdivision regulations
    • 2. zoning
  638. What is The Subdivided Lands Law?
    It is a law that is designed to protect purchasers from fraud, misrepresentation, and deceit in the initial sale of real property.
  639. How does The Subdivided Lands Law define a subdivision?
    As division of improved or unimproved and for the purpose of sale, lease, or financing into 5 or more parcels.
  640. What is considered a standard subdivision?
    A subdivision that has no common or mutual rights of either ownership or use among their owners.
  641. What is a common interest subdivision?
    It includes the likes of condominiums and planned development.
  642. What is a Common Interest Development (CID)?
    It is a special kind of category of land that includes stock cooperatives, time shares and community apartment projects.
  643. Explain the public report in subdivisions.

    Who issues it, who can receive it, and rules behind keeping record?
    A public report is issued by the DRE on each subdivision and must be give to anyone upon request.

    When a developer provides a copy to a consumer, the developer must keep a receipt for the public report for 3 years.
  644. What can the Real Estate Commissioner do if they find that any person is violating any provision of the Subdivided Lands Law?
    The Commissioner may issue a desist and refrain.
  645. What is downzoning?
    Changing the zoning from a higher density of people to a lower density of people.

    Ex. - Changing the zoning from R-3 to R-1 or from commercial to residential.
  646. How can someone be granted special land uses within a zoning district that prohibits those uses?
    With the issuance of a conditional use permit.
  647. What is R-3 zoning?
    It allows for multi-family residential development.
  648. What can a person do if they are part of a subdivision, but they own a single lot with unusual characteristics that prevent the owner from enjoying development privileges?
    The owner could seek a variance to receive the same development privileges as neighboring lots in the subdivision.
  649. What does a developer need to provide to the local authorities if they are planning a development that may have a significant impact on the environment?
    The developer may have to provide and environmental impact report.
  650. What is a negative declaration?
    A statement authorized by the Environmental Quality Act that building a subdivision at a particular location will not harm the environment.
  651. In the development of a subdivision, who controls health issues such as proper drainage, sewage disposal, and water supply?
    The local health officer in the area.
  652. What is potable water?
    Fresh water that is safe and useful for drinking.
  653. What is infill development?
    Redevelopment within existing developments.
  654. Explain what an infill developer does.
    They take a vacant or underutilized lot located within an existing development area and maximize the use of that lot.
  655. What is a Brownfield site?
    Defined by law as real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of hazardous substance, pollutant, or contaminant.
  656. What is agricultural property?
    Property that is zoned for farming, including growing crops and raising livestock.
  657. What is "smart growth"?
    A term referring to development policies that emphasize "pedestrianised"areas, a less-industrialized lifestyle, higher density, mass transit, cycle paths, and decreasing use of private cars.

    It promotes the smart use of the environment, conservation of the natural habitat, reduction of pollution, and is ecology-friendly.
  658. Explain the Clean Waters Act of 1977 (CWA).
    Regulates the discharge of pollutants into water of the United States.
  659. What are environmentally sensitive lands?

    Lands containing natural features or ecological functions of special significance.

    Ex. - wetlands and tidelands.
  660. What are wetlands?
    Areas where water covers the soil, or is present either at or near the surface of the soil all year or for certain periods during the year.
  661. What are the 2 kinds of wetlands?
    • 1. coastal wetlands
    • 2. inland wetlands
  662. Describe coastal wetlands.
    Found along California's Pacific shoreline and estuaries.
  663. What is an estuary?
    It is an area where seawater and freshwater mix.
  664. What is a shoreline?
    It marks the location where the land meets the water.

    The mean high water line.
  665. What are inland wetlands?
    Found in deltas, swamps, marshes, low-lying areas of lakes and ponds, and in floodplains along rivers and streams.
  666. What is a floodplain?
    The low land adjacent to a river, lake, or ocean.
  667. What are tidelands?

    Areas where the tide ebbs and flows over the land.
  668. What are rangelands and grasslands?
    Lands reserved for agricultural purposes.

    Protected by the Rangeland, Grazing Land, and Grassland Protection Act of 2002.
  669. What is The Rangeland, Grazing Land, and Grassland Protection Act of 2002?
    It prevents the conversion of rangeland into non-agricultural use, and protects livestock grazing areas.

    It also preserves benefits to the state of California from livestock grazing, including continued wildlife, water quality, watershed, and open space.
  670. What does HVAC refer to?
    • H - Heating
    • V - Venting
    • A - Air
    • C - Conditioning
  671. What is a bearing wall?
    A wall which supports the weight of a part of a structure in addition to supporting its own weight.
  672. What is backfill?
    It is soil that is used to brace foundations or replace soil that has been removed from excavation.
  673. What is a board foot?
    A unit of measurement for lumber.

    It is any three dimensions which when multiplied out contain 144 cubic inches. 

    Ex. - (12" x 12" x 1"), or (12" x 6" x 2")
  674. What is an elevation sheet?
    A sketch that shows the exterior design of a building.
  675. What is a footing?
    A foot-like projection at the base of a foundation wall to stabilize the foundation and reduce settling and shifting.
  676. What is a foundation plan?
    A plan that shows footings, piers, and sub-flooring of a structure.
  677. What is a plot plan?
    A plan that shows the location of the structures on a lot.
  678. What is the height of a ceiling in a standard house?
    96 inches
  679. What is R-value of insulation?
    It measures its resistance to heat flow.
  680. What is the ridgeboard?
    The highest construction member of a roof.
  681. What are joists?
    Parallel beams that support ceilings and floors.
  682. What is a kiosk?
    A free-standing structure in the open area of malls uses as an information booth or to sell specialty items.
  683. What does "turn-key" mean?
    It means a structure is ready for the tenant to move in.
  684. What is flashing?
    Sheet metal used to prevent water from seeping into a roof.

    It is used at the base of chimneys, vent openings, and other locations.
  685. What is the sill?
    The lowest horizontal member of a frame supporting the vertical members of the frame.
  686. What is the cornice?
    The crowning member of a wall, the top moulding, generally decorative.
  687. What is a hip roof?
    A roof with four sloping sides which rise to a ridge.
  688. What are studs?
    Vertical supports in walls and partitions.
  689. What is an I-beam?
    An iron or steel structural member which when viewed from the end or in cross-section, forms the letter "I".
  690. What is a commercial acre?
    A net buildable acre.

    An acre (minus) the streets, sidewalks, and the alleyways.
  691. Cannon eminent domain rights be vested in an individual person?
    No, they are vested in an area only.
  692. If a builder is allowed to make a change in construction that does not conform to the local building code, what is this referred to as?
    A restriction.
  693. What are percolating waters?
    Waters that seep from the ground, arising from an indeterminable source.
  694. What is the purpose of a percolation test?
    To determine the capacity of the soil to absorb water.
  695. What is the main purpose of the Uniform Building Code?
    To provide for the health, safety, public welfare, and property rights of the general public.
  696. What does the R-value measure?
    It measures and rates how well insulation resists heat.
  697. For FHA loans, what is the minimum crawl space (in inches) beneath the house?
    18 inches 

    (1 1/2 feet)
  698. What do the words "gambrel", "hip", "gable", and "flat" refer to?
    Different types of roofs.
  699. Which system of land description employs meridians and baselines?
    The rectangular survey system.
  700. What is a "grandfather" clause?
    It permits continuation of a nonconforming use.
  701. What are we describing when we say an intersection of the land with the water at the man high-water line?
    A shoreline.
  702. What do we call the law that gives the city or county authority to control the orderly and proper development of the community?
    The Subdivision Map Act.
  703. What makes an obligation to pay compensation to a broker binding?
    It must be in writing.
  704. Explain the ways for a broker to be entitled to a commission.
    - If they produce a buyer ready, willing, and able to purchase on the sellers terms.

    - If they secure from a prospective buyer an offer upon terms and conditions which the seller subsequently accepts.

    - If they create a binding contract during the term of the listing. (Except protected by the protective clause, where the broker could be entitled to a commission when a sale is made after the listing expiration.)
  705. What mobile homes can a California real estate licensee sell?
    Any mobile home that is registered with the Department of Housing and Community Development.
  706. When a mobile home is sold, how long does the owner have to register it with the Department of Housing and Community Development?
    10 calendar days
  707. When listing on a mobile home terminates, how long does the licensee have to stop advertising and remove all signs from the home?
    48 hours
  708. What are trust funds?
    Money or other things of value received by a broker or salesperson on behalf of a principal.
  709. What is the purpose of a trust fund account?
    To keep trust funds separate from non-trust funds.
  710. What must a broker do with trust funds received and when?
    Place into the hands of the owner, a neutral escrow depository, or a trust fund account within 3 business days of receival.
  711. When is there an exception to the rule of moneys received on behalf of a principal, where  a broker can hold the deposit?

    Also, what action must the broker take when this happens?
    When an offeror has given written instructions that the deposit check shall not be deposited or cashed until the acceptance of the offer, in which case the broker must place the check no later than three business days after acceptance.

    They must let the seller know (before acceptance).
  712. Who can make withdrawals from the trust account?
    Any employee of the broker who is authorized to do so in writing.
  713. Who benefits from interest earned on trust funds?
    The buyer.

    It must never benefit to the broker either directly or indirectly.
  714. What happens when trust funds are deposited into a licensee's business or personal account rather than into the trust account?
  715. Can a broker have their personal friends in a trust account?
    Yes, but not to exceed $200.
  716. How often does a broker's trust fund account need to be reconciled?
    At least once a month.
  717. How long must trust fund account records be maintained?
    3 years.
  718. Can a broker keep one trust fund account for multiple businesses?

    Ex. - If a real estate sales office also manages property for clients; one trust fund account can be used for both businesses. However, a broker must not use the trust fund account for moneys associated with his own properties.
  719. What do federal and state fair housing laws prohibit?
    They prohibit discrimination by persons who sell or rent housing and the real estate broker or sales person.

    They prohibit discrimination against someone because of who they are.
  720. What is blockbusting?
    A method of acquiring or listing properties by telling owners that minorities are moving into the area, causing property values to fall, and is a violation of law.
  721. What is steering?
    The process of guiding homebuyers to certain non-integrated areas.

    It is illegal.
  722. What does the Federal Fair Housing Act of 1968 provide?
    Provides for fair housing opportunity for all persons throughout the United States.
  723. What do the Federal Fair Housing Act of 1968 and the Civil Rights Act of 1866 and the 13th Amendment have in common?
    The Federal Fair Housing Act of 1968 is an expansion of the Civil Rights Act of 1866, which is the basis of the 13th amendment.
  724. What do Federal and State Fair Housing Laws state?
    That no one may refuse to sell, lease, or rent to another because of race or color, or on the basis of any other prohibited classification.

    No real estate licensee may discriminate, regardless of the principal's direction.
  725. What happens with violations of fair housing laws?
    They must be reported to the Department of Housing and Urban Development (HUD) within 1 year of the alleged violation.
  726. What happens if a principal seeks to restrict a listing on the basis of any prohibited classification?

    (Places prohibited guidelines on who can purchase the home.)
    The licensee must refuse to accept any such listings.
  727. What is the Unruh Civil Rights Act?
    It prohibits discrimination in the State of California by businesses.
  728. What is the Rumford Act?
    It prohibits discrimination by owners in residential properties, including renting, leasing, selling, financing, and advertising.
  729. When and where must complaints of violations of the Rumford Act be submitted?
    They must be submitted within one year, to the Department of Fair Employment and Housing.
  730. What are the penalties for violation of the Rumford Act?
    Having to go through with a rental or sale (or making the next vacancy available if applicable), and a fine of up to $10,000 in damages.
  731. What is the Holden Act?
    Aka - The Housing Financial Discrimination Act

    Prohibits redlining.
  732. Explain redlining.
    The practice of a lender to exclude certain high-risk areas from the possibility of receiving a loan.

    This means that no one living in that area will be considered for a loan, regardless of his or her qualifications.
  733. What fees are prohibited under the Holden Act?
    Translation fees.
  734. What does the Commissioner's Regulations prohibit?
    It prohibits the discrimination by a real estate licensee in the sale, rental, leasing, financing, or advertising of real property or a business opportunity.
  735. What is false advertising?

    What can happen to someone who commits it?
    Lying through advertisements.

    It is a violation of real estate law and can result in the revocation of suspension of a real estate license.
  736. What is blind advertising?
    Omitting the broker's name from an advertisement.

    The broker's name must be included in all advertising.
  737. When is it ok for a licensee to offer gifts when soliciting a listing or home sale and of what value?
    They can offer gifts of any value as long as it is disclosed to everyone and that everyone who meets the conditions must receive the gift.
  738. What is this called when a licensee promises to advertise in a certain manner when taking a listing and fails to follow through?
    This is considered actual fraud.
  739. What records and for how long must a broker keep regarding listings?
    All listings, deposit receipts, cancelled checks, and trust records must be kept for 3 years and made available for inspection and copying.
  740. What makes it ok for a broker to store electronic documents with an electronic signature?
    They must be able to provide the hard copies (original printed copies) at their own expense if requested by the DRE.
  741. What must a broker exercise over the activities of their salespeople?
    They must exercise reasonable supervision.

    Failure to do so could result in disciplinary action.
  742. What must a broker exercise over the activities of their non-licensees who work in the office and do things like respond to queries involving properties the broker has advertised on the World Wide Web?

    What can these employees not do (beside the obvious)?
    The broker must exercise proper supervision.

    These employees may not hand out door fliers or make telephone solicitation calls.
  743. What action must a broker take when a salesperson chooses to leave the broker?

    What about when the salesperson is fired for cause?
    Regardless of the two situations, the broker must notify the DRE immediately and disclose why they have left.
  744. What kind of business cannot get a California real estate broker license?
    A partnership.

    (Sole proprietorships, corporations, and s-corporations can all get a real estate broker license in the state of California.)
  745. What kind of business entity is subject to double taxation?
  746. What is a company dollar?
    The amount a broker has left after all commissions have been paid.
  747. What do we call the amount of money that the broker has left after all commissions have been paid?
    Company dollar.
  748. As we know, many licensees are independent contractors.  What kind of employees are entitled to Worker's Compensations insurance?
    Both sales associates (even though independent) and also clerical associates.
  749. What happens to a salesperson's listings when they move from one brokerage to another?
    The listings stay with the original brokerage.
  750. What constitutes a commercial e-mail message?
    • - Clear and conspicuous identification that the message is an advertisement or solicitation.
    • - Valid and conspicuous physical postal address of the sender.
    • - Clear and conspicuous notice that the recipient may opt out of further commercial e-mail messages from the sender.
  751. Under the "do-not-call" rules, when may a real estate licensee make cold calls?
    Only between 8:00 a.m. and 9:00 p.m.
  752. Can a real estate broker open a real estate brokerage in his or her own name?

    What about a fictitious business name?
    Yes, either is fine.
  753. Regarding federal income tax purposes, what kind of employee is a real estate salesperson considered?
    They are considered a 1099 independent contractor.
  754. Under the real estate license law, what kind of employee is a real estate salesperson considered?
    An employee of the brokerage that they work with.

    This is for purposes of supervision only.
  755. After termination of employment, must the broker or the salesperson keep copies of it?
    Yes, they both must, for 3 years.
  756. Does a real estate broker or firm need to disclose its licensed status in its advertising?
  757. When a broker advertises real estate services, must they include terms like broker, agent, or licensee?
    Yes, and abbreviations like bro. or agt. are acceptable as well.
  758. Can a HOA prohibit an owner from placing  real estate signs on their own property?
    They canNOT prohibit this.
  759. Can a city, county, or state ban signs on publicly owned property?

    What about privately owned property?
    Yes, they can ban signs on publicly owned property.

    They can only impose reasonable restrictions on the time, place and manner of displaying signs on privately owned property.
  760. What is the California law that prohibits discrimination in the sale, rental, or financing of practically all types of housing?
    The California Fair Employment and Housing Act.
  761. What is a spectrometer?
    A device that detects the presence of radon gas.
  762. How do we detect the presence of radon gas?
    With a spectrometer.
  763. What is a timeshare?
    A real estate development in which a buyer can purchase the exclusive right to occupy a unit for a specified period of time each year.
  764. What is mansionization?

    What is it a respsonse to?
    The process whereby developers tear down small to medium sized homes in older neighborhoods and build larger, more extravagant ones.

    It is a response to extremely high land costs.
  765. How is mansionization regulated?
    By planning commissions adopting floor area ratios.
  766. What is Article 7 of the Real Estate Loan Law?
    Establishes maximum commission that can be earned on 1st trust deed loans less than $30,000 and junior loans less than $20,000.
  767. What are real property securities?

    How does a broker sell these?
    Involves secured notes and contracts of sale.

    When a broker is involved in the sale of these items, he or she must obtain a permit valid for one year.
  768. What must a purchaser of real property securities receive from a broker and how long must a broker retain this document for along with what other document?
    The broker must supply a "Real Properties Securities Statement" and the broker must retain this document for 4 years along with the appraisal.
  769. What is a guaranteed note?
    A note that guarantees a return or yield.
  770. What is a promotional note?
    A note less than 3 years old secured by liens on parcels in a subdivision.

    When the loan has been seasoned beyond 3 years, it is no longer considered a promotional note.
  771. In general, how much of the interest that a person pays on a mortgage for their personal residence can they deduct during taxes?
  772. What kind of taxes on their personal residence can a homeowner deduct?
    Property taxes.
  773. What is capital gain?
    The taxable profit derived from the sale of a capital asset (real property).

    The sale price, less the expenses of sale, less closing costs, less adjusted basis.
  774. What is the adjusted basis?
    The original tax basis of the property adjusted for capital improvements and depreciation if applicable.
  775. What does the Taxpayer Relief Act of 1997 do?
    It grants a $500,000 capital gains exclusion for couples on the sale of their personal residence if they have lived in the house at least two out of the last 5 years.

    It grants a $250,000 capital gains exclusion to a single filer on the sale of their personal residence if they met the occupancy requirement.
  776. Can someone who sells their personal residence at a loss deduct that loss on their income tax return?
  777. What is depreciation, in federal income tax terms?
    A deductible periodic accountancy charge that represents the recovery of capital investment over the useful life of a property.

    • * It applies to trade or business property and income producing property.
    • ** It never applies to vacant land.
  778. What must a property be to qualify for a depreciation deduction from income taxes?
    It must be improved.
  779. What can an owner do with an operational loss suffered when filing their taxes?
    They can use it to offset any capital gain that they received on that property.
  780. What must be true about properties to qualify for a 1031 tax-deferred exchange ("tax-free" exchange)?
    The properties involved in the exchange must be of like kind.
  781. What are "like kind" properties?
    Any combination of income, trade or business, or vacant land held for investment purposes.
  782. What is "boot" in a tax-free exchange?
    It is cash, debt relief, or other assets received along with the like-kind property.
  783. In a 1030 tax deferred exchange, what is the cost basis for both the acquired property and the relinquished property?
    In general, they are the same.
  784. When does an installment sale occur?
    When the seller of real property receives one or more payments in later years, thus avoiding tax bunching of gain or income in the year of the sale.
  785. How is rent from a lease taxed?
    It is taxable to the lessor as ordinary income.
  786. Describe what a sale-leaseback is and why it might be beneficial.
    Selling commercial property and then leasing it back from the new owner. 

    It could benefit an owner to do this to free up capital for other ventures and earn tax benefits with rent deductions.
  787. How is rent from a lease taxed when it is a non-residential property?
    It is a deductible as a business expense to the lessee.
  788. What would a buyer/investor who buys a commercial property and leases back to the seller be least concerned with about the seller?
    About the seller's book value.
  789. What is the FIRPTA?
    FIRPTA - Foreign Investment in Real Property Tax Act

    A federal law requiring a buyer to withhold 10% of the gross sales price and send it to the Internal Revenue Services (IRS) if the seller is a foreign person.
  790. Name 2 exemptions to FIRTPA compliance.
    FIRPTA - Foreign Investment of Real Property Tax Act

    1. the seller furnishing a non-foreign affidavit stating under penalty of perjury that the seller is not a foreign person, along with the seller's taxpayer identification number.

    2. the buyer is acquiring the property as their personal residence and the sales price of that property is no more than $300,000.
  791. What is the job of a bankruptcy trustee regarding real property?
    To assure that the creditors receive just compensation for their debts when the debtor's property is sold.
  792. What is the Bulk Sales Law?
    Requires that buyers give notice to creditors of the pending sale of a business.
  793. What is a Community Redevelopment Agency (CRA)?
    It is created when a community is undergoing redevelopment and will receive additional tax revenue from tax allocation bods.

    This is known as tax increment financing.
  794. Does a building contractor need a license to work?
    No, as long as the work does not exceed $500,000, they do not need a license.
  795. Explain how property taxes are levied.
    They are levied according to the value ad valorem of the property as of the date acquired, or the date of completion of any new construction.
  796. When do property taxes become liens against real property?
    January 1st of the year preceding the fiscal tax year.
  797. What dates make up a fiscal tax year?
    July 1st to June 30
  798. When are property taxes due?
    • In two installments:
    • - Nov. 1st (Delinquent after Dec. 1st)
    • - Feb. 1st (Delinquent after April 1st)
  799. If a property sells for $400,000, with the close of escrow on April 1st, and the seller paid the annual property taxes of $5,000, then how much will be debited from the buyer and credited to the seller in property taxes?

    (1/4 of the year of the prepaid taxes. Jan - March)
  800. When would a property be sold at an auction due to tax default?
    If the property has not been redeemed within 5 years of the initial declaration of default.
  801. What are special assessments?
    Levied for the cost of specific local improvements. 

    Liens are usually equal in priority to general tax liens.
  802. What is the documentary transfer tax?
    It is collected when a deed is recorded.

    It is based in the selling price of the property, except for any portion of the price covered by an existing lien or encumbrance.

    Rate = 55 cents per $500 worth of consideration (or any fraction there of)
  803. If a home sells for $400,000 with an existing mortgage of $80,000, then what is the documentary transfer tax?
    • Amount property sells for, less any existing liens of encumbrances.
    • (400,000 - 80,000 = 320,000)
    • Rate is 55 cents per every $500.
    • (320,000/500 = 640)
    • (640 x 0.55 = 352.00)
    • The document transfer tax on the property is $352.
  804. What is the Mello-Roos Community Facilities Act of 1982?
    It provides for a wide variety of facilities and services and is like a general property tax levy for general fund benefits.

    It must be disclosed to a buyer in the transaction by the seller.
  805. What is the California State Sales Tax?
    It is imposed upon retailers for the privilege of selling tangible personal property at retail.
  806. What does a purchaser of a business which utilizes a seller's permit want to do?
    They want to get tax clearance from the State Board of Equalization to avoid possible sales tax liability.
  807. Explain a property managers obligations.
    A property manager has dual obligation to both the owner and to the tenant.

    They should protect the owner's investment, maximize the owner's return, maintain accurate records, and send regular reports to the owner.
  808. How much are property management fees?
    They are usually based on a percentage of the gross receipts on the property.
  809. Who is authorized to provide property management services for the public?
    A broker.
  810. What is the maximum that can be charged for commercial property security deposits?
    There is no limit. No maximum.
  811. In non-residential leases, where can we find the written obligations between landlords and tenants?
    In the lease agreement.
  812. Who are timeshare properties primarily designed for?
    People who want a vacation property.
  813. In a security transaction in personal property, the document used to "perfect" the security interest is called what?
    Financing statement.
  814. What provides real estate investors the best hedge against inflation?
    Ownership of real property.

    Property that maintains its value.
  815. What does a real estate investor take into consideration when considering investment opportunities?
    • - protection against inflation
    • - quantity and safety of annual income
    • - quantity and safety of the initial capital outlay
  816. In regards to real estate investments, give an example of leverage.
    Investing primarily borrowed funds.
  817. Who sets the amount of commission in an probate sale?
    The court.
  818. Name 3 ways that county governments levy taxes.
    • 1. special assessments
    • 2. transfer taxes
    • 3. property taxes
  819. Give an example of ad valorem tax.
    Property taxes.
  820. How do special property tax assessments differ from annual property tax assessments?
    Special property tax assessments provide for local improvements.
  821. After a property is declared tax-defaulted for failure to pay property taxes, what happens to the occupant of the property?
    The occupant can ignore and remain on the property for 5 years without paying, at which point there-after, the state can seize and sell the home.
  822. What kind of document is used to transfer title of a mobile home?
    A certificate of title.
  823. When a business opportunity is sold, how many days before the transfer must the Notice to Creditors of Bulk Transfer be recorded?
    12 business days before transfer
  824. What are property values based on in tax-deferred exchanges?
    They are based on fair market value.
  825. Who must an individual receive a license from to be able to represent other people in a real estate transaction?
    From the DRE - Department of Real Estate
  826. What are the 2 kinds of licenses that the DRE issues?
    • 1. a broker's license
    • 2. a salesperson's license
  827. What is the most important license issued by the DRE?
    The broker's license.
  828. What are the broker's duties regarding employees?
    The broker is responsible for supervising all salespeople that they employ.

    * Yes, this means independent contractors are thought of as employees.
  829. Can a salesperson operate independently without a broker?
  830. Who does a salesperson receive compensation from?
    Their broker.
  831. How long must a salesperson work before they can apply for a broker's license?
    2 years as a salesperson.
  832. How does the DRE ascertain the competency of an applicant?
    By written examination.

    * The RE Exam
  833. What do applicants of a salesperson's license have to provide regarding residency and when?
    They must provide proof of legal presence in the U.S. and they must provide this when applying for both a new license and a renewal.
  834. Give examples of documents that show proof of legal presence.

    What is the form that must be included when showing proof?
    • - a birth certificate from the U.S. 
    • - a resident alien card

    Must be submitted with a Public Benefits Form.
  835. Explain the fingerprinting process of the DRE and who they need to be submitted to.
    One set of classifiable fingerprints must be submitted to the State Department of Justice (DOJ) through the live scan program.
  836. After the routine screening process of a salesperson applicant, why would the Real Estate Commissioner further investigate?
    To determine whether an applicant meets the requirements of honesty and truthfulness.
  837. What do you have to do to get a conditional real estate license, and how long is it good for?
    Must show evidence of completion of 2 college-level courses within 18 months of the issuance of the license or it will be suspended automatically.
  838. What happens when a salesperson license is issued on the basis that the salesperson will complete the educational requirements outlined?
    They have 18 months to do so, and if they don't their license issuance will be suspended automatically.
  839. How long is a real estate license good for?
    4 years
  840. What must a licensee do to renew?
    They must complete a total of 45 clock hours of approved offerings within the 4 year period preceding license renewal.

    Then, they must file this proof of continuing education with an application fee.
  841. What happens if a licensee does not renew before their license expires?
    They have 2 years to renew as before, but are charged an extra fee. 

    After those 2 years, they would have to retake the test if they wanted to get their license again.
  842. Can a licensee with an expired license conduct a transaction?

    If a broker or salesperson's license expires, all licensed activity must cease.
  843. What are the Real Estate Commissioners duties?
    To uphold the provisions of the Real Estate Law.
  844. What kind of power does the Real Estate Commissioner have when it comes to licenses?
    They have the power to deny applicants, restrict active licenses, suspend active licenses, and to revoke a real estate license.
  845. What is a restricted real estate license?
    May be restricted according to time, type of activity, or employment by a particular broker.
  846. What is a suspended real estate license?
    It is a temporary loss of license. No licenses activity must happen during the suspension.
  847. Why is it easier to suspend someone's license when they are operating under a restricted license?
    Because when their license is restricted, a suspension can take place without a hearing in advance.
  848. When can the Real Estate Commissioner suspend a license without a hearing?
    - When they are operating under a restricted license already.

    - When it is found that their license was procured by fraud, misrepresentation, or deceit (made any material misstatement of fact in the application)
  849. What is a revoked license?
    A license that has been taken away completely and may possibly never be reissued.
  850. What can an unlicensed sales assistant do for a real estate company?
    Provide clerical duties, but may not be compensated for acts that require a license.
  851. What can happen to a brokerage when it is discovered that a sales assistant performed licensed activities?
    The assistant and the brokerage can face a fine of up to $10,000.
  852. Even though a salesperson is considered an independent contractor, what must a brokerage provide in terms of employment?
    Workers compensation insurance.
  853. Who must approve fictitious business names by brokers, corporations, and partnerships?
    The Real Estate Commissioner.
  854. What is a child support obligor do?
    When a licensee does not pay their child support, a lien is placed against their license.

    A 150 day temporary license from the DRE can be submitted, but the licensee needs to pay the delinquent payments in that 150 days.
  855. What is a recovery account?
    A last resort fund for a member of the public who has obtained a final civil judgement or criminal restitution order against a real estate licensee based on fraud or certain other grounds.
  856. What is the maximum amount that a recovery account will pay for:

    - a transaction?
    - a licensee?
    • Transaction: $20,000
    • Licensee: $100,000
  857. What happens when the Recovery account has paid a judgement on behalf of a licensee?
    That licensee's license is suspended.

    It can only be reinstated after the licensee pays the debt + interest that was paid by the Recovery account.
  858. What is NARs' code of ethics and what is it's importance?
    NARs - National Association of Realtors

    "Do unto others as you would have them do unto you."

    It must be observed by all licensees.
  859. Who does a licensee owe ethical conduct to?
    • - clients
    • - customers
    • - associates
    • - general public

    * Basically, everyone.
  860. If someone places an advertisement for real estate services and they don't have a license, who would prosecute (bring charges against) them?
    The local district attorney.
  861. Is a mortgage loan broker required to have a real estate license?
  862. What could happen to a broker who is trying out a new advertisement slogan "A new breed of Realtor"?
    This is grounds for revocation or suspension of their real estate license.
  863. When 2 brokers orally agree to split a commission and at close of escrow one broker keeps the full commission, what can the other broker do?
    File a civil suit against the latter.
  864. Does a broker need to have a written contract with employees that are clerical, janitorial, and brokers who are acting as salespersons and do not have an office?
    Only with the salespeople.
  865. What requirements must a salesperson have to be able to review documents meant for a broker?
    They must have at least 2 years of full-time experience as a real-estate salesperson within the last 5 years.
  866. What does a broker do with the license of a salesperson when that salesperson decide to leave the brokerage?
    The broker gives it back to the licensee.


    The broker gives notice to the DRE within 3 days of termination.
  867. When a buyer is defrauded in a transaction and brings charges against the broker, what does the Real Estate Commissioner do?
    They may hold a hearing, but may not revoke or suspend the license until the hearing is concluded.
  868. Is it unethical or illegal for a broker to assure a buyer that a loan at 5% could be found, when in truth it could not?
  869. After the close of escrow, how long before the actual selling price of the property must be disclosed to both buyer and seller?
    Within 1 month.
  870. In regards to deposit receipts, from what date are these records supposed to be kept for 3 years from?
    From the date of the closing of the transaction related to the deposit receipts.
  871. If a broker fires a salesperson for violating Real Estate Law, what must the broker do?
    They must notify the Commissioner immediately by mailing a certified written statement of the facts.
  872. How many square feet are in an acre?
    43, 560
  873. How many acres are in a section?
    640 acres.