California Real Estate Exam Multiple Choice
Questions and Correct Answers
Question 1
An investor is considering buying a vacant property and building a building on it
which will cost $170,000. Rental income will be $2,700 per month, and annual
expenses will be $8,200. What is the maximum he can pay for the land if he uses an
11% capitalization rate?
a. $60,000
b. $50,000
c. $40,000
d. $30,000
Correct Answer
b. $50,000
Annual gross income = $2,700 x 12 = $32,400
Net annual income = $32,400 - 8,200 = $24,200 Value = Income divided by "cap"
rate =
24,200 ÷ 11% (.11) = $220,000 (Total Value) Total Value - Bldg. Value = Value of the
Lot = $220,000 - $170,000 = $50,000
Question 2
Real estate brokers and salespeople are authorized to engage in listing and selling
certain manufactured homes which have been registered with the Department of
Housing and Community Development for a minimum of:
a. 18 months.
b. 6 months.
c. 1 year.
d. 2 years.
Correct Answer
c. 1 year.
No minimum time limit if manufactured home has been converted into real
property.
Page 1 of 239
,Question 3
In real estate, the word "tenancy" means:
a. a device.
b. a tenacious person.
c. two or more persons joined in an enterprise.
d. a mode or method of holding ownership.
Correct Answer
d. a mode or method of holding ownership.
Question 4
An owner offered his home to a buyer for $100,000 cash. The buyer paid the owner
$100 cash to keep the offer open for two weeks. The owner accepted the $100. Ten
days later, the owner notified the buyer that he was withdrawing his home from the
sale. The next day the buyer tendered $100,000 cash to the owner. Under these
conditions:
a. the offer to sell was binding.
b. seller violated the agreement to hold open the offer to sell, but did not have to sell
to the buyer because the buyer had not promised in his original conversation to buy
the property.
c. seller rescinded, voiding the transaction.
d. although the seller violated the agreement, he effectively prevented a binding
contract from forming by withdrawing his property from the market.
Correct Answer
a. the offer to sell was binding.
Seller has no option. By accepting the $100 payment, he entered into a binding
agreement. Only the buyer has the privilege of deciding "to buy, or not to buy."
That is what the $100 option money paid for.
Page 2 of 239
,Question 5
The legal purpose of police power is to:
a. keep all types of commercial property out of residential neighborhoods.
b. keep the land in every area as similar as possible.
c. preserve or protect public health, safety, morals, or general welfare.
d. none of the above.
Correct Answer
c. preserve or protect public health, safety, morals, or general welfare.
Question 6
The owner of a large apartment complex was considering adding another swimming
pool. An appraiser hired to do a study for the owner would use what basic principle of
appraising to determine the feasibility of adding the pool?
a. Substitution
b. Competition
c. Contribution
d. Appreciation
Correct Answer
c. Contribution
Would the addition of the pool contribute to the rent schedule?
Page 3 of 239
, Question 7
A broker agrees to manage a client's investment portfolio ($85,000) of 1st trust deeds.
If broker
guarantees a return of 11% on the investments, he:
a. must provide a bond.
b. must obtain a loan broker's license.
c. would be violating "Regulation Z."
d. would be violating usury laws.
Correct Answer
a. must provide a bond.
Must obtain a Real Property Security Dealer's Endorsement, which requires him to
provide a bond ($5,000).
Question 8
When using the cost approach to determine the value of land and improvements of a
property, an appraiser would use:
a. one approach to arrive at a value for both.
b. one approach to arrive at a value for each.
c. separate approaches to arrive at a value for each.
d. none of the above.
Correct Answer
c. separate approaches to arrive at a value for each.
Value of land - comparison approach; Value of improvements based on today's
building costs.
Page 4 of 239
Questions and Correct Answers
Question 1
An investor is considering buying a vacant property and building a building on it
which will cost $170,000. Rental income will be $2,700 per month, and annual
expenses will be $8,200. What is the maximum he can pay for the land if he uses an
11% capitalization rate?
a. $60,000
b. $50,000
c. $40,000
d. $30,000
Correct Answer
b. $50,000
Annual gross income = $2,700 x 12 = $32,400
Net annual income = $32,400 - 8,200 = $24,200 Value = Income divided by "cap"
rate =
24,200 ÷ 11% (.11) = $220,000 (Total Value) Total Value - Bldg. Value = Value of the
Lot = $220,000 - $170,000 = $50,000
Question 2
Real estate brokers and salespeople are authorized to engage in listing and selling
certain manufactured homes which have been registered with the Department of
Housing and Community Development for a minimum of:
a. 18 months.
b. 6 months.
c. 1 year.
d. 2 years.
Correct Answer
c. 1 year.
No minimum time limit if manufactured home has been converted into real
property.
Page 1 of 239
,Question 3
In real estate, the word "tenancy" means:
a. a device.
b. a tenacious person.
c. two or more persons joined in an enterprise.
d. a mode or method of holding ownership.
Correct Answer
d. a mode or method of holding ownership.
Question 4
An owner offered his home to a buyer for $100,000 cash. The buyer paid the owner
$100 cash to keep the offer open for two weeks. The owner accepted the $100. Ten
days later, the owner notified the buyer that he was withdrawing his home from the
sale. The next day the buyer tendered $100,000 cash to the owner. Under these
conditions:
a. the offer to sell was binding.
b. seller violated the agreement to hold open the offer to sell, but did not have to sell
to the buyer because the buyer had not promised in his original conversation to buy
the property.
c. seller rescinded, voiding the transaction.
d. although the seller violated the agreement, he effectively prevented a binding
contract from forming by withdrawing his property from the market.
Correct Answer
a. the offer to sell was binding.
Seller has no option. By accepting the $100 payment, he entered into a binding
agreement. Only the buyer has the privilege of deciding "to buy, or not to buy."
That is what the $100 option money paid for.
Page 2 of 239
,Question 5
The legal purpose of police power is to:
a. keep all types of commercial property out of residential neighborhoods.
b. keep the land in every area as similar as possible.
c. preserve or protect public health, safety, morals, or general welfare.
d. none of the above.
Correct Answer
c. preserve or protect public health, safety, morals, or general welfare.
Question 6
The owner of a large apartment complex was considering adding another swimming
pool. An appraiser hired to do a study for the owner would use what basic principle of
appraising to determine the feasibility of adding the pool?
a. Substitution
b. Competition
c. Contribution
d. Appreciation
Correct Answer
c. Contribution
Would the addition of the pool contribute to the rent schedule?
Page 3 of 239
, Question 7
A broker agrees to manage a client's investment portfolio ($85,000) of 1st trust deeds.
If broker
guarantees a return of 11% on the investments, he:
a. must provide a bond.
b. must obtain a loan broker's license.
c. would be violating "Regulation Z."
d. would be violating usury laws.
Correct Answer
a. must provide a bond.
Must obtain a Real Property Security Dealer's Endorsement, which requires him to
provide a bond ($5,000).
Question 8
When using the cost approach to determine the value of land and improvements of a
property, an appraiser would use:
a. one approach to arrive at a value for both.
b. one approach to arrive at a value for each.
c. separate approaches to arrive at a value for each.
d. none of the above.
Correct Answer
c. separate approaches to arrive at a value for each.
Value of land - comparison approach; Value of improvements based on today's
building costs.
Page 4 of 239
