Real Estate Matters, Second Edition Quizzes for Online and CD-ROM versions Instructions: Quizzes are open book. All answers are True or False. Answer key is located on the Page 7. Quiz 1 Chapters 1-8, Pages 10-47 1. A material fact is any information known to the seller about the real estate which might affect the agent s employment by the seller. 2. Sales agents are not authorized to deal with members of the public to offer, contract for or render brokerage services for compensation unless employed to do so by a broker. 3. Real estate sales agents and their brokers are excluded from benefits and contributions for unemployment insurance and income tax withholding on the employment of real estate agents. 4. A homeowners association may not prohibit a homeowner from displaying a For Sale sign when it is in violation of association policies. 5. A home inspector is any individual who holds himself out as being in the business of conducting home inspections and preparing home inspection reports on his findings during the inspection of one-to-four unit residential property. 6. It is not necessary for a listing agent to verify information received from the seller and listed on the advertisement used to locate buyers for one-to-four residential property. 7. A listing agent owes a duty to a prospective buyer to conduct a visual inspection of the property for any defects that may impact its value. 8. A buyer needs to conduct a visual inspection of a single family residence and fill out a Transfer Disclosure Statement. 9. Garage door openers installed after January 1, 1991 are required to have a code compliant automatic reverse safety device. Existing residential water heaters must be anchored, braced or strapped to prevent displacement due to an earthquake. Quiz 2 Chapters 9-13, Pages 48-78 1. If a prior occupant is afflicted with AIDS and dies on the property more than three years before an offer is submitted to purchase the property, a real estate agent has an affirmative duty to voluntarily disclose that information to a potential buyer. 2. A real estate agent has a duty to disclose a death on the property if the death will adversely affect the market value of the property. 3. The local fire department is responsible for installing and maintaining smoke detectors in condominiums. 4. Emergency fire safety information must be posted in English at the intermediate point of any hallway exceeding 75 feet in length and all hallway intersections in all multiple-unit dwellings. 5. Agents, but not sellers, have an initial common law duty owed to prospective buyers to disclose conditions on or about a property which are known to them and might adversely influence the buyer s willingness to purchase the property. 6. Alquist-Priolo Maps are used by the State Mining and Geology Board and the city or county planning department to identify whether the listed property is located within one-eighth of a mile on either side of a fault. 1
7. 8. 9. Residential housing built prior to 1987 requires a lead-based paint hazard disclosure statement to be given to a potential buyer. If a potential buyer receives a lead-based paint disclosure statement, he has a 10-day period after acceptance of his offer to evaluate the hazardous risks involved due to the presence of lead-based paint. The terms of a purchase agreement address the performance of acts by the buyer and seller and events which are to occur in the process of closing escrow on the transaction. When an offer is accepted, the purchase agreement becomes binding. Quiz 3 Chapters 14-18, Pages 79-119 1. Real estate agents may agree to binding arbitration in order to avoid the California court system regarding disputes over the purchase or leasing of real estate. 2. A defect in an arbitrator s award resulting from an error of fact or law is neither reviewable nor correctable, no matter how flagrant. 3. Even when time is of the essence, inconsistent conduct by the person entitled to cancel will waive his right to cancel. 4. A buyer should consider acquiring an option agreement when he is a tenant and may want to own the leased premises someday. 5. Without consideration, an option agreement is merely an offer to sell which may be withdrawn at any time by the seller. 6. The right of first refusal gives the buyer the discretionary right to buy the property within a set period of time. 7. In order for equity purchase (EP) statutes to apply to an investor, he must be in the business of buying homes in foreclosure. 8. An unconscionable method of payment does not include an exchange of worthless land, stock or gems or zero coupon bonds at face value with a 20-year maturity date. 9. An unconscionable advantage occurs in an EP transaction if the investor exploits an element of oppression or surprise in exacting an unreasonably low and favorable purchase price or terms of payment. For an EP investor, any payment of delinquent principal and interest installments owed by the seller are part of the investor s original costs of acquisition. Quiz 4 Chapters 19-21, Pages 120-141 1. A cash-to-loan transaction occurs when a prospective buyer agrees to pay cash for the seller s equity and assume the existing trust deed loan. 2. Consequential damages are the same as general damages. 3. A seller may not recover any decline in the value of his property after a buyer s breach of the purchase agreement. 4. Expungement occurs when a lis pendens is removed from the record, clearing title. 5. A transmutation of property occurring after 1984 must be written and recorded to be effective against persons relying on the record title. 6. A community property vesting is available only between a husband and wife. 7. A co-owner terminating the right of survivorship is first required to give notice or obtain the consent of the other co-owners to sever the right. 8. The death of a joint tenant automatically extinguishes the deceased joint tenant s interest in the real estate. 2
9. On the death of a joint tenant, the ownership interest of a surviving joint tenant is established by recording an affidavit declaring the death. Community real estate vested in the name of the husband and wife as joint tenants is not separate property until dissolution of the marriage. Quiz 5 Chapters 22-24, Pages 142-163 1. Dealer activities are not examples of securities risk activities. 2. For a securities risk to exist, the investors must retain actual and effective control over their funds after handing them to the syndicator. 3. For a security to exist under California law, the investors in a construction project must be induced to join by a promise of profits. 4. A money judgment is awarded to the creditor who is called a judgment debtor. 5. A homeowner must record a declaration of homestead in order to receive additional resale benefits. 6. A quiet title action is used to determine the priorities of a debtor s lien and the homeowner s recorded declaration of homestead. 7. An encroachment is an improvement on one parcel of real estate which extends onto real estate belonging to another person, without that person s permission. 8. An encroachment may affect leasehold interests and setback requirements. 9. The limitations period for challenging a nonprogressive encroachment runs from the date of the discovery of the encroachment. A property owner who does not promptly enforce his right to remove a known encroachment or receive compensation will risk losing those rights. Quiz 6 Chapters 25-29, Pages 164-199 1. When a tenant fails to pay late charges due to his delinquent payment of rent, the landlord may deduct the late charges from the security deposit. 2. Judges presiding over unlawful detainer actions regarding the issue of late charges uniformly apply the same rules. 3. Any amount of security deposit remaining after taking allowable deductions must be refunded within three days after the tenant vacates. 4. A residential landlord must require the same security deposit for all units. 5. An initial inspection of a residential unit requires the landlord to advise the tenant of the repairs or conditions needing correction to avoid deductions from the security deposit. 6. Upon termination of a tenancy, repair work not exceeding $120 excuses the landlord from providing copies of invoices for repairs to the unit. 7. After serving a 3-day notice, a nonresidential landlord may not accept a tenant s partial rent payment and still file an unlawful detainer action. 8. A tenant may change the provisions of a residential or nonresidential lease agreement on 30 days written notice. 9. A tenant may serve the landlord with a notice to vacate if he receives a 30-day notice of a change in rental terms. Landlords of individual units may establish their own rental rates, unless the units are under rent control. 3
Quiz 7 Chapters 30-34, Pages 200-227 1. In the case of a 30-day notice to vacate, the term of a periodic tenancy is relevant only with commercial property occupied by a tenant for less than one year. 2. For processing a notice to vacate, the date the notice is prepared is regarded as the date of service. 3. The duty of care owed others by a landlord does not apply to guests or those entering the premises without permission. 4. The landlord must inspect his property for defects wherever entry is available in order to prevent harm. 5. A landlord is liable for injuries occurring in areas open to the public caused by a dangerous condition that could have been discovered during a landlord inspection. 6. The federal government maintains the prime rate offered by banks. 7. A loan commitment must be signed by the lender to be enforceable. 8. Since 1982, courts have been more likely to rule in favor of lenders in loan commitment cases to prevent a banking industry collapse. 9. Any leaseback agreement negotiated by an equity purchase (EP) investor with the seller-inforeclosure must be reduced to a written agreement prior to funding the investor s purchase. For an EP investor to receive tax benefits for owning property, any leaseback must be limited to a periodic tenancy and allow a repurchase option. Quiz 8 Chapters 35-38, Pages 228-256 1. A promissory note is evidence of a debt. 2. The rate of interest on a default of a monthly installment cannot be applied to the delinquent payment, but must be charged to the entire principal balance of the note. 3. Provisions for compounding interest are used on a delinquency in note installments in lieu of percentage late charge provisions. 4. An exculpatory clause in a promissory note converts a lender s nonrecourse paper into recourse paper. 5. The Garn Act deprived Californians of their state right to take title to real estate subject to trust deed liens without lender due-on interference. 6. A trustee s deed on foreclosure is not considered a voluntary transfer by the owner. 7. Disguised penalty provisions are unenforceable in all notes secured by real estate. 8. To collect a late charge under a note secured by real estate, the holder of the note must notify the owner of the charge and make a demand for its payment. 9. Anti-deficiency rules apply to a carryback debt only when the debt is secured solely by real estate other than the real estate sold. Anti-deficiency rules bar the lender from obtaining a money judgment when the note is additionally secured by other property. Quiz 9 Chapters 39-40, Pages 257-277 1. A deficiency judgment is based on the historical value of the secured property, not the cash value of the property. 2. A probate referee is court appointed. 3. The frequency of lender due-on enforcement tends to decrease during periods of rising interest rates and decreasing sales. 4
4. 5. 6. 7. 8. 9. Under a land sales contract, the seller agrees to convey title to the buyer when the buyer satisfies the amount remaining unpaid on the purchase price. A sale of property is completed when a land sales contract is signed by the parties and delivered to the seller in exchange for the transfer of possession of the property to the buyer. When using a land sales contract, the formal aspects of a real estate sale are incorrectly deferred until a sales escrow is opened. A lease-purchase sale is a transfer of possession and the buildup of the buyer s equity through payments to the seller. A lease-option agreement with terms economically consistent with a credit sale is an option to buy. A reverse trust deed is recorded to provide protection for the seller s investment in an otherwise unrecorded transfer. When a formal sales escrow is not used to handle documents and funds on a sale, the transaction must be reported to the IRS on a 1099-S form. Quiz 10 Chapters 41-44, Pages 278-308 1. Interest may be paid with property or services. 2. Under no circumstances may the average annual yield exceed the interest rate ceiling of usury laws. 3. Appraisal, escrow and recording fees are an example of services and expenses included in the interest yield. 4. The Board of Directors of the Federal Reserve Bank of San Francisco are responsible for reviewing the discount rate every 14 days. 5. For a loan arranged by a broker to be exempt from usury laws, the broker must be working with a sales agent while arranging the loan. 6. Two variations of an all-inclusive note include the full payoff and the equity payoff. 7. When loans exceed an investor s cost basis in the property, the entire equity in the property is profit. 8. An all-inclusive note is never the best carryback arrangement in a mortgage-over-basis situation for maximizing the allocation of profit to the principal amount of the carryback. 9. Up to $250,000 in profit may be excluded from income and not taxed on the sale of a seller s principal residence. A married couple is eligible to qualify for a combined $500,000 profit exclusion on the sale of their principal residence. Quiz 11 Chapters 45-49, Pages 309-345 1. Home loans for income tax purposes are treated similarly to loans for business, rental or portfolio purposes. 2. A short payoff is a transaction in which the lender accepts as a final payoff the seller s net proceeds from the sale of his property. 3. An individual s net income includes income derived from any discharge-of-indebtedness. 4. A foreclosure sale under a trust deed is considered a voluntary sale of the property. 5. Discharge-of-indebtedness income is the amount by which a recourse loan exceeds the agreedto fair market value received for the real estate. 5
6. 7. 8. 9. An agent s INTAX analysis should be made at the time the listing is taken and again when a purchase agreement offer is reviewed. For a landlord to qualify as an owner-operator of a real estate related trade or business, it is only necessary for the business to render professional real estate services. If a landlord spends more than 500 hours of the year managing his property, he qualifies as a material participant. Rentals only need to be occupied by tenants for less than an average of 30 days to qualify as passive category income. After a 1031 sale and prior to acquiring ownership of a replacement property, the seller may receive interest as it accrues on the net proceeds of the sale. Quiz 12 Chapters 50-52, Pages 346-385 1. Both direct or indirect expenses are deductible for a real estate licensee who works primarily from his home. 2. Direct expenses for a home office include costs relating to the upkeep and operation of the licensee s residence, such as rent paid by a tenant. 3. In a 1031 plan, both the property sold and the property acquired must qualify as the investor s ownership of 1031 property. 4. A tenant-in-common (TIC) ownership will rise to tax partner status when the co-owners are operating as either a declared partnership, LLC or cooperating TICs. 5. Income-producing real estate that is not held for investment is classified as either passive income property or portfolio income property. 6. An asset distributed to a partner in order to establish his ownership as a tenant-in-common should occur during the year he sells the TIC interest and purchases replacement property. 7. Property taxes are imposed and collected based on the real estate s assessed full cash value on the date of acquisition, adjusted annually for inflation. 8. A change of ownership occurs when the owner transfers a present interest in the real estate which does not include an interest substantially equal to a fee interest. 9. Interspousal transfers on real estate are excluded from reassessment. _ A child adopted after turning eighteen who is involved in a parent and child transfer cannot claim the parent-child exclusion in an intrafamily transfer on real estate. 6
Answer References for Online and CD-ROM versions The following are the answers to the quizzes for Real Estate Matters, Second Edition, and the page numbers where they are located. Quiz 1 1. F 13 2. T 14 3. T 24 4. T 25 5. T 28 6. T 38 7. T 39 8. F 45 9. T 46 10. T 47 Quiz 2 1. F 48 2. T 49 3. F 52 4. F 52 5. F 56 6. T 63 7. F 66 8. T 68 9. F 70 10. T 77 Quiz 3 1. T 79 2. F 81 3. T 92 4. T 96 5. T 97 6. F 100 7. F 106 8. F 117 9. T 117 10. T 119 Quiz 4 1. T 120 2. F 121 3. F 122 4. T 123 5. T 129 6. T 132 7. F 134 8. T 135 9. T 135 10. T 140 Quiz 5 1. F 144 2. F 146 3. F 147 4. F 149 5. T 149 6. F 157 7. T 160 8. T 160 9. F 162 10. T 163 Quiz 6 1. T 165 2. F 168 3. F 172 4. T 178 5. T 180 6. T 185 7. F 188 8. F 196 9. T 197 10. T 199 Quiz 7 1. F 200 2. F 205 3. F 207 4. T 208 5. T 209 6. F 218 7. T 220 8. T 222 9. T 225 10. F 227 Quiz 8 1. T 228 2. F 230 3. T 232 4. F 235 5. T 236 6. F 241 7. T 245 8. T 247 9. F 250 10. F 256 Quiz 9 1. F 257 2. T 259 3. F 261 4. T 266 5. T 266 6. T 269 7. T 270 8. F 272 9. F 272 10. T 276 Quiz 10 1. T 279 2. F 279 3. F 279 4. T 280 5. F 284 6. T 291 7. T 296 8. F 297 9. T 302 10. T 303 Quiz 11 1. F 309 2. F 315 3. F 316 4. T 319 5. T 323 6. T 327 7. F 337 8. T 340 9. F 342 10. F 343 Quiz 12 1. T 346 2. F 346 3. T 352 4. T 353 5. F 358 6. F 369 7. T 375 8. F 376 9. T 377 10. T 378 7