California Real Estate Exam Guide, 4^th Edition

Minnie Lush

Additional Hot Notes for Salesperson and Broker Applicants

(11/4/03)

1. An appraisal may be by oral or written means. A fee appraiser is an independent contractor.

2. Functional Utility is a main concern of an appraiser.

3. Marketability is the ultimate test of Functional Utility.

4. Business opportunities are appraised on net income.

5. Non-conforming use is allowed to continue because it was legal before a zone change, and comes under a Grandfather clause.

6. A commercial strip center is a string of neighborhood stores.

7. Commercial property: As the depth of the lot decreases, the front foot value decreases, and the square foot value increases.

8. Always adjust comparable properties to subject property. If a comparable sale is lesser than subject property, adjust it UPWARD.

9. The cost per square foot to build a two story house is less than the cost per square foot to build a single story house of the same square footage.

10. The major cause of depreciation is obsolescence. Depreciation is a loss in value from any cause. Accountants deal with book appreciation. Appraisers deal with actual depreciation.

11. An appraiser would use the cost approach on special properties, including a medical building. The income approach would be used on a shopping center and a restaurant.

12. An investor in commercial property is interested in net income.

13. If you give the Real Property Transfer Disclosure Statement after acceptance of offer, the buyer has 5 days if it is given by mail (or 3 days if given in person) to rescind the contract. The Easton v. Strassburger case reaffirms that both the seller and the agent must make full disclosure of material facts that may be known or unknown to a potential buyer.

14. An injured party has two years in which to file legal action on the Transfer Disclosure Statement.

15. “As Is” sales of 1 to 4 dwelling units require a Transfer Disclosure Statement.

16. Both Buyer’s agent and Seller’s agent must render a competent and diligent inspection of the accessible areas of 1 to 4 dwelling units.

17. A Homeowner’s Guide to Earthquake Safety must be given on the sale of 1 to 4 dwelling units of wood frame construction built prior to 1960. The Alquist-Priolo Special Studies Zones Act requires disclosure of property located within a fourth of a mile of a fault line.

18. Jones v. Mayer, a 1968 U.S. Supreme Court landmark decision bars (stops) racial discrimination on property matters in the United States.

19. Properties of 1 to 4 dwelling units built prior to 1978 require a lead-based paint disclosure.

20. The Agency Relationship Disclosure Act became effective in 1988.

21. The Mello-Roos Tax lien disclosure is required from seller to buyer on all types of property.

22. The Natural Hazards Disclosure is required from seller to buyer.

23. Capital markets include bonds, short term notes, and treasury bills.

24. Mortgage bankers must maintain a good line of credit at a bank.

25. Mortgage brokers do not lend their own money.

26. Fannie Mae only deals in the secondary mortgage market.

27. Purchase money loans are credit extensions for the purchase of 1 to 4 dwelling units. Hard money is cash.

28. In a “subject to” loan takeover, the seller remains liable.

29. A land contract is also called a real property sales contract, installment sales contract, and agreement for purchase or sale. The vendor (seller) is the one who must acknowledge (notarize) the land contract in order for the vendee (buyer) to have it recorded. The vendee receives only equitable title, not legal title. A quiet title action may be used to enforce a forfeited recorded land contract.

30. A VA loan amount (federal veterans’ loan program) is based on the Certificate of Reasonable Value (appraisal). The origination fee is paid to the lender.

31. An alienation clause (due on sale clause) is enforceable and is a benefit to a lender. It is a type of acceleration clause.

32. An acceleration clause is always found in a deed of trust.

33. The maximum interest rate fluctuation on a renegotiable rate mortgage is 5%. Its maximum annual change is ½ (one half) percent.

34. The only thing a trust deed and mortgage have in common is the Security. The major difference is the Title. A deed of trust may be foreclosed by Trustee’s Sale or Judicial Foreclosure. A Trustee’s Deed is given to the highest bidder at a Trustee’s Sale. There is no right of redemption at a Trustee’s Sale.

35. A “Request for Notice of Default” benefits any junior lien holder.

36. In a “Sale-Leaseback,” a purchaser would be least interested in the seller’s book value.

37. Prepaid taxes are a credit on a seller’s closing statement.

38. Exchanges are based on equity value. Equity is market value minus liens.

39. The Company Dollar is gross income minus commissions.

40. The Desk Cost includes operating expenses for the office, including salaries, divided by the number of salespeople.

41. A new liquor license costs $6,000 when purchased directly from the State. It cannot be resold for more than $6,000 for the first five years.

42. The Unruh Civil Rights Act prohibits discrimination by businesspersons. The California Fair Housing Act (Rumford Act) applies to everyone in the state. Complaints may be filed with the California Department of Fair Employment and Housing. A homeowner may bring in one roommate and be exempt from this act.

43. Advertisements that state that the offering is made only to single women or only to persons of a minority background are in violation of fair housing laws.

44. An agent cannot answer any questions about one’s race.

45. A temporary 150-day real estate license may be issued to a qualified license applicant whose name appears on a delinquent child support payment list.

46. An unlicensed person who practices real estate may be fined up to $10,000.

47. An unlicensed assistant who prepares an advertisement must have prior written approval by the employing broker.

48. The maximum amount of compensation the DRE will pay out of the recovery account per transaction is $20,000, even if a victim holds an uncollectible judgment for more than $20,000.

49. Construction work of less than $500 in value can be done by someone who does not have a contractor’s license.

50. Worker’s compensation is required for all real estate licensees, no matter whether the licensee is an independent contractor for taxation purposes.

51. There is a two-year grace period after the expiration of one’s real estate license in which to renew without taking the state exam; however, one cannot practice real estate during that time.

52. A square parcel of one-half mile by one-half mile describes 160 acres, or a quarter section.

53. If there is fire damage to property, a landlord may choose to abate (forgive or lower) the rent.

54. 18 hours of the 45 hours of required continuing education must be about consumer protection.

55. FHA will, but VA will not, provide for a duplex purchased for rental.

56. Mutual mortgage insurance is paid on an FHA loan.

57. Under a Cal-Vet loan, the California Department of Veteran’s Affairs holds title to the Cal-Vet’s home. A veteran can buy a farm on the Cal-Vet program. Cal-Vet prohibits the payment of points on its loans.

58. Avulsion describes a sudden violent action, such as a dam that breaks and washes the land away.

59. The District Attorney prosecutes law violations by unlicensed persons.

60. In-house sales might give rise to an undisclosed dual agency.

61. An Exclusive Authorization to Locate Property, in addition to being a type of buyer-broker representation agreement, could lead to a dual agency with the informed consent of all parties.

62. As a matter of good practice, a broker who purchases property for his own account should consider having another agent present the offer.

63. Electronic records are acceptable to the DRE as long as they are backed up for a three year period. Upon request by the DRE, a broker must provide paper copies of trust records at the broker’s expense.

64. Frequent flooding occurs twice in ten years.

65. Tenant improvements are provided by a tenant improvement allowance.

66. An estate has two uses: fee simple and leasehold.

67. If title and possession do not occur at the same time, an interim occupancy agreement should be created.

68. Estate at Sufferance describes a tenant who occupies property after his rights have expired.

69. Illusory refers to uncertain terms.

70. If a tenant is forced to sign a contract for tenant improvements, the contract may be voidable.

71. The Consumer Price Index includes home prices. A reference to HVAC (heating, ventilation, and air conditioning) is found in a commercial lease.

72. A lessee has five days in which to respond to a notice of Unlawful Detainer action.

73. Escheat is not a way for an individual to receive title to property. It refers to the way the state might receive title.

74. A corporation seal authorizes an officer to sign for a corporation.

75. Eminent Domain is a form of involuntary conversion.

76. Title to property passes when a deed is delivered.

77. The county recorder is required to maintain index books.

78. An owner of property cannot be prohibited from placing a “for sale” sign on property.

79. An oral agreement for the sale of real property is unenforceable. A broker is barred (stopped) from enforcing an oral agreement for real property. A listing agreement for personal property or a business opportunity may be by oral agreement.

80. The effective date of the deposit agreement is the date the parties signed it.

81. Radon gas is tested by a spectrometer.

82. A broker who shows a property in which the broker has an option to purchase must disclose anticipated profit and that he is a principal.

83. Developers are mainly concerned with the purchasing power of the surrounding population.

84. Cost equals value when the improvements are new and are of highest and best use.

85. If current highest and best use is to change, current use is called interim use.

86. A civil engineer could verify soil compaction.

87. Accrued depreciation is accumulated age depreciation with an allowance for property condition based on the property’s effective age (physical condition and appearance).

88. The cost approach uses separate values to arrive at cost (value of depreciated improvements and land value).

89. Net Operating Income minus debt service equals the cash flow of income property.

90. Economic rent (realistic market rate) is used for the appraisal of income property.

91. An investor of commercial property is interested in the property’s net income.

92. PMI (private mortgage insurance) is through a pool of private investor insurance funds.

93. Section 7 has 80 acres valued at $500 per acre for a total of $40,000. Section 6 has 40 acres valued at $800 per acre for a total of $32,000. The difference in value of these two sections is $8,000.

94. A parcel that has 3,960 linear feet at its frontage with 1,980 feet on one side and 3,960 feet on the other side because the parcel is bisected by a river contains 270 acres.

95. A mechanic’s lien takes priority over all other liens, except taxes and special assessments, such as the 1911 Street Improvement Bond. It also takes priority over a trust deed that is recorded after the mechanic’s lien.

96. Failure to disclose a dual agency can lead to loss of commission, suspension or revocation of the real estate license, and civil action by the injured party.

97. A broker who is not authorized to collect a commission (no listing agreement) must follow the instructions of the buyer regarding the deposit.

98. An exclusive right to sell listing is a bilateral executory agreement.

99. Illegal use of the term Realtor® can result in loss of license.

100. Multiple offers on property must be presented to the seller at the same time, regardless of the price or terms of the offers.

101. Warranty of Authority states that a principal (seller-employer) is liable for the acts of the agent (employee) within the scope of authority granted. Therefore, both seller and agent may be liable for any misrepresentations. (If the agent exceeds the authority, the agent alone may be liable for resulting damage.)

102. An investor in commercial or residential income property who “actively participates” in the operation of the property can deduct operating expenses from ordinary income if he owns at least a 10% interest and makes bona fide management decisions. The maximum annual net loss deduction against ordinary income is $25,000.

103. An attorney in fact must record her authorization, and cannot sell the property to herself.