CALIFORNIA: REAL ESTATE PRINCIPLES FINAL EXAM
UPDATED ACTUAL QUESTIONS AND CORRECT
ANSWERS
Question:
1. Which of the following listing agreements is illegal in most states? Open Listing Exclusive Agency
Listing Net Listing Agency Coupled with Interest
Answer:
C. Net Listing
Question:
2. Barney Dinesh has served two years of active duty for the United States Army in the Middle East. He is
still on active duty, though he is now stationed stateside in California. He and his new wife, Alma, have
found a home they both love, and their agent tells them about the Cal-Vet loan, saying that he believes
Barney would qualify for this. What are the main requirements for such a loan, and does Barney (from the
information given here) seem to qualify for the Cal-Vet program? The Cal-Vet loan requires that the
veteran have served a minimum of 120 days' active duty; provide an affidavit if on active duty (or an
honorable discharge if not active); and a $500.00 deposit. Provided Barney can procure this affidavit, and
the deposit money, it appears that he would qualify. The Cal-Vet loan program requires that the veteran
have served a minimum of 120 days' active duty; provide Statement of Service if on active duty (or an
honorable discharge if he is no longer active); and be willing to buy a California home or farm. Based on
the information provided herein, Barney should qualify for the program. The Cal-Vet loan program
requires that the veteran have served a minimum of 90 days' active duty; provide Statement of Service if on
active duty (or an honorable discharge if he is no longer active); and be willing to buy a California home or
farm. Barney would appear to qualify, based on the given information. The Cal-Vet loan requires four
essentials: (1) The veteran must have served a minimum of 90 days' active duty; (2) The veteran must
provide a Statement of Service if on active duty (or an honorable discharge if he is no longer active); (3)
The veteran must be willing to buy a California home or farm; and (4) Most importantly, the veteran must
meet the requirements for a Veterans Administration (VA) loan before he can be approved for a Cal-Vet
loan (This doesn't mean he is going to take out a VA loan, but merely that he meets the federal VA
standards). There is not enough information given in the question to determine whether or not he'd meet
the federal VA qualifications; so the second part of this question cannot be answered.
Answer:
C. The Cal-Vet loan program requires that the veteran have served a minimum of 90 days' active duty;
provide Statement of Service if on active duty (or an honorable discharge if he is no longer active); and be
willing to buy a California home or farm. Barney would appear to qualify, based on the given information.
Question:
3. Karen and Jay need a larger home. They have two large dogs and a baby on the way. One day in the real
estate section, they see their dream home. The couple view the home that very day, make an offer, and it's
accepted. There's only one problem: They haven't even put their home on the market. Which type of loan
gives Karen and Jay their best option of paying two mortgages until their current home sells? A
Participation Mortgage A Bridge Loan A Sale-Leaseback A Contract for Deed
Answer:
B. A Bridge Loan
,Question:
4. Which of the following is a type of functional obsolescence? Outmoded plumbing fixtures or inadequate
closet space. Installing siding on a building which also needs major interior repairs. A residence when an
industrial plant is built next to it. Any of the above.
Answer:
A. Outmoded plumbing fixtures or inadequate closet space.
Question:
5. Newlyweds Andrew and Kimmie Briggs enjoy sparring over the details of life. They squabble
good-naturedly over a game of Scrabble, the pronunciation of French words, and now, over the type of
home loan they're getting on their first home. They know it's FHA, but neither is sure WHAT the FHA has
to do with the loan. An FHA loan means: The money is loaned by the Federal Housing Administration.
The money is insured by the Federal Housing Administration. The money is guaranteed by the Federal
Housing Administration. The Federal Housing Administration builds homes and loans money.
Answer:
B. The money is insured by the Federal Housing Administration.
Question:
6. Carol is studying for the California real estate license examination. She knows she has to know all areas
covered in the examination extremely well to pass. Which portion of the examination, approximately,
makes up the largest portion of the test? Practice of Real Estate and Mandated Disclosures Contracts
Transfer of Property Financing
Answer:
A. Practice of Real Estate and Mandated Disclosures
Question:
7. The right of the state to enact and enforce laws for the order, safety, health, morals, and general welfare
of the public is known as: Eminent domain. Conversion. Subversion. Police power.
Answer:
D. Police power.
Question:
8. Which of the following is not a characteristic of the California mortgage market? California has a large
amount of the country's biggest commercial and savings banks. California has a high population, therefore
more people means more homes are needed. Deeds of Trust are used instead of mortgages, which allows
borrowers greater flexibility and protection. California has a very active secondary mortgage market.
Answer:
C. Deeds of Trust are used instead of mortgages, which allows borrowers greater flexibility and protection.
Question:
9. John and Thom are purchasing their dream home. Due to the expiration of escrow instructions, the
escrow has been terminated. Have they lost the contract on the house of their dreams? Yes, once the
escrow is terminated all contracts associated are also terminated. No, the termination of an escrow does not
terminate the associated contract. No, if the escrow is terminated the contract can remain valid; however, if
the escrow is cancelled, the contract is cancelled. Both B and C
Answer:
B. No, the termination of an escrow does not terminate the associated contract.
, Question:
10. Alison Skateland, a real estate broker in Yuba City, California, has recently become interested in the
sale of business opportunities — particularly restaurants and bakeries. The authority to conduct such
business is covered under her real estate license, but Alison does need to know the proper way to handle
such transactions. Which of the following is not an accurate statement about the handling of business
opportunities? If real property is involved in the sale, the broker (Alison, in this case) usually treats the sale
of the business and sale of the land/building as two separate and concurrent transactions with two
concurrent and contingent escrows. The sale of business opportunities may involve the sale of only
personal property. Alison, in dealing with the sale of business opportunities, must remember to inform the
purchaser of the various governmental agencies that the purchaser should contact for required permits,
licenses, and clearances. These agencies include the IRS, State Board of Equalization, State Department of
Benefit Payments, State Department of Industrial Relations, and various other county and municipal
agencies. The sale of a business opportunity includes the business's stock, trade fixtures, and trade name, a
non-competition agreement, and lease assignment. While such a sale also includes the goodwill of a
business, a monetary value cannot be placed on the goodwill.
Answer:
A. If real property is involved in the sale, the broker (Alison, in this case) usually treats the sale of the
business and sale of the land/building as two separate and concurrent transactions with two concurrent and
contingent escrows
Question:
11. Credit union president Bill Bradley has just refused a loan for 25-year-old LaDawna Kingston, an
African-American woman and, in his opinion, the very definition of a "religious zealot." Bill refused the
loan based on her credit rating and lack of job stability. When LaDawna learns of his refusal, she tells him
she's calling an attorney, because she's been discriminated against. Which of the following statements is
true in this situation? Bill could be in big trouble, since it is illegal for a real estate licensee to discriminate
against a person seeking a loan based on racial, religious, or economic reasons. Bill could be in big trouble,
since it is illegal for a real estate licensee to discriminate against a person who is of any "protected class,"
even if that person does not meet the financial loan qualifications that every applicant must face. Bill could
face serious penalties if LaDawna files suit against him. It is illegal for a real estate licensee to decline
financing to a person of another race, even though that person does not meet the financial loan
qualifications set forth for every applicant. As long as Bill refused the financing based solely on economic
reasons (lack of job stability, poor credit rating, income, or net worth), he has acted lawfully and will not
face any disciplinary action.
Answer:
D. As long as Bill refused the financing based solely on economic reasons (lack of job stability, poor credit
rating, income, or net worth), he has acted lawfully and will not face any disciplinary action.
Question:
12. Napa resident Maria Gonzales, a newly-licensed real estate broker, has just negotiated her first trust
deed loan for her client, Isaac Mahrsan. The loan's term is 5 years, and it is Isaac's first loan. Under Article
7 of the Mortgage Broker Law in California, Maria knows that certain regulations have been set forth
regarding her commission in such a transaction. What is the maximum commission for loans subject to
Article 7, for first loans? Maria's maximum commission on this loan is 5 percent of the principal, which
applies to loans of 5 years or less. Maria's maximum commission on this loan is 5 percent of the principal,
which applies to loans of 10 years or less. Maria's maximum commission on this loan is 5 percent of the
principal of a loan, which applies to loans of 3 years or more. Maria's maximum commission on this loan is
10 percent of the principal of a loan, which applies to loans of 3 years or more.
UPDATED ACTUAL QUESTIONS AND CORRECT
ANSWERS
Question:
1. Which of the following listing agreements is illegal in most states? Open Listing Exclusive Agency
Listing Net Listing Agency Coupled with Interest
Answer:
C. Net Listing
Question:
2. Barney Dinesh has served two years of active duty for the United States Army in the Middle East. He is
still on active duty, though he is now stationed stateside in California. He and his new wife, Alma, have
found a home they both love, and their agent tells them about the Cal-Vet loan, saying that he believes
Barney would qualify for this. What are the main requirements for such a loan, and does Barney (from the
information given here) seem to qualify for the Cal-Vet program? The Cal-Vet loan requires that the
veteran have served a minimum of 120 days' active duty; provide an affidavit if on active duty (or an
honorable discharge if not active); and a $500.00 deposit. Provided Barney can procure this affidavit, and
the deposit money, it appears that he would qualify. The Cal-Vet loan program requires that the veteran
have served a minimum of 120 days' active duty; provide Statement of Service if on active duty (or an
honorable discharge if he is no longer active); and be willing to buy a California home or farm. Based on
the information provided herein, Barney should qualify for the program. The Cal-Vet loan program
requires that the veteran have served a minimum of 90 days' active duty; provide Statement of Service if on
active duty (or an honorable discharge if he is no longer active); and be willing to buy a California home or
farm. Barney would appear to qualify, based on the given information. The Cal-Vet loan requires four
essentials: (1) The veteran must have served a minimum of 90 days' active duty; (2) The veteran must
provide a Statement of Service if on active duty (or an honorable discharge if he is no longer active); (3)
The veteran must be willing to buy a California home or farm; and (4) Most importantly, the veteran must
meet the requirements for a Veterans Administration (VA) loan before he can be approved for a Cal-Vet
loan (This doesn't mean he is going to take out a VA loan, but merely that he meets the federal VA
standards). There is not enough information given in the question to determine whether or not he'd meet
the federal VA qualifications; so the second part of this question cannot be answered.
Answer:
C. The Cal-Vet loan program requires that the veteran have served a minimum of 90 days' active duty;
provide Statement of Service if on active duty (or an honorable discharge if he is no longer active); and be
willing to buy a California home or farm. Barney would appear to qualify, based on the given information.
Question:
3. Karen and Jay need a larger home. They have two large dogs and a baby on the way. One day in the real
estate section, they see their dream home. The couple view the home that very day, make an offer, and it's
accepted. There's only one problem: They haven't even put their home on the market. Which type of loan
gives Karen and Jay their best option of paying two mortgages until their current home sells? A
Participation Mortgage A Bridge Loan A Sale-Leaseback A Contract for Deed
Answer:
B. A Bridge Loan
,Question:
4. Which of the following is a type of functional obsolescence? Outmoded plumbing fixtures or inadequate
closet space. Installing siding on a building which also needs major interior repairs. A residence when an
industrial plant is built next to it. Any of the above.
Answer:
A. Outmoded plumbing fixtures or inadequate closet space.
Question:
5. Newlyweds Andrew and Kimmie Briggs enjoy sparring over the details of life. They squabble
good-naturedly over a game of Scrabble, the pronunciation of French words, and now, over the type of
home loan they're getting on their first home. They know it's FHA, but neither is sure WHAT the FHA has
to do with the loan. An FHA loan means: The money is loaned by the Federal Housing Administration.
The money is insured by the Federal Housing Administration. The money is guaranteed by the Federal
Housing Administration. The Federal Housing Administration builds homes and loans money.
Answer:
B. The money is insured by the Federal Housing Administration.
Question:
6. Carol is studying for the California real estate license examination. She knows she has to know all areas
covered in the examination extremely well to pass. Which portion of the examination, approximately,
makes up the largest portion of the test? Practice of Real Estate and Mandated Disclosures Contracts
Transfer of Property Financing
Answer:
A. Practice of Real Estate and Mandated Disclosures
Question:
7. The right of the state to enact and enforce laws for the order, safety, health, morals, and general welfare
of the public is known as: Eminent domain. Conversion. Subversion. Police power.
Answer:
D. Police power.
Question:
8. Which of the following is not a characteristic of the California mortgage market? California has a large
amount of the country's biggest commercial and savings banks. California has a high population, therefore
more people means more homes are needed. Deeds of Trust are used instead of mortgages, which allows
borrowers greater flexibility and protection. California has a very active secondary mortgage market.
Answer:
C. Deeds of Trust are used instead of mortgages, which allows borrowers greater flexibility and protection.
Question:
9. John and Thom are purchasing their dream home. Due to the expiration of escrow instructions, the
escrow has been terminated. Have they lost the contract on the house of their dreams? Yes, once the
escrow is terminated all contracts associated are also terminated. No, the termination of an escrow does not
terminate the associated contract. No, if the escrow is terminated the contract can remain valid; however, if
the escrow is cancelled, the contract is cancelled. Both B and C
Answer:
B. No, the termination of an escrow does not terminate the associated contract.
, Question:
10. Alison Skateland, a real estate broker in Yuba City, California, has recently become interested in the
sale of business opportunities — particularly restaurants and bakeries. The authority to conduct such
business is covered under her real estate license, but Alison does need to know the proper way to handle
such transactions. Which of the following is not an accurate statement about the handling of business
opportunities? If real property is involved in the sale, the broker (Alison, in this case) usually treats the sale
of the business and sale of the land/building as two separate and concurrent transactions with two
concurrent and contingent escrows. The sale of business opportunities may involve the sale of only
personal property. Alison, in dealing with the sale of business opportunities, must remember to inform the
purchaser of the various governmental agencies that the purchaser should contact for required permits,
licenses, and clearances. These agencies include the IRS, State Board of Equalization, State Department of
Benefit Payments, State Department of Industrial Relations, and various other county and municipal
agencies. The sale of a business opportunity includes the business's stock, trade fixtures, and trade name, a
non-competition agreement, and lease assignment. While such a sale also includes the goodwill of a
business, a monetary value cannot be placed on the goodwill.
Answer:
A. If real property is involved in the sale, the broker (Alison, in this case) usually treats the sale of the
business and sale of the land/building as two separate and concurrent transactions with two concurrent and
contingent escrows
Question:
11. Credit union president Bill Bradley has just refused a loan for 25-year-old LaDawna Kingston, an
African-American woman and, in his opinion, the very definition of a "religious zealot." Bill refused the
loan based on her credit rating and lack of job stability. When LaDawna learns of his refusal, she tells him
she's calling an attorney, because she's been discriminated against. Which of the following statements is
true in this situation? Bill could be in big trouble, since it is illegal for a real estate licensee to discriminate
against a person seeking a loan based on racial, religious, or economic reasons. Bill could be in big trouble,
since it is illegal for a real estate licensee to discriminate against a person who is of any "protected class,"
even if that person does not meet the financial loan qualifications that every applicant must face. Bill could
face serious penalties if LaDawna files suit against him. It is illegal for a real estate licensee to decline
financing to a person of another race, even though that person does not meet the financial loan
qualifications set forth for every applicant. As long as Bill refused the financing based solely on economic
reasons (lack of job stability, poor credit rating, income, or net worth), he has acted lawfully and will not
face any disciplinary action.
Answer:
D. As long as Bill refused the financing based solely on economic reasons (lack of job stability, poor credit
rating, income, or net worth), he has acted lawfully and will not face any disciplinary action.
Question:
12. Napa resident Maria Gonzales, a newly-licensed real estate broker, has just negotiated her first trust
deed loan for her client, Isaac Mahrsan. The loan's term is 5 years, and it is Isaac's first loan. Under Article
7 of the Mortgage Broker Law in California, Maria knows that certain regulations have been set forth
regarding her commission in such a transaction. What is the maximum commission for loans subject to
Article 7, for first loans? Maria's maximum commission on this loan is 5 percent of the principal, which
applies to loans of 5 years or less. Maria's maximum commission on this loan is 5 percent of the principal,
which applies to loans of 10 years or less. Maria's maximum commission on this loan is 5 percent of the
principal of a loan, which applies to loans of 3 years or more. Maria's maximum commission on this loan is
10 percent of the principal of a loan, which applies to loans of 3 years or more.
