California Real Estate Test 2 — Questions and Answers

Question 1: Under the Alquist-Priolo Special Studies Act, a subdivider is required to disclose to potential purchasers:

earthquake fault lines (Correct answer)
environmental issues
flood hazard zones.
the existence of nearby military ordinances

Correct answer: earthquake fault lines

The Alquist-Priolo Special Studies Act (now Earthquake Fault Zoning Act) is a California state law specifically designed to prevent construction of buildings for human occupancy across active earthquake faults. It mandates that subdividers disclose to potential purchasers if a property is located within an earthquake fault zone. This disclosure focuses on the proximity to active fault lines, not general environmental or flood issues.

Question 2: Under no circumstances may a real estate broker misrepresent a material fact to a buyer. If they do, the broker faces:

disciplinary action by the California Bureau of Real Estate (CalBRE).
criminal action.
civil action
Any of the above. (Correct answer)

Correct answer: Any of the above.

A real estate broker who intentionally misrepresents a material fact to a buyer can face severe repercussions from multiple authorities. They may be subject to disciplinary action by the California Bureau of Real Estate (CalBRE), including license suspension or revocation. Additionally, they can face civil lawsuits from the aggrieved buyer for damages and, in egregious cases, criminal charges for fraud.

Question 3: It is least likely to be a violation of the Real Estate Law for a broker to pay a portion of the commission to a(n):

unlicensed assistant.
a salesperson working for another broker.
unlicensed person who obtained the listing
buyer or seller in the transaction. (Correct answer)

Correct answer: buyer or seller in the transaction.

Paying a portion of a commission to an unlicensed person who is not a principal in the transaction is generally a violation of real estate law. However, a broker can legally pay a portion of their commission directly to the buyer or seller in the transaction, often as a rebate or credit, provided it is fully disclosed to all parties. This practice is typically seen as a reduction in the overall transaction cost for the principal.

Question 4: A Natural Hazard Disclosure Statement (NHD) needs to be given to a buyer when a natural hazard exists. Which of the following does not trigger delivery of an NHD?

A property located in a very high fire hazard severity zone
A property that contains lead-based paint. (Correct answer)
A property located in an earthquake fault zone.
A property situated in a special flood hazard area.

Correct answer: A property that contains lead-based paint.

The Natural Hazard Disclosure Statement (NHD) is specifically required for properties located in designated natural hazard zones, such as earthquake fault zones, seismic hazard zones, flood hazard areas, and very high fire hazard severity zones. Lead-based paint, while a serious environmental hazard requiring its own federal disclosure, is not considered a 'natural hazard' under the NHD requirements.

Question 5: Earthquake fault zones need to be disclosed to prospective buyers of certain properties in California. Typically, earthquake fault zones are:

0.25 miles wide. (Correct answer)
0.5 miles wide.
1 mile wide.
2.5 miles wide.

Correct answer: 0.25 miles wide.

Under California's Alquist-Priolo Earthquake Fault Zoning Act, regulatory zones are established along active faults to mitigate earthquake hazards. These zones are typically 1/4 mile (0.25 miles) wide, extending 1/8 mile on either side of the identified fault trace. This specific width determines which properties require special disclosure and geological investigation before development.

Question 6: A verbal agreement to sell real estate is enforceable when:

the sale is for unimproved land
the purchase price is less than $900.
the parties have given an oath regarding the agreement
the buyer makes a down payment, takes possession and improves the property (Correct answer)

Correct answer: the buyer makes a down payment, takes possession and improves the property

While real estate contracts generally must be in writing under the Statute of Frauds, an exception exists through the doctrine of part performance. A verbal agreement to sell real estate can become enforceable if the buyer takes significant actions like making a down payment, taking possession of the property, and making substantial improvements. These actions demonstrate a clear intent and reliance on the agreement.

Question 7: Discriminatory acts in the sale or rental of residential housing accommodations based on sex, religion or national origin of the prospective tenant or buyer are:

unenforceable
illegal.
contrary to public policy.
Any of the above (Correct answer)

Correct answer: Any of the above

Discriminatory acts in housing based on protected characteristics like sex, religion, or national origin are explicitly prohibited by federal and state fair housing laws, such as the Civil Rights Act of 1968 and California's Fair Employment and Housing Act. Such actions are therefore illegal, unenforceable in court, and fundamentally contrary to public policy, which aims to ensure equal housing opportunities for all.

Question 8: Which of the following state agencies is empowered to prevent acts of discrimination in housing accommodations in California due to race, color, sex, national origin or ancestry

the California Bureau of Real Estate (CalBRE).
the Unruh Department.
the Department of Fair Employment and Housing. (Correct answer)
the Department of Housing and Urban Development (HUD)

Correct answer: the Department of Fair Employment and Housing.

In California, the Department of Fair Employment and Housing (DFEH), now known as the Civil Rights Department (CRD), is the state agency responsible for enforcing civil rights laws, including those related to housing discrimination. It investigates complaints of discrimination based on protected characteristics like race, color, sex, national origin, or ancestry, and works to prevent unlawful discriminatory practices.

Question 9: A Latino real estate agent working in a Hispanic neighborhood informed current owners they should move out because another ethnic group is moving into the area. This conduct is an example of all of the following, except:

blockbusting.
panic selling.
a legal practice, but unethical. (Correct answer)
an illegal practice

Correct answer: a legal practice, but unethical.

The described conduct, where an agent induces owners to sell by creating fear about a new ethnic group moving into the area, is a classic example of 'blockbusting' or 'panic selling.' This practice is explicitly illegal under federal and state fair housing laws because it exploits racial fears for financial gain. Therefore, it is an illegal practice, not merely unethical but legal.

Question 10: An agreement between two parties in which one party is granted the right to offer, sell, or distribute goods or services under a marketing plan described by the other party is commonly known as:

a franchise agreement. (Correct answer)
a real property securities transaction.
a business opportunity transaction.
a personal securities investment.

Correct answer: a franchise agreement.

A franchise agreement is a contractual arrangement where a franchisor grants a franchisee the right to use its trademark, business model, and proprietary knowledge to offer goods or services. The franchisee operates under the franchisor's established marketing plan and system, typically in exchange for fees and royalties. This definition precisely matches the description provided.

Question 11: A broker chooses to employ their salespeople as independent contractors rather than employees. By doing so, the broker will save out of pocket expenses relating to:

automobile insurance.
errors and omissions insurance
social security (Correct answer)
advertising

Correct answer: social security

When a broker classifies their salespeople as independent contractors instead of employees, they avoid paying certain employer-related expenses. This includes the employer's share of Social Security (FICA) and Medicare taxes, as well as unemployment insurance and workers' compensation. Independent contractors are responsible for their own self-employment taxes and benefits, leading to cost savings for the broker.

Question 12: When inspecting a residence in a hillside subdivision, the salesperson observes cracks in the foundation and notices the doors and windows do not close properly. As a matter of best practice, the salesperson references their observations in the Transfer Disclosure Statement (TDS) and recommends that which of the following be ordered?

A home warranty policy.
A special studies report
A soil engineer’s inspection. (Correct answer)
A termite clearance.

Correct answer: A soil engineer’s inspection.

Cracks in the foundation and misaligned doors/windows, particularly in a hillside subdivision, are significant indicators of potential structural instability or soil settlement issues. A soil engineer's inspection is specifically designed to assess the underlying soil conditions, identify potential geological hazards, and evaluate the structural integrity of the property. This specialized inspection is crucial for addressing such serious concerns.

Question 13: The maximum security deposit for a furnished apartment is:

$10,000
one month’s rent
two months’ rent
three months’ rent (Correct answer)

Correct answer: three months’ rent

In California, state law limits the amount a landlord can charge for a security deposit. For an unfurnished residential property, the maximum security deposit is two months' rent. However, for a furnished residential property, the maximum allowed security deposit is three months' rent, accounting for the additional value and potential wear and tear on the furnishings.

Question 14: An investor made a $40,000 down payment on a $400,000 condominium. One year later, the property increased 10% in value. This resulted in a $40,000 or 100% gain on the $40,000 equity. This is an example of:

contribution.
assemblage.
substitution.
leverage. (Correct answer)

Correct answer: leverage.

Leverage in real estate refers to the use of borrowed capital (like a mortgage) to finance an investment, thereby amplifying the potential return on the investor's initial equity. In this example, a relatively small down payment controlled a much larger asset. The property's appreciation resulted in a significantly higher percentage gain on the investor's equity than on the total property value, demonstrating the power of leverage.

Question 15: . The purpose of a(n)________ , like an easement and a lease, is to grant the right to use property owned by another person.

encumbrance
personal privilege
unlawful detainer (UD)
license (Correct answer)

Correct answer: license

A license is a personal, revocable, and non-assignable privilege to do a particular act on another's land without possessing any estate or interest in the land itself. Like an easement or a lease, it grants permission to use someone else's property. However, a license is generally more temporary and less formal than an easement and does not convey an ownership interest like a lease.

Question 16: Roy, an inactive real estate salesperson, offers to assist Mel lease or purchase federal land for a fee.

Roy can legally arrange a lease or sale for a fee since the land is federally owned.
Roy must be a broker to perform these duties and collect a fee (Correct answer)
Roy is subject to disciplinary action from the California Bureau of Real Estate (CalBRE).
Roy is committing a federal crime.

Correct answer: Roy must be a broker to perform these duties and collect a fee

In California, anyone who, for compensation, assists another in the lease or purchase of real property, including federal land, must hold an active real estate broker's license. An inactive real estate salesperson cannot legally perform licensed activities, and a salesperson must always operate under the supervision of an employing broker. Therefore, Roy needs an active broker's license to perform these duties for a fee.

Question 17: After an applicant passes the real estate licensing exam, they need to apply for a license within:

one year after being notified of the test results.
one year of the examination. (Correct answer)
two years from the date of the exam.
six months of being notified of test results

Correct answer: one year of the examination.

In California, after successfully passing the real estate licensing exam, an applicant has a specific timeframe to submit their license application. The application, along with all required fees and documentation, must be submitted to the California Bureau of Real Estate (CalBRE) within one year from the date the examination was passed. Failure to meet this deadline will require the applicant to retake and pass the exam again.

Question 18: Which of the following is an example of “puffing”:

convincing the seller to pay a high commission.
convincing an appraiser to place an unrealistic value on the property.
exaggerating certain features or benefits of a property. (Correct answer)
stating an opinion that sounds like fact.

Correct answer: exaggerating certain features or benefits of a property.

Puffing refers to extravagant claims or opinions made by a real estate agent that are not intended to be taken as factual representations. It involves exaggerating the positive features or benefits of a property, such as describing a small yard as 'spacious' or a view as 'breathtaking.' While generally permissible if clearly an opinion, it can become problematic if it crosses into factual misrepresentation.

Question 19: It is appropriate for real property managers to be compensated in all of the following ways, except:

a commission for new tenants solicited.
a percentage of the total gross rents received
additional compensation for supervising renovations and improvements.
receiving kickbacks from contractors and suppliers. (Correct answer)

Correct answer: receiving kickbacks from contractors and suppliers.

Property managers can legitimately be compensated through various methods, such as commissions for new tenants, a percentage of gross rents, or additional fees for supervising renovations. However, receiving undisclosed kickbacks or secret profits from contractors, suppliers, or other third parties is unethical and illegal. Such actions constitute a conflict of interest and a breach of fiduciary duty to the property owner.

Question 20: Who is authorized to manage property for the general public?

A responsible adult.
Only a Certified Property Manager (CPM)
A licensed real estate broker. (Correct answer)
An escrow officer.

Correct answer: A licensed real estate broker.

In California, managing property for others for compensation, which includes activities like collecting rents, negotiating leases, and overseeing maintenance, falls under the definition of real estate activity. Therefore, anyone performing these services for the general public must hold a valid and active real estate broker's license. A salesperson can manage property, but only under the direct supervision of their employing broker.

Question 21: An unlawful detainer (UD) action is instigated by:

a grantor
a trustee
a lessor (Correct answer)
a real estate broker

Correct answer: a lessor

An unlawful detainer (UD) action is a legal process initiated by a landlord, also known as a lessor, to evict a tenant (lessee) who has violated the terms of their lease agreement. This typically occurs due to non-payment of rent or other significant breaches. It is a summary court procedure designed to quickly regain possession of the property from a tenant who is unlawfully occupying it.

Question 22: The purpose of the Real Estate Law is to:

prevent fraud.
protect the public.
keep track of all real estate transactions. (Correct answer)
limit competition.

Correct answer: keep track of all real estate transactions.

The fundamental purpose of the Real Estate Law and the California Bureau of Real Estate (CalBRE) is to protect the public in real estate transactions. This is achieved by establishing licensing standards, regulating the conduct of licensees, investigating complaints, and enforcing ethical and legal practices. While it helps prevent fraud, the overarching goal is to safeguard consumers and ensure competent service.

Question 23: Most real estate records need to be kept for a period of three years, commencing from the date that a property is first listed or the date:

the agent meets a client
the sale occurs
escrow closes (Correct answer)
the buyer’s first property tax bill is due

Correct answer: escrow closes

Real estate records must be kept for a period of three years. This retention period commences either from the date a property is first listed or the date escrow closes, whichever occurs later. This ensures that all transaction-related documents are maintained for the legally mandated duration, providing a clear audit trail for regulatory compliance.

Question 24: When a purchase agreement states the property is being sold “as is,” it:

still requires the buyer to receive a Transfer Disclosure Statement (TDS) noting any material facts which affect the property’s value. (Correct answer)
puts the buyer on notice they should beware.
underscores the fact that nothing is warranted
releases the seller of the requirement to deliver a TDS to the buyer or make any disclosures about the condition of the property.

Correct answer: still requires the buyer to receive a Transfer Disclosure Statement (TDS) noting any material facts which affect the property’s value.

Even when a property is sold 'as is,' the seller is still legally obligated to disclose any known material facts that could affect the property's value or desirability. An 'as is' clause means the seller won't make repairs, but it does not relieve them of the duty to provide a Transfer Disclosure Statement (TDS) detailing known defects. This protects buyers from hidden issues that sellers are aware of.

Question 25: An example of a red flag would be:

a cited code violation
a home overbuilt for the neighborhood
a floor that is not level (Correct answer)
an older home

Correct answer: a floor that is not level

A 'red flag' in real estate refers to an observable condition that suggests a potential problem or defect requiring further investigation. A floor that is not level is a direct physical indicator of a possible structural issue, foundation problem, or settling, which would prompt a prudent buyer or inspector to look deeper. The other options are either not direct physical defects or a consequence of a defect rather than the initial observable 'red flag' itself.

California Real Estate Test 2

Under the Alquist-Priolo Special Studies Act, a subdivider is required to disclose to potential purchasers: