CALIFORNIA REAL ESTATE EXAM 2024-2025 MULTIPLE CHOICE EXAM 500 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES|

The judge has just issued a decision for ethical violations of a real estate salesperson. What is the role of the California Real Estate Commissioner in the proceeding?

Dismiss the findings if the charges are not sustained at the hearing, as well as to reduce the proposed penalty and make an official decision.

Bill the broker received a very high offer on a piece of property from a buyer. Bill makes a low offer through a dummy purchase, or an accomplice who is not a buyer at all. Bill sells the property for the higher price. What's the violation?

Secret Profit

Katrina had her license suspended for making false promises to clients. She could never follow through with her statements and several complaints were filed. Which guidelines constitute most suspensions?

Sections 10176 and 10177 of Business and Professions Code

California licensing laws define which of the following:

Real Estate Brokerage, Handling Trust Funds, Managing Escrow Account

Which portion of the California Business and Professions Code consists of the subdivided lands law?

Part 2, Sections 11000 to 11200 of the Business and Professions Code

A Nevada real estate licensee has been advertising his services online to California citizens. Is this permissible?

It is not permissible to solicit California residents if you don't have a California real estate license.

A California licensee has been advertising on the Internet. She has been violating the Business and Professions Code, Sections 10235.5 and 10140.6. What has she done?

She failed to indicate her license status in the ad.

Upon completion of this course, you should understand:

The facts regarding disclosure of commissions earned to all parties in a transaction, real estate taxes and special assessments, encumbrances (a claim against a property by another party. Encumbrance usually impacts the transferability of the property and can restrict its free use until the encumberance is removed), liens, easements (non-possessory right to use and/or enter onto the real property of another without possessing it), and encroachments (property owner violates the property rights of his neighbor by building something on the neighbor's land)

Which regulation apply to the use of the internet for advertising in California?

Commission's Regulation 2770

Where can Mike find the exam's purpose and requirements?

California Business and Professions Code Section 10153

John is trying to learn about "Professional Code". What sources have input on this topic?

General and state legislation, industry self-regulation through trade associations and institutes, state real estate licensing regulation

Where does a person go with a complaint regarding discrimination?

The Office of Fair Housing and Equal Opportunity (OFHEO)

A couple with excellent credit and good careers are denied a loan. What's the violation?

The couple has been denied the full protection of the Equal Credit Opportunity Act (ECOA). The ECOA is a part of the Fair Financing Laws.

Jane has filed her complaint of discrimination. She also wants to seek punitive damages. What are her options?

Jane may file suit within two years of the violation. She may seek a restraining order, actual damages, and punitive damages of up to $1,000.

What is the largest area of Standards and Practices?

Article 16 - Ethics and Agency Relationships

There are shutters installed throughout the home, and the owner wants to take them with him to his new home. Which of the five tests for real and personal property applies?

Method of attachment, adaptability (built-in vs. not), and intent (agents should write into the offer items that may lead to misunderstandings, such as a ceiling fan).

A family is clearing many trees to build a guest house. They plan on selling the wood to the neighbors. What process applies?

Severance- Changes real property to personal property.

Jonathan decides to sell his home and transfer all of his property ownership rights to the new buyer. This bundling and selling of rights is known as:

Livery of Seisin- when you sell the entire bundle of rights.

Which are water rights?

Littoral Right (beaches), Doctrine of Prior Appropriation (irrigation), and Riparian Right (River).

The beach has disappeared from John's property after a violent storm. Which term describes the damage?

Avulsion- The sudden loss of land by an act of nature.

John pays rent for his apartment and is also considered a stockholder in his building and owns property. In what type of apartment does John live?

Cooperative- the cooperative owns property and owns stock. They have long-term leases (proprietary leases)

Melinda's mother recently passed away. She is thinking of selling her belongings in an estate sale. What are the legal differences between real and personal property?

An agreement for a sale of real property must be in writing and signed by buyer. If the amount or value is $500 or more in the sale of personal property, it must be in writing.

A couple are in the process of refinancing their townhouse, and find they have a lien on their home for non-payment of the previous year's property taxes. What type of lien is on their property, and what do they need to do?

The couple have an involuntary lien placed on their home for delinquent property taxes. The couple needs to pay the taxes, any interest and/or late fees, and have the lien removed.

What terms can be used to describe the owner and the renter?

The owners own the condo in freehold (means "I own the property") and rent it to the renter in leasehold (means "I rent the property").

The owners own all rights to the property and the property is always inherited by the oldest child. Which type of estate is the family vineyard?

Fee Simple Absolute (Owns the bundle of rights). Highest degree of ownership, has unlimited duration, is inheritable, and is subject to only the government powers.

If a person purchases a historical home, it must be on the condition the original architectural features are never removed. If she sells the home, the same condition must be in the sales contract. What type of freehold estate is this historic home?

Fee Simple Defeasible (based on occurrence or a non-occurance of something). An estate that dictates,"on the condition that...".

Which of the following is considered the six distinct forms of ownership in California?

Severalty (sole ownership). Tenancy in Common and Joint Tenancy (both concurrent ownership)

A shopping/restaurant company is the sole owner of the property. Which form of ownership does this property fall under?

Severalty (sole ownership)

Upon the sale of the property, the grantor in a written agreement established that the lake may never be touched and the property may only be used for commercial purposes. Which type of private deed restriction is in place for the property?

Covenant (also known as Conditions and Restrictions and CC&Rs). A covenant is a promise by the person who accepts an agreement to not do certain things.

A family has signed a contract to buy a home. However, the contract states that they must first close on the sale of their current home within thirty days. If this closing does not occur, the contract is no longer binding for either party. Which contract term applies?

Contingency- Term or condition in a contract that requires a certain act/event to occur before the contract becomes binding.

Which of the following elements is necessary for a valid contract?

Offer and Acceptance, Legality of Object, and Consideration

Which are requirements of a will?

Legal age, proper wording, and witnesses

Sania and her mother own property on a river. The water has carried part of their bank to another property. Which method of property transfer applies?

By Accession (adding property to your existing real estate) and through Avulsion (occurrence of a river carrying away part of a bank). It must be reclaimed within one year of the occurrence.

What are methods of involuntary alienation?

Escheat- the decedent died intestate (without a will) and without heirs, and the property becomes owned by the government. Adverse Possession - continuous possession, similar to easement by prescription, Eminent Domain- the right of the government to take private property for NECESSARY public use

Oliver dies without a will. She has many decendents and owned a lot of property. What will happen to the property?

The property will be transferred according to the Statute of Descent and Distribution

Sheldon purchased property from Ian under early English common law. Which were acceptable methods of property transfer?

The transfer of a rock, some dirt, or a branch of tree (feoffment). Livery of Seisin (the delivery of possession of the property). A statement made in front of witnesses in sight of the land, and the new owner's entry onto that land.

Jeff is selling his loft to Carry. He is using a General Warranty Deed in the transfer of property. Which of the following covenants are requirements?

Covenant of Seisin ("I guarantee that I own it and have the right to sell it"), Covenant Against Encumbrances ("I promise there are no hidden liens or encroachments other than those stated in the deed"), Covenant of Further Assurance ("If there is a defect, I promise to take care of any problems")

Which are real estate deeds are used in an open-market transaction?

Special Warranty deed (seller warrants or guarantees only against defects arising during the period of his tenure, but makes no warranty against defects existing before the time of ownership), Bargain and Sale deed (I own it, but that's about it. I'm not going to make any promises), General Warranty deed (contains each of the five "covenants" or promises of the seller: 1. Covenant of Seisin, 2. Convenant of Quiet Enjoyment 3. Covenant Against Encumbrances 4. Covenant of Further Assurance 5. Covenant of a Warranty Forever)

Claire and Fry have heard that it is unnecessary to record a deed. Is this accurate?

Yes, it is not necessary for a deed to be recorded. However, recording is advisable to protect the ownership interests of the grantee (buyer), establish priority, provide a record, and convey the transfer of title.

The SIGNATURE of a notary public is known as:

Attestation (in notarized deeds, the person must go before a notary public and acknowledge that the signing of the deed was a voluntary act.

Maya just purchased her first home at a foreclosure sale. She was given a deed at the sale. What type of deed was that?

Trustee's Deed (Given to the purchaser of property at a trust deed foreclosure sale).

Which deed is not really a deed at all?

Trust Deed (a 3-party security device that pledges real property as security for the payments of a loan)

Which of the following statements in reference to a deed is true?

The deed transfers ownership only one time. In a deed, alienation is another term for transfer. The primary variation in the different types of deeds are the promises made by the grantor.

XYZ Escrow has been turned down in its application for an escrow license. What could be the reasoning behind the denial of the license?

XYZ Escrow could not prove it was financially solvent (to be able to pay all financial obligations in a timely manner and still have spending money left) and was unable to furnish a surety bond (defined as a contract among at least three parties) of at least $25,000 or more, based upon the yearly average trust obligations.

The Escrow Act, found in the California Financial Code, establishes two essential mandates (authority to carry out a policy) for escrow validity. What are these mandates?

There must be a binding contract between buyer (grantee) and the seller (grantor), and there must be a conditional delivery of transfer instruments and funds to a neutral third party.

The escrow instructions in the buyer/seller transaction are deemed unavailable to the seller. If instructions are confidential, and ABC Escrow is a dual agency representing both parties, why are the instructions only known to the buyer, the real estate agent, and ABC Escrow?

The process of dividing funds between parties is proration. It includes both expenses that are prepaid by the seller and paid after closing by the buyer.

John, of ABC Escrow, is working on the escrow (escrow generally refers to money held by a third-party on behalf of transacting parties). Which procedure is prohibited?

John should not be negotiating the fee due to ABC Escrow. The buyer and seller negotiate between themselves who is responsible for paying the escrow holder's fee.

What are the types of leasehold estates?

An Estate for Years (definite beginning and ending date), An Estate from period to period (also known as a periodic tenancy, or a month-to-month lease), an Estate at Will (tenancy for an indefinite period, terminable by one or both parties at will)

John rents a house where the sewage leaks in the basement floor. He has fruitlessly tried to contact the landlords. What are John's options?

John may spend up to one month's rent in repairs or abandon the premises. If he abandons the premises, John is relieved from paying additional rent and other conditions of the lease.

Michelle has rented to Luis for four years. Through eminent domain, Michelle must sell her home. What is the required length of notice Luis must receive from Michelle in terminating the lease?

Michelle must give Luis a sixty-day written notice of the lease termination because he has lived in the property for more than one year.

Howard decides to use a real estate professional, Jose. Howard tells Jose that he wants him to only represent his purchasing interest, and a contract is signed. Who is the agent? Who is the principal? What is their relationship? What is Jose's role?

Jose is the agent; Howard is the principal; they have an agency relationship; Jose is a special agent (when one person is empowered by another to represent him in any type of transaction). Also, they have a fiduciary relationship (one of utmost trust).

Price fixing, group boycotts, bid rigging, market allocation and division of markets by location or price are all examples of ______ and are punishable by _________.

Antitrust violations; fines of up to $10 million for corporations and up to $350,000 for individuals and/or prison time.

Earnest money was deposited into the broker's account at the bank on the seventh business day after receiving the funds. Has the realty company followed all trust account regulations with the earnest money?

No, not only should the broker have deposited the earnest money within three business days of receipt of the funds, the earnest money should have been deposited into the broker's Trust Fund, not the broker's account.

Real Estate Brokerage delegates some of the responsibility of their listing to another real estate company. Unfortunately, the brokerage company failed to get the principal's agreement to the delegation. What is the relationship between the brokerage company and the real estate company?

The Real estate company becomes the agent of the Brokerage company due to the appointment without the consent of the principal.

Jason tries to blackmail Sam into selling his property. Which Penal Code Section addresses this crime?

PC 518, 519- Obtaining property from another by threatening to accuse that person of a crime or exposing their secrets.

A corporation is found guilty of charging purchasers advanced fees for securing mortgage loans on homes they have listed. What is the punishment for the violation?

A fine up to a maximum of $50,000.

Greg decides to sign his client's name. Which Penal Code Section addresses this crime.

PC 470, 473 (to forge)

Max, a licensee, accepts a bribe from ABC Title Company for referring clients. What is Max's possible punishment?

Max could go to prison and/or be fined $10,000 for each illegal transaction.

The Commissioner discovers in an audit commingling of trust accounts by a licensee. At what amount does the court issue a restraining order against the licensee?

In excess of $10,000

The 1943 case People V. Sipper held what decision?

The selection of a mortgage/deed by a broker, in which a fee is charged, is unlawful

A mortgage company accepts a bribe from a licensee in exchange for approving mortgages for all of his clients. Which Penal Code Section addresses this crime?

PC 639-639a (Bribery of a lender to obtain credit).

Put the following foreclosure actions in order:

Equitable Right of Redemption, Foreclosure, Statutory Redemption

She lost her business and now she has lost her home in foreclosure. The proceeds from the foreclosure sale were not sufficient to cover his debt, and NOW the lender has taken him to court to obtain more money. Which of the following applies to Sara's situation?

Deficiency Judgement- A deficiency judgement against the borrower. This is a general lien and would apply to all of the borrower's assets.

Jerry has been approved for a home loan in the amount of $250,000 with two points. If one point equals 1% of the loan balance, what will the points cost Jerilyn? How are the points shown at closing?

$5,000 - The points are shown as a debit to the buyer

If a conventional loan interest rate is at 16% and the VA loan interest rate is at 15%, the lender will want to charge how many points to increase the yield on investment?

The lender would charge eight points, since it is a 1% loan difference. If the conventional loan interest rate was 15 3/4%, with VA loan interest rate at 15%, it would be 6 points. If the conv. loan interest rate was 15 1/2%, it would be 4 pts. At 15 1/4%, the lender will want to charge 2 points.

Naomi has a home loan amount of $120,000. Her monthly principal and interest payment is $679 for thirty years. How much interest will Naomi pay over the term of her loan?

679 x 12 months x 30 years= 244,440

Then subtract the loan amount (120,000) from that.

244,440 - 120,000 = 124,440

Renata has a home loan for $150,000 at 7.5% interest for 30 years and her payment is $987 month (including principal and interest). What is the principal balance after Renata has made one payment on her loan? After two payments?

$150,000 x 7.5% interest = $11,250 annual interest amount

$11,250/12= $937.50 interest this month

$987 (payment) - $937.50 = $49.50 principal paid

$150,000 - $49.50 = 149,950.50 (principal balance after 1st month)

149,950.50 (new principal balance) x .075 interest=11,246.29 annual interest amount

11,246.29/12 = 937.19 interest this month

$987 (payment) - 937.19 = 49.81 principal paid

149,950.50 - 49.81 = 149,900.70 (principal balance after 2nd month)

The Logans are in their seventies with a very nice home. They paid off their mortgage 25 years ago. Now they need money for healthcare costs. He has turned to his home to supplement his monthly income in order to keep his wife at home. Which type of loan applies to the Logan's situation?

Reverse Annuity Mortgage (RAM): Homeowner receives monthly payments based on accumulated equity rather than a lump sum. Loan must be repaid upon the death of the owner or sale of the property. Most advantageous for senior citizens who own their own home- house rich/cash poor.

Jan is moving into a new home. Her husband recently died during military service. She cannot afford a very large down payment at this time.. What are Jan's options?

Jan qualifies for an FHA loan, if her income is adequate. There is usually a small down payment required. OR Jan qualifies for a VA loan due to her status as a veteran's unmarried widow. The VA loan does not require a down payment.

What is the major difference between a VA loan and a FHA loan?

FHA insures repayment of the loan. VA guarantees repayment of the loan.

Gerald, a sergeant in the Marine Corps, is getting married and wants to purchase a home. How does he begin the process of getting a VA loan? What follows?

Gerald must first apply for a Certificate of Eligibility to obtain a VA loan. The home must qualify with an appraisal and be issued a Certificate of Reasonable Valule.

Jeanne and Mark are buying a home. They've been told their mortgage payment will be $1,072 per month. There's also an additional amount of $336.72 being added to the monthly payment, bringing their total to $1,407.62. It was explained the additional $336.72 is to cover insurance and property taxes. Which loan definition applies?

Most lenders require an impound account using the buyer's money to cover future payments of insurance and taxes. Sometimes this is referred to as the buyer's escrow.

Which of the major warehousing agencies in the Secondary Market are regulated by a government agency?

Federal National Mortgage Association (Fannie Mae), Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac)

Bruce, a private in the army, has applied for his Certificate of Eligibility and has been approved. He wants to purchase a condo for himself. What's the maximum amount lenders will loan Bruce, based on his veteran status?

A veteran's basic entitlement is $104,250. Lenders generally lend up to four times the available entitlement without a down payment. There is no maximum amount, but generally lenders limit VA loans to $417,000.

MTH Bank has given the McKelvey's a written pledge to lend $250,000 on a new construction home, for 30 years, at 6.53%. The McKelvey's will now present this pledge to the subdivision's sales agent to continue with their new home's construction. Which loan definition applies?

Conditional Approval (conditional or qualified commitment) - A written pledge by a lender to lend a certain amount of money to a qualified borrower on a particular piece of real estate for a specified time under specific terms. It is more formal than a preliminary loan approval. This application contains such information as the name and address of the borrower, place of employment, salary, bank accounts, credit references, and the like.

Which of the following are functions of the Federal Reserve?

"The Fed" is buying or selling securities or bonds. When they are buying bonds, there is more money in the market, interest rates lower, and the economy is stimulated. When they are selling bonds, there is less money available in the market, interest rates rise, and the economy is slowed. This could take from 6 months to a year to have an effect on the economy.

and Discount Rates- To tighten the economy (The Feds constrict spending in an economy that is seen to be growing too quickly, or to curb inflation when it is rising too fast), the Federal Reserve would increase discount rates. The discount rate allows the federal reserve to control the supply of money.

Conchita is applying for a VA loan. She has served in the military, on active service for ninety days. She is trying to buy a town home, which has qualified with an appraisal and has been issued a Certificate of Reasonable Value. Will Conchita be considered for a VA loan?

No, she has not served the 181 days of active service required.

Who is the largest private mortgage insurer?

Mortgage Guarantee Insurance Corporation

Why would a Contract for Deed (Installment Sale Contract) be attractive to certain buyers?

Buyers who can only make a small down payment with monthly installments. Usually they must meet certain conditions, and the Contract for Deed does not require conveyance (transfer) within the same year.

Gordon makes a trip to his financial institution one morning. He has conducted all of his banking transactions at the institution for more than twenty years. Today he walks out with a loan on his new home and one for a new boat. What method of financing has Gordon secured?

Commercial Loan: A straight bank loan (aka term loan, in which only interest is paid during the term of the loan with the entire principal amount due with the final interest payment) that the borrower obtains based either on good credit or some NON-real property collateral.

What category of borrowers sees Syndicate Equity Financing as a good opportunity?

Small investors. Syndicate Equity Financing offers small investors the opportunities to invest in high-yield real estate.

Who benefits from a long-term lease?

The tenant - 100% of rent is deductible as an expense.

The tenant - The total debt load of the tenant remains the same.

Why are sales contracts no longer a popular financing instrument in California?

It is very difficult for the seller to remove a buyer that is in default.

The buyer is at risk because he holds no immediate title to the property.

Court battles involving both the seller and buyer could be lengthy and costly.

Jim and Kim have been working with a mortgage broker to assist them in finding the best loan. They complete the application, are approved for a loan, and are now obligated to complete the loan. A week before they are due to close, they receive the Mortgage Disclosure Statement, outlining all the costs and terms associated with the loan. The costs and terms are not what they had previously understood. Are they stuck with this loan?

No. The Mortgage Disclosure Statement should have been presented to them within three days of the broker's receipt of their written loan application, or before the couple were obligated to take the loan.

Jacinda makes collections on real estate loans. Last year, she made approximately 20 collections and collected $38,000. Must Jacinda be licensed?

Yes, if a collector makes more than ten annual collections, or collects more than $40,000, he/she must be licensed as a california real estate broker.

Deanna is thinking of taking the step from renter to homeowner. She has a very stable position as a surgical nurse and excellent credit. She doesn't, however, have a large sum of cash handy for the down payment. She notices advertising for new condos where "no down payment is required." Should she look for any other information in the ad?

Yes, she should make sure the amount or percentage of down payment is there; terms of repayment; annual percentage rate and if an increase is possible; total finance charge; and total number of payments and due dates.

What is included in the APR?

The total finance charge to the total amount to be financed. you vs them

Sam is selling one of his rental homes. His advertisements read: "For Sale By Owner - Owner Will Finance - No Down Payment!" What are the criteria for being considered a creditor under Truth in Lending?

A lender must lend funds 25 times a year and/or must lend the funds for at least five housing loans annually.

Lily, a licensee, has been referring her first-time homebuyers to an insurance company for all their insurance needs. The insurance company has been providing Lily cash to keep the referrals coming. Which law or act prohibits this type of violation?

RESPA

Under Article 7, what is the maximum amount that may be charged to the borrower for loan costs and expenses? Also, under Article 7, under what circumstance is the loan exempt from a balloon payment?

The maximum amount that may be charged to the borrower for loan costs and expenses is 5% of the loan. If the loan term is less than three years, and the home is not occupied by the owner, the loan is exempt from balloon payments.

What are the steps set forth for a real property securities dealer? Which Article do the regulations fall under?

Obtaining a Commissioner's Permit; an RPSD endorsement on a broker license; and proof of a $10,000 surety bond. The regulations fall under Article 6.

A small group of investors are in the initial stages of putting together a real estate investment trust (REIT). Which of the following are qualifications?

A REIT must be beneficially owned by at least 100 investors.

Each share of certificate of interest must carry with it an equivalent vote.

No five, or fewer, persons may hold more than 50% of the beneficial interests.

Alex and Mary are forming a real estate syndicate. They have their initial investments and are ready to proceed. What happens next?

Origination - planning and buying the property, following registration and disclosure mandates, Operation - in which the sponsor generally manages BOTH the syndicate and the actual property, Completion or Liquidation - the property's resale

This form of syndication allows limited liability for the investors but has negative tax features. Which form fits the description?

The Corporate Form, which allows for both centralized management and limited liability for the investors, but on the downside, has negative tax features that make it unappealing for modern syndicates.

What is the correct order of regulatory agency jurisdiction changes to non-corporate California real estate syndicates since The Real Estate Syndicate Act's inception of 1970?

The Department of Corporations, The Bureau of Real Estate, The Department of Corporations

Alex and Mary have formed a REIT. They have their investors and resources and are ready for business. The REIT will be investing in an assorted portfolio of real estate and mortgage investments. What type of REIT have Alex and Mary formed?

A Combination Trust: Both equity AND mortgage trust investments.

This form of syndication avoids double taxation but has a lack of centralized management. Which form fits the description?

The General Partnership, or Joint Venture, which avoids the double taxation (which a "regular" corporation would incur), but, on the negative side, there is an unlimited liability provision, as well as a lack of centralized management.

This is the most frequently used organization form for real estate syndicates..

The Limited Partnership offers many of the advantages found in BOTH syndicates: the corporate advantages of limited liability and centralized management, and the tax advantages of a partnership. Because of this, the limited partnership form is one of the most frequently used organizational forms for real estate syndicates.

Mary and Alex set up a Limited Partnership. Mary is named General Partner and Alex is named Limited Partner. Mary embezzles funds from the investors. Is Alex liable for Mary's indescretion?

Alex is only liable if he was named as a general partner in the certificate or if he participates in control of the business.

Mary tells Alex they must obtain their broker-dealer license from the Department of Corporations to engage in the sale of real estate syndicate security interests. Alex disagrees with Mary, explaining they both have their broker licenses and that is sufficient. Who is correct?

Section 25206 was added to the Corporations Code making obtaining a broker-dealer license optional.