California Real Estate Practice Test Quiz
Q1. A homeowner installed custom built-in bookcases and cabinets in her living room. Upon selling the house, she wants to remove them. Which statement is most correct regarding these bookcases?
Correct Answer: B
Explanation: In real estate, a fixture is an item that started as personal property but has been attached to land or a building in a manner that makes it part of the real property. Built-in bookcases and cabinets attached to the walls are typically considered fixtures (they are affixed and adapted to the home). As fixtures, they transfer with the property when sold unless otherwise agreed. Courts apply tests such as intention, method of attachment, adaptability, agreement, and relationship of the parties to determine if an item is a fixture. Here, the custom built-ins are intended to be permanent improvements, so they must remain with the house unless the buyer and seller negotiate otherwise.
Citation: California Real Estate Reference Book – Chapter 4 (Property)
Explanation: In real estate, a fixture is an item that started as personal property but has been attached to land or a building in a manner that makes it part of the real property. Built-in bookcases and cabinets attached to the walls are typically considered fixtures (they are affixed and adapted to the home). As fixtures, they transfer with the property when sold unless otherwise agreed. Courts apply tests such as intention, method of attachment, adaptability, agreement, and relationship of the parties to determine if an item is a fixture. Here, the custom built-ins are intended to be permanent improvements, so they must remain with the house unless the buyer and seller negotiate otherwise.
Citation: California Real Estate Reference Book – Chapter 4 (Property)
Q2. A farmer’s annual crop of corn (fructus industriales) is ordinarily considered:
Correct Answer: C
Explanation: Annual crops (emblements or fructus industriales) are cultivated by human effort and are generally treated as personal property. Even though they grow on the land, the law allows the farmer (tenant) to harvest and remove the annual crop, as it is the farmer’s personal property. By contrast, naturally occurring plant growth (fructus naturales) like trees or perennial shrubs are usually part of the real property. In this scenario, corn is a crop planted for harvest, so it is considered the farmer’s personal property. The corn does not automatically transfer with the land sale unless otherwise agreed.
Citation: California Real Estate Reference Book – Chapter 4 (Property)
Explanation: Annual crops (emblements or fructus industriales) are cultivated by human effort and are generally treated as personal property. Even though they grow on the land, the law allows the farmer (tenant) to harvest and remove the annual crop, as it is the farmer’s personal property. By contrast, naturally occurring plant growth (fructus naturales) like trees or perennial shrubs are usually part of the real property. In this scenario, corn is a crop planted for harvest, so it is considered the farmer’s personal property. The corn does not automatically transfer with the land sale unless otherwise agreed.
Citation: California Real Estate Reference Book – Chapter 4 (Property)
Q3. Which of the following is considered personal property rather than real property?
Correct Answer: C
Explanation: A leasehold estate (a tenant’s interest for a term of years) is considered a less-than-freehold estate and is classified as personal property in California 6. In contrast, easements (A) are interests in real property, orchards/trees (B) attached to the land are real property (unless harvested as personal property crops), and built-in appliances (D) that are affixed to the home are typically fixtures (real property). A tenant’s lease interest (option C) is a chattel real – a personal property interest in real estate.
Citation: California Real Estate Reference Book – Chapter 4 (Property)
Explanation: A leasehold estate (a tenant’s interest for a term of years) is considered a less-than-freehold estate and is classified as personal property in California 6. In contrast, easements (A) are interests in real property, orchards/trees (B) attached to the land are real property (unless harvested as personal property crops), and built-in appliances (D) that are affixed to the home are typically fixtures (real property). A tenant’s lease interest (option C) is a chattel real – a personal property interest in real estate.
Citation: California Real Estate Reference Book – Chapter 4 (Property)
Q4. Which of the following is NOT considered an encumbrance on real property?
Correct Answer: C
Explanation: A license is a personal, revocable privilege to use another’s land (for example, permission to fish in a pond) and is not an encumbrance on the land’s title. Licenses do not create an interest in the property and end at the licensor’s will. In contrast, mortgages and property tax liens are financial encumbrances (liens) on title, and easements are non-financial encumbrances that burden the property by granting usage rights to others 8] 8 All liens are encumbrances, and easements are encumbrances, but a mere license is not recorded or binding on future owners and thus not an encumbrance on title.
Citation: California Real Estate Reference Book – Chapter 5 (Title to Real Property)
Explanation: A license is a personal, revocable privilege to use another’s land (for example, permission to fish in a pond) and is not an encumbrance on the land’s title. Licenses do not create an interest in the property and end at the licensor’s will. In contrast, mortgages and property tax liens are financial encumbrances (liens) on title, and easements are non-financial encumbrances that burden the property by granting usage rights to others 8] 8 All liens are encumbrances, and easements are encumbrances, but a mere license is not recorded or binding on future owners and thus not an encumbrance on title.
Citation: California Real Estate Reference Book – Chapter 5 (Title to Real Property)
Q5. The government’s right to take private property for public use, upon payment of just compensation, is an exercise of which power?
Correct Answer: A
Explanation: Eminent domain is the government’s constitutional power to acquire private property for a public use, provided the owner is paid just compensation 10] 10 If an owner refuses to sell, the government may initiate condemnation proceedings to enforce eminent domain. Police power (B) is the government’s right to regulate land use for the public welfare (e.g. zoning laws) but does not require compensation. Escheat (C) is the state’s power to acquire ownerless property when someone dies without heirs. Zoning authority (D) is a form of police power regulation, not the act of taking title. Here, the scenario of taking land for public use describes eminent domain.
Citation: California Code (Government’s Eminent Domain Power) – Civil Code §1001 / Reference Book Glossary
Explanation: Eminent domain is the government’s constitutional power to acquire private property for a public use, provided the owner is paid just compensation 10] 10 If an owner refuses to sell, the government may initiate condemnation proceedings to enforce eminent domain. Police power (B) is the government’s right to regulate land use for the public welfare (e.g. zoning laws) but does not require compensation. Escheat (C) is the state’s power to acquire ownerless property when someone dies without heirs. Zoning authority (D) is a form of police power regulation, not the act of taking title. Here, the scenario of taking land for public use describes eminent domain.
Citation: California Code (Government’s Eminent Domain Power) – Civil Code §1001 / Reference Book Glossary
Q6. Two people own a property together as joint tenants. If one co-owner dies, what happens to that person’s interest in the property?
Correct Answer: B
Explanation: Joint tenancy carries the right of survivorship. When one joint tenant dies, that person’s interest in the property is automatically extinguished and the surviving joint tenant(s) acquire the deceased’s share. The property does not go through probate for that share. In joint tenancy, title passes directly to surviving co-owner(s). By contrast, tenancy in common has no survivorship – a deceased tenant in common’s interest would pass to their heirs (answer A is describing tenancy in common) 12] 12 13] 13 Here, because the owners were joint tenants, the surviving owner becomes the sole owner.
Citation: California Real Estate Reference Book – Chapter 5 (Title to Real Property); Glossary (Joint Tenancy)
Explanation: Joint tenancy carries the right of survivorship. When one joint tenant dies, that person’s interest in the property is automatically extinguished and the surviving joint tenant(s) acquire the deceased’s share. The property does not go through probate for that share. In joint tenancy, title passes directly to surviving co-owner(s). By contrast, tenancy in common has no survivorship – a deceased tenant in common’s interest would pass to their heirs (answer A is describing tenancy in common) 12] 12 13] 13 Here, because the owners were joint tenants, the surviving owner becomes the sole owner.
Citation: California Real Estate Reference Book – Chapter 5 (Title to Real Property); Glossary (Joint Tenancy)
Q7. Which property would an appraiser most likely evaluate using the cost approach to value?
Correct Answer: C
Explanation: The cost approach is most appropriate for properties that are unique or have no close comparables and do not produce regular income, such as special-purpose buildings (e.g. libraries, schools, churches). In those cases, an appraiser will estimate the current cost to replace or reproduce the structure (minus depreciation) and add land value. A 40-year-old house in a tract (A) is better appraised by the sales comparison (market data) approach using comparable sales. An income-producing apartment (B) is typically valued by the income (capitalization) approach (and also market comparison). A multi-tenant retail center (D) would primarily use the income approach as well. Thus, the one that best fits the cost approach is the unique public library with no income or comparables 16] 16
Citation: Appraisal Principles – Cost Approach (Special-Purpose Properties)
Explanation: The cost approach is most appropriate for properties that are unique or have no close comparables and do not produce regular income, such as special-purpose buildings (e.g. libraries, schools, churches). In those cases, an appraiser will estimate the current cost to replace or reproduce the structure (minus depreciation) and add land value. A 40-year-old house in a tract (A) is better appraised by the sales comparison (market data) approach using comparable sales. An income-producing apartment (B) is typically valued by the income (capitalization) approach (and also market comparison). A multi-tenant retail center (D) would primarily use the income approach as well. Thus, the one that best fits the cost approach is the unique public library with no income or comparables 16] 16
Citation: Appraisal Principles – Cost Approach (Special-Purpose Properties)
Q8. An appraiser estimates that a small apartment building has an annual net operating income (NOI) of $30,000. If the market capitalization rate is 6%, what is the indicated value of the property (using the income approach)?
Correct Answer: C
Explanation: In the income capitalization approach, value is calculated as NOI ÷ capitalization rate. Here, NOI is $30,000 and the cap rate is 0.06 (6%). $30,000 divided by 0.06 equals $500,000. This means the property would be valued at approximately $500,000 to yield a 6% return on a $500,000 investment. (Choice D, $600,000, would imply a lower cap rate; choice B, $200,000, would correspond to a much higher cap rate around 15%.) The formula V = I ÷ R is a fundamental principle of the income approach 18] 18 19] 19
Citation: California Real Estate Reference Book – Glossary (Capitalization Rate and Income Approach) :: Enhanced Q8 Explanation:
Explanation: In the income capitalization approach, value is calculated as NOI ÷ capitalization rate. Here, NOI is $30,000 and the cap rate is 0.06 (6%). $30,000 divided by 0.06 equals $500,000. This means the property would be valued at approximately $500,000 to yield a 6% return on a $500,000 investment. (Choice D, $600,000, would imply a lower cap rate; choice B, $200,000, would correspond to a much higher cap rate around 15%.) The formula V = I ÷ R is a fundamental principle of the income approach 18] 18 19] 19
Citation: California Real Estate Reference Book – Glossary (Capitalization Rate and Income Approach) :: Enhanced Q8 Explanation:
Q9. A house rents for $2,000 per month. If the appropriate gross rent multiplier (GRM) is 150 (monthly), what is the estimated market value of the property?
Correct Answer: C
Explanation: The gross rent multiplier method multiplies a property’s gross monthly rent by an appropriate GRM to estimate value. Here the monthly rent is $2,000. Using a GRM of 150: $2,000 × 150 = $300,000. Thus, the property’s estimated value is $300,000. (This assumes the GRM was derived from comparable sales of rental properties.) The GRM is a quick comparative tool and is defined as the factor which, when multiplied by gross income, gives an estimate of value 22] 22
Citation: California Real Estate Reference Book – Glossary (Gross Rent Multiplier)
Explanation: The gross rent multiplier method multiplies a property’s gross monthly rent by an appropriate GRM to estimate value. Here the monthly rent is $2,000. Using a GRM of 150: $2,000 × 150 = $300,000. Thus, the property’s estimated value is $300,000. (This assumes the GRM was derived from comparable sales of rental properties.) The GRM is a quick comparative tool and is defined as the factor which, when multiplied by gross income, gives an estimate of value 22] 22
Citation: California Real Estate Reference Book – Glossary (Gross Rent Multiplier)
Q10. A 100-year-old Victorian house has very small closets and no built-in heating system, making it less functional for modern living. This is an example of:
Correct Answer: B
Explanation: Functional obsolescence is a loss of value caused by out-of-date or impractical design features within the property. In this case, inadequate closets and lack of a heating system are internal deficiencies that reduce the home’s utility to modern buyers – a classic example of functional obsolescence 24] 24 Physical deterioration (A) would be wear and tear or damage (e.g. a leaking roof). Economic/external obsolescence (C) is loss of value from external factors (like neighborhood decline or zoning changes). “Curable depreciation” (D) is not a distinct category of obsolescence but rather refers to whether a deficiency can be feasibly corrected; some functional obsolescence can be curable (e.g. installing heating) while some may be incurable (e.g. poor layout).
Citation: California Real Estate Reference Book – Glossary (Functional Obsolescence)
Explanation: Functional obsolescence is a loss of value caused by out-of-date or impractical design features within the property. In this case, inadequate closets and lack of a heating system are internal deficiencies that reduce the home’s utility to modern buyers – a classic example of functional obsolescence 24] 24 Physical deterioration (A) would be wear and tear or damage (e.g. a leaking roof). Economic/external obsolescence (C) is loss of value from external factors (like neighborhood decline or zoning changes). “Curable depreciation” (D) is not a distinct category of obsolescence but rather refers to whether a deficiency can be feasibly corrected; some functional obsolescence can be curable (e.g. installing heating) while some may be incurable (e.g. poor layout).
Citation: California Real Estate Reference Book – Glossary (Functional Obsolescence)
Q11. In appraisal, “highest and best use” of a property is best described as:
Correct Answer: C
Explanation: The highest and best use of a property is that legally permissible use which is physically possible and financially feasible, and results in the maximum value or net return over time. It is essentially the most profitable use of the land or property. It may or may not be the current use. Answer C captures this: the use that is legally allowed and produces the greatest net return (profit) to the land and improvements 26] 26 It is not merely the highest gross income (A) if costs are too high; it must consider net return. Nor is it simply what the owner wants (B) or what zoning dictates (D) – zoning provides possible uses, but among those, the appraiser finds which yields highest value.
Citation: California Real Estate Reference Book – Glossary (Highest and Best Use)
Explanation: The highest and best use of a property is that legally permissible use which is physically possible and financially feasible, and results in the maximum value or net return over time. It is essentially the most profitable use of the land or property. It may or may not be the current use. Answer C captures this: the use that is legally allowed and produces the greatest net return (profit) to the land and improvements 26] 26 It is not merely the highest gross income (A) if costs are too high; it must consider net return. Nor is it simply what the owner wants (B) or what zoning dictates (D) – zoning provides possible uses, but among those, the appraiser finds which yields highest value.
Citation: California Real Estate Reference Book – Glossary (Highest and Best Use)
Q12. A comparable property sold for $410,000 and has a feature superior to the subject property (the comp has an extra bedroom worth $10,000 more). To adjust for the differences in a sales comparison approach, the appraiser should:
Correct Answer: B
Explanation: In the market (sales comparison) approach, adjustments are made to the sale prices of the comparable properties to make them equivalent to the subject. If a comparable has a feature superior to the subject, the appraiser subtracts the value of that feature from the comp’s price. This brings the comp’s value down to what it would have been without that extra feature. Conversely, if the comp is inferior in some aspect, the appraiser adds value to the comp’s price. In this case, since the comp has an extra bedroom valued at $10,000 more than the subject, the appraiser subtracts $10,000 from the comp’s sale price of $410,000. That yields an adjusted comp value of $400,000 as an indication for the subject. This adjustment process ensures the comp reflects the subject’s characteristics.
Citation: Appraisal Practice – Sales Comparison Adjustments (Principle of Substitution and Comparison)
Explanation: In the market (sales comparison) approach, adjustments are made to the sale prices of the comparable properties to make them equivalent to the subject. If a comparable has a feature superior to the subject, the appraiser subtracts the value of that feature from the comp’s price. This brings the comp’s value down to what it would have been without that extra feature. Conversely, if the comp is inferior in some aspect, the appraiser adds value to the comp’s price. In this case, since the comp has an extra bedroom valued at $10,000 more than the subject, the appraiser subtracts $10,000 from the comp’s sale price of $410,000. That yields an adjusted comp value of $400,000 as an indication for the subject. This adjustment process ensures the comp reflects the subject’s characteristics.
Citation: Appraisal Practice – Sales Comparison Adjustments (Principle of Substitution and Comparison)
Q13. In California, a deed of trust differs from a mortgage in that:
Correct Answer: A
Explanation: The key structural difference is the number of parties. A deed of trust (trust deed) has three parties: the trustor (borrower), the beneficiary (lender), and a neutral trustee who holds “bare” legal title in trust. By contrast, a mortgage involves only two parties: the mortgagor (borrower) and mortgagee (lender). In California, deeds of trust are commonly used and they can be foreclosed (non-judicially by trustee’s sale). Legal title under a deed of trust is held by the trustee until the loan is paid (then reconveyed) 28] 28 With a mortgage, the borrower usually retains title but gives the lender a lien; both instruments create security interests in real property. Therefore, answer A is correct. (All real estate loans can be foreclosed if defaulted, so B is false; C is incorrect because in a mortgage the borrower keeps title but gives a lien, whereas in a trust deed the trustee holds title — opposite of C’s claim; D is false — both mortgages and trust deeds are used for real property loans.)
Citation: California Real Estate Reference Book – Glossary (Trustor in Deed of Trust) 29] 29
Explanation: The key structural difference is the number of parties. A deed of trust (trust deed) has three parties: the trustor (borrower), the beneficiary (lender), and a neutral trustee who holds “bare” legal title in trust. By contrast, a mortgage involves only two parties: the mortgagor (borrower) and mortgagee (lender). In California, deeds of trust are commonly used and they can be foreclosed (non-judicially by trustee’s sale). Legal title under a deed of trust is held by the trustee until the loan is paid (then reconveyed) 28] 28 With a mortgage, the borrower usually retains title but gives the lender a lien; both instruments create security interests in real property. Therefore, answer A is correct. (All real estate loans can be foreclosed if defaulted, so B is false; C is incorrect because in a mortgage the borrower keeps title but gives a lien, whereas in a trust deed the trustee holds title — opposite of C’s claim; D is false — both mortgages and trust deeds are used for real property loans.)
Citation: California Real Estate Reference Book – Glossary (Trustor in Deed of Trust) 29] 29
Q14. Which of the following is true regarding FHA-insured home loans in California?
Correct Answer: A
Explanation: FHA loans are mortgages insured by the Federal Housing Administration (a U.S. government agency). The FHA insurance protects the lender against loss if the borrower defaults 30] 30 This insurance allows lenders to offer loans with low down payments (often 3.5%) and more lenient credit requirements compared to conventional loans. FHA loans are not guaranteed by the state (B is false; VA loans are guaranteed by the federal VA for veterans). FHA loans do not require 20% down (often much less, so C is false). They are available to any qualified borrower (particularly aimed at low-to-moderate income or first-time buyers), not limited to veterans (D is false — veterans have separate VA loans).
Citation: U.S. Department of HUD/FHA Guidelines – FHA loans are government-insured 31] 31
Explanation: FHA loans are mortgages insured by the Federal Housing Administration (a U.S. government agency). The FHA insurance protects the lender against loss if the borrower defaults 30] 30 This insurance allows lenders to offer loans with low down payments (often 3.5%) and more lenient credit requirements compared to conventional loans. FHA loans are not guaranteed by the state (B is false; VA loans are guaranteed by the federal VA for veterans). FHA loans do not require 20% down (often much less, so C is false). They are available to any qualified borrower (particularly aimed at low-to-moderate income or first-time buyers), not limited to veterans (D is false — veterans have separate VA loans).
Citation: U.S. Department of HUD/FHA Guidelines – FHA loans are government-insured 31] 31
Q15. The California Veterans Farm and Home Purchase (CalVet) program provides financing to qualified veterans by:
Correct Answer: C
Explanation: CalVet loans are structured as land sale contracts (contracts of sale). Under CalVet, the California Department of Veterans Affairs actually purchases the home and holds legal title as the vendor, then the veteran (vendee) buys the property from the department on a contract of sale. The veteran makes payments to the department, and title is deeded to the veteran only when the debt is fully paid. In other words, the veteran finances the property through a land contract with the state 32] 32 33] 33 (A is describing VA loans, which guarantee loans from private lenders – not the CalVet structure. B is inaccurate; in CalVet the state holds title, not a trust deed arrangement naming veteran as beneficiary. D is incorrect – CalVet loans are loans, not grants.)
Citation: California Department of Veterans Affairs – CalVet Loan (Land Contract Structure)
Explanation: CalVet loans are structured as land sale contracts (contracts of sale). Under CalVet, the California Department of Veterans Affairs actually purchases the home and holds legal title as the vendor, then the veteran (vendee) buys the property from the department on a contract of sale. The veteran makes payments to the department, and title is deeded to the veteran only when the debt is fully paid. In other words, the veteran finances the property through a land contract with the state 32] 32 33] 33 (A is describing VA loans, which guarantee loans from private lenders – not the CalVet structure. B is inaccurate; in CalVet the state holds title, not a trust deed arrangement naming veteran as beneficiary. D is incorrect – CalVet loans are loans, not grants.)
Citation: California Department of Veterans Affairs – CalVet Loan (Land Contract Structure)
Q16. A lender charges a borrower “2 points” on a $250,000 loan. Approximately how much is this charge?
Correct Answer: B
Explanation: One point is equal to one percent (1%) of the loan amount 36] 36 “Two points” means 2% of the loan. For a $250,000 loan: 1% is $2,500, so 2% (two points) is $5,000. Points are typically charged by lenders as prepaid interest or loan origination fees. In this question, the borrower would pay $5,000 in points on a $250,000 loan.
Citation: California Real Estate Reference Book – Glossary (Discount Points) 37] 37
Explanation: One point is equal to one percent (1%) of the loan amount 36] 36 “Two points” means 2% of the loan. For a $250,000 loan: 1% is $2,500, so 2% (two points) is $5,000. Points are typically charged by lenders as prepaid interest or loan origination fees. In this question, the borrower would pay $5,000 in points on a $250,000 loan.
Citation: California Real Estate Reference Book – Glossary (Discount Points) 37] 37
Q17. A real estate salesperson receives a buyer’s deposit check on Monday. Absent contrary instructions, California Commissioner’s Regulations require that this trust fund be:
Correct Answer: A
Explanation: Trust funds (like buyer deposit checks) must be properly handled by the agent. Under California law, a broker (or salesperson on the broker’s behalf) must, within three business days of receipt, deposit the funds into the broker’s trust account, or place them in a neutral escrow or hand them to the rightful principal 38] 38 For example, if a check is received Monday, it should be deposited or forwarded by Thursday. Options B and D are improper – an agent cannot commingle or hold a check indefinitely. The regulations (Commissioner’s Regulation 2832 and Code §10145) forbid holding client funds in a personal account. Therefore, the check should be handled as answer A describes.
Citation: California Business & Professions Code §10145; DRE Commissioner’s Regulation 2832 (Trust Fund Handling) 39] 39
Explanation: Trust funds (like buyer deposit checks) must be properly handled by the agent. Under California law, a broker (or salesperson on the broker’s behalf) must, within three business days of receipt, deposit the funds into the broker’s trust account, or place them in a neutral escrow or hand them to the rightful principal 38] 38 For example, if a check is received Monday, it should be deposited or forwarded by Thursday. Options B and D are improper – an agent cannot commingle or hold a check indefinitely. The regulations (Commissioner’s Regulation 2832 and Code §10145) forbid holding client funds in a personal account. Therefore, the check should be handled as answer A describes.
Citation: California Business & Professions Code §10145; DRE Commissioner’s Regulation 2832 (Trust Fund Handling) 39] 39
Q18. “Commingling” in real estate brokerage practice means:
Correct Answer: C
Explanation: Commingling is strictly prohibited and occurs when a broker or agent mixes client trust funds with personal funds or the firm’s operating funds. For example, depositing a buyer’s deposit check into the broker’s general business account (or personal account) would be commingling. California law allows only a very limited amount of broker’s own money (up to $200) in a trust account, solely to cover bank fees 40] 40 Beyond that, any personal use or mixing is improper. (Choice B describes conversion, which is actually using the client’s money for personal use – a more serious violation/theft. Mixing multiple clients’ trust funds together in one trust account (A) is generally allowed and normal, as long as they are all trust funds and properly accounted for. D is simply proper handling, not commingling.) Commingling can lead to license discipline.
Citation: 10 Cal. Code Regs. §2832.1; DRE Reference Book – Trust Funds (Commingling Limit)
Explanation: Commingling is strictly prohibited and occurs when a broker or agent mixes client trust funds with personal funds or the firm’s operating funds. For example, depositing a buyer’s deposit check into the broker’s general business account (or personal account) would be commingling. California law allows only a very limited amount of broker’s own money (up to $200) in a trust account, solely to cover bank fees 40] 40 Beyond that, any personal use or mixing is improper. (Choice B describes conversion, which is actually using the client’s money for personal use – a more serious violation/theft. Mixing multiple clients’ trust funds together in one trust account (A) is generally allowed and normal, as long as they are all trust funds and properly accounted for. D is simply proper handling, not commingling.) Commingling can lead to license discipline.
Citation: 10 Cal. Code Regs. §2832.1; DRE Reference Book – Trust Funds (Commingling Limit)
Q19. An agent tells homeowners in a neighborhood, “You should consider selling because a group of new foreign buyers is moving in, which might lower property values.” This conduct is:
Correct Answer: B
Explanation: The agent’s tactic is classic “blockbusting” (also called panic peddling) – attempting to induce owners to sell by suggesting that the entry of certain people (in this case, based on foreign origin or presumably a particular ethnicity) will cause property values to fall. This is explicitly illegal under fair housing laws (California & federal) as a form of discrimination. It does not matter if the agent claims it’s true or not – it’s prohibited to make such representations. “Steering” refers to guiding buyers/renters toward or away from areas based on protected characteristics – that’s a different practice. Here, since the agent is working on sellers by fear of demographic changes, it’s blockbusting. Therefore, it is not legitimate marketing (A is wrong) and it’s not excusable by outcomes (D is wrong). It’s illegal, period, under the Fair Housing Act and California law (Business & Professions Code §10177(g)).
Citation: California Fair Housing Law – Blockbusting Prohibition (Cal. Civ. Code §52.3; §10177(l))
Explanation: The agent’s tactic is classic “blockbusting” (also called panic peddling) – attempting to induce owners to sell by suggesting that the entry of certain people (in this case, based on foreign origin or presumably a particular ethnicity) will cause property values to fall. This is explicitly illegal under fair housing laws (California & federal) as a form of discrimination. It does not matter if the agent claims it’s true or not – it’s prohibited to make such representations. “Steering” refers to guiding buyers/renters toward or away from areas based on protected characteristics – that’s a different practice. Here, since the agent is working on sellers by fear of demographic changes, it’s blockbusting. Therefore, it is not legitimate marketing (A is wrong) and it’s not excusable by outcomes (D is wrong). It’s illegal, period, under the Fair Housing Act and California law (Business & Professions Code §10177(g)).
Citation: California Fair Housing Law – Blockbusting Prohibition (Cal. Civ. Code §52.3; §10177(l))
Q20. Which of the following is a protected class under California’s Fair Employment and Housing Act that is not explicitly protected by federal fair housing law?
Correct Answer: A
Explanation: California’s fair housing law covers all the federal protected categories (race, color, religion, sex, national origin, familial status, disability) and adds additional protections. Sexual orientation is explicitly protected under California law (as are gender identity/expression, marital status, ancestry, source of income, among others) 42] 42 The federal Fair Housing Act, however, does not explicitly list sexual orientation as a protected class (as of the time of writing, though some interpretations may offer limited protection). Race, religion, and national origin (B, C, D) are protected by federal law as well. Therefore, the category in the choices that is uniquely protected in California but not stated in the federal act is sexual orientation.
Citation: California Government Code §12955 (Fair Housing protected categories); Civil Rights Dept. Guidance
Explanation: California’s fair housing law covers all the federal protected categories (race, color, religion, sex, national origin, familial status, disability) and adds additional protections. Sexual orientation is explicitly protected under California law (as are gender identity/expression, marital status, ancestry, source of income, among others) 42] 42 The federal Fair Housing Act, however, does not explicitly list sexual orientation as a protected class (as of the time of writing, though some interpretations may offer limited protection). Race, religion, and national origin (B, C, D) are protected by federal law as well. Therefore, the category in the choices that is uniquely protected in California but not stated in the federal act is sexual orientation.
Citation: California Government Code §12955 (Fair Housing protected categories); Civil Rights Dept. Guidance
Q21. Which of these advertisements would violate fair housing laws?
Correct Answer: A
Explanation: Stating “no children please” in an advertisement is illegal discrimination on the basis of familial status (presence of children). The federal and state fair housing laws prohibit refusing families with children in housing (except in designated senior housing). An ad that explicitly discourages or refuses children is a violation. Option B (“no smoking”) is not a violation – smokers are not a protected class and landlords can prohibit smoking. Option C (describing accessibility features) is allowed and even helpful for disabled prospects; it’s not excluding anyone. Option D (requiring income/credit check) is permissible as long as applied equally – financial qualifications are allowed. Therefore, the ad in A is the clear fair housing violation 44] 44 (discriminatory against families).
Citation: Federal Fair Housing Act (42 USC §3604(c)) – Illegal to indicate preference or limitation (familial status protected) 45] 45
Explanation: Stating “no children please” in an advertisement is illegal discrimination on the basis of familial status (presence of children). The federal and state fair housing laws prohibit refusing families with children in housing (except in designated senior housing). An ad that explicitly discourages or refuses children is a violation. Option B (“no smoking”) is not a violation – smokers are not a protected class and landlords can prohibit smoking. Option C (describing accessibility features) is allowed and even helpful for disabled prospects; it’s not excluding anyone. Option D (requiring income/credit check) is permissible as long as applied equally – financial qualifications are allowed. Therefore, the ad in A is the clear fair housing violation 44] 44 (discriminatory against families).
Citation: Federal Fair Housing Act (42 USC §3604(c)) – Illegal to indicate preference or limitation (familial status protected) 45] 45
Q22. A broker must retain copies of all transaction documents (e.g. listings, deposit receipts, canceled checks, trust records) for at least:
Correct Answer: B
Explanation: California law (Business & Professions Code §10148) requires brokers to keep transaction documents and records for a minimum of three years. This includes listings, purchase agreements, trust account records, etc., from the date of closing or from the date of listing if the transaction is not consummated 46] 46 (Property management transactions have similar retention requirements.) Therefore, three years is the correct period. One year is too short (A is wrong). Four years is not the mandated period (though 4 years is a statute of limitations for some contract actions, it’s not the DRE rule for records – C is incorrect in this context). “Forever” is not required (D is wrong).
Citation: California Business & Professions Code §10148; DRE Commissioner’s Regulation 2729 – Record Retention (3 Years)
Explanation: California law (Business & Professions Code §10148) requires brokers to keep transaction documents and records for a minimum of three years. This includes listings, purchase agreements, trust account records, etc., from the date of closing or from the date of listing if the transaction is not consummated 46] 46 (Property management transactions have similar retention requirements.) Therefore, three years is the correct period. One year is too short (A is wrong). Four years is not the mandated period (though 4 years is a statute of limitations for some contract actions, it’s not the DRE rule for records – C is incorrect in this context). “Forever” is not required (D is wrong).
Citation: California Business & Professions Code §10148; DRE Commissioner’s Regulation 2729 – Record Retention (3 Years)
Q23. Which task may an unlicensed real estate assistant legally perform in California?
Correct Answer: C
Explanation: Unlicensed assistants are limited to supportive, administrative, or clerical activities that do not require a real estate license. Preparing marketing flyers, brochures, or other paperwork at the direction of a broker or agent is an allowable clerical activity. By contrast, hosting open houses alone or answering in-depth questions about the property (A) is considered licensed activity (showing property and discussing terms must be done by a licensee). Soliciting listings via cold calls (B) is also licensed activity (soliciting sellers for employment requires a license). Explaining or interpreting contract terms to a client (D) is definitely licensed activity (rendering advice or negotiation). These would be illegal for an unlicensed person. Only option C describes a permitted activity.
Citation: California DRE Rule – Permissible Activities for Unlicensed Assistants (Cal. DRE Guidelines)
Explanation: Unlicensed assistants are limited to supportive, administrative, or clerical activities that do not require a real estate license. Preparing marketing flyers, brochures, or other paperwork at the direction of a broker or agent is an allowable clerical activity. By contrast, hosting open houses alone or answering in-depth questions about the property (A) is considered licensed activity (showing property and discussing terms must be done by a licensee). Soliciting listings via cold calls (B) is also licensed activity (soliciting sellers for employment requires a license). Explaining or interpreting contract terms to a client (D) is definitely licensed activity (rendering advice or negotiation). These would be illegal for an unlicensed person. Only option C describes a permitted activity.
Citation: California DRE Rule – Permissible Activities for Unlicensed Assistants (Cal. DRE Guidelines)
Q24. Which of the following is grounds for disciplinary action by the California Department of Real Estate?
Correct Answer: A
Explanation: Intentionally failing to disclose a known material defect to a buyer is a form of misrepresentation or concealment and violates the broker’s duties. This is cause for license discipline 48] 48 (as well as potential civil liability). Option B – paying a referral fee to another licensed broker – is generally legal. Option C – properly depositing a client’s funds into a trust account – is actually correct procedure, not a violation. Option D – dual agency with full disclosure and consent – is legal in California (the broker just must have both parties’ informed written consent). Thus, the unethical and illegal act among these is the deliberate nondisclosure in A. Under Code §10176(a), making a substantial misrepresentation or failing to disclose material facts to a principal or buyer is grounds for DRE discipline.
Citation: California Business & Professions Code §10176(a) – Misrepresentation/Failure to Disclose 49] 49
Explanation: Intentionally failing to disclose a known material defect to a buyer is a form of misrepresentation or concealment and violates the broker’s duties. This is cause for license discipline 48] 48 (as well as potential civil liability). Option B – paying a referral fee to another licensed broker – is generally legal. Option C – properly depositing a client’s funds into a trust account – is actually correct procedure, not a violation. Option D – dual agency with full disclosure and consent – is legal in California (the broker just must have both parties’ informed written consent). Thus, the unethical and illegal act among these is the deliberate nondisclosure in A. Under Code §10176(a), making a substantial misrepresentation or failing to disclose material facts to a principal or buyer is grounds for DRE discipline.
Citation: California Business & Professions Code §10176(a) – Misrepresentation/Failure to Disclose 49] 49
Q25. How often must a California real estate salesperson renew their license and complete continuing education?
Correct Answer: B
Explanation: Salesperson (and broker) licenses in California are issued for four-year terms. To renew, a licensee must complete 45 hours of approved continuing education courses by the time of renewal and pay the renewal fee. The 45-hour CE requirement applies to each four-year renewal period 50] 50 (with specific courses required, including ethics, agency, fair housing, trust fund handling, and since 2023, implicit bias training and an interactive fair housing course). Therefore, answer B is correct. (There is no annual renewal or exam – D is wrong; renewal is every 4 years, not 2, and CE is 45 hours, not 15 – so A and C are incorrect. Continuing education is indeed required for salespersons.)
Citation: California Department of Real Estate – License Renewal Requirements (45 hours every 4 years) 51] 51
Explanation: Salesperson (and broker) licenses in California are issued for four-year terms. To renew, a licensee must complete 45 hours of approved continuing education courses by the time of renewal and pay the renewal fee. The 45-hour CE requirement applies to each four-year renewal period 50] 50 (with specific courses required, including ethics, agency, fair housing, trust fund handling, and since 2023, implicit bias training and an interactive fair housing course). Therefore, answer B is correct. (There is no annual renewal or exam – D is wrong; renewal is every 4 years, not 2, and CE is 45 hours, not 15 – so A and C are incorrect. Continuing education is indeed required for salespersons.)
Citation: California Department of Real Estate – License Renewal Requirements (45 hours every 4 years) 51] 51
Q26. The maximum payment that can be made from the California Consumer Recovery Account (Real Estate Recovery Fund) to satisfy judgments against a licensee is:
Correct Answer: B
Explanation: The Recovery Account administered by the DRE will pay out a maximum of $50,000 for any one transaction and an aggregate maximum of $250,000 against any individual licensee (for all claims). These limits are set by statute 52] 52 If multiple judgments are granted against the same licensee, once $250,000 total has been paid, the fund is exhausted as to that licensee. These limits mean answer B is correct. (A’s figures are too low and not the law. C and D are incorrect; there are caps – it’s not simply whatever the judgment is, and it’s not $100k per claim.) If the Recovery Account pays out on behalf of a licensee, the license is suspended until the amount is repaid with interest.
Citation: California Business & Professions Code §10474 – Recovery Account Limits 53] 53
Explanation: The Recovery Account administered by the DRE will pay out a maximum of $50,000 for any one transaction and an aggregate maximum of $250,000 against any individual licensee (for all claims). These limits are set by statute 52] 52 If multiple judgments are granted against the same licensee, once $250,000 total has been paid, the fund is exhausted as to that licensee. These limits mean answer B is correct. (A’s figures are too low and not the law. C and D are incorrect; there are caps – it’s not simply whatever the judgment is, and it’s not $100k per claim.) If the Recovery Account pays out on behalf of a licensee, the license is suspended until the amount is repaid with interest.
Citation: California Business & Professions Code §10474 – Recovery Account Limits 53] 53
Q27. Effective 2024, a new California law (AB 12) limits residential security deposits for rentals to:
Correct Answer: B
Explanation: As of January 1, 2024, California law (Assembly Bill 12 of 2023) amended Civil Code §1950.5 to cap security deposits for residential rental properties at an amount equal to one month’s rent, regardless of whether the unit is furnished or unfurnished 54] 54 This is a significant change from prior law, which allowed up to 2 months’ rent (unfurnished) or 3 months’ (furnished). The new general rule is one month’s rent maximum for security deposits. (There is an exception for certain small landlords with only a couple properties – they can still collect 2 months – but that is a narrow exception. Generally, answer B states the new rule.) Therefore, A reflects the old law (now outdated), and C and D are incorrect as the law does impose a limit.
Citation: California Civil Code §1950.5 (as amended by AB 12, 2023) – Security Deposit Limit 55] 55
Explanation: As of January 1, 2024, California law (Assembly Bill 12 of 2023) amended Civil Code §1950.5 to cap security deposits for residential rental properties at an amount equal to one month’s rent, regardless of whether the unit is furnished or unfurnished 54] 54 This is a significant change from prior law, which allowed up to 2 months’ rent (unfurnished) or 3 months’ (furnished). The new general rule is one month’s rent maximum for security deposits. (There is an exception for certain small landlords with only a couple properties – they can still collect 2 months – but that is a narrow exception. Generally, answer B states the new rule.) Therefore, A reflects the old law (now outdated), and C and D are incorrect as the law does impose a limit.
Citation: California Civil Code §1950.5 (as amended by AB 12, 2023) – Security Deposit Limit 55] 55
Q28. After a residential tenant vacates and returns the keys, the landlord must mail out either the security deposit refund or an itemized statement of deductions (and any balance) within:
Correct Answer: B
Explanation: Under California law (Civil Code §1950.5), a landlord has 21 calendar days after the tenant vacates (and returns possession) to either return the full security deposit or send an itemized statement of deductions along with any remaining refund 56] 56 Failing to do so can make the landlord liable for penalties up to twice the deposit in court. Thus, 21 days is the correct timeframe. (7 days is too short – not the law. 30 or 60 days are incorrect; 21 days is the statutory deadline.) This rule ensures tenants get a timely accounting of their deposit.
Citation: California Civil Code §1950.5(g) – Security Deposit Return within 21 Days 57] 57
Explanation: Under California law (Civil Code §1950.5), a landlord has 21 calendar days after the tenant vacates (and returns possession) to either return the full security deposit or send an itemized statement of deductions along with any remaining refund 56] 56 Failing to do so can make the landlord liable for penalties up to twice the deposit in court. Thus, 21 days is the correct timeframe. (7 days is too short – not the law. 30 or 60 days are incorrect; 21 days is the statutory deadline.) This rule ensures tenants get a timely accounting of their deposit.
Citation: California Civil Code §1950.5(g) – Security Deposit Return within 21 Days 57] 57
Q29. When selling a one-to-four unit residential property in California, which of the following is TRUE regarding required disclosures?
Correct Answer: A
Explanation: In most sales of 1-4 unit residential properties, California Civil Code §1102 requires the seller to provide a completed Transfer Disclosure Statement (TDS) to the buyer. This form discloses the condition of the property and any known defects or material facts affecting value or desirability 58] 58 The listing agent (and buyer’s agent, if any) must also conduct a diligent visual inspection of the property and disclose any observable material defects, supplementing the TDS 59] 59 The TDS is not required for commercial or multifamily properties with 5+ units (B is false – it’s required for 1-4 residential). “As is” sales are not exempt from TDS (C is false; “as is” only means no repairs, but disclosure is still mandatory). Having a home inspection does not waive the TDS requirement (D is false). Thus, only A is correct.
Citation: California Civil Code §1102 et seq. – Real Estate Transfer Disclosure Statement (1-4 units) 60] 60 61] 61
Explanation: In most sales of 1-4 unit residential properties, California Civil Code §1102 requires the seller to provide a completed Transfer Disclosure Statement (TDS) to the buyer. This form discloses the condition of the property and any known defects or material facts affecting value or desirability 58] 58 The listing agent (and buyer’s agent, if any) must also conduct a diligent visual inspection of the property and disclose any observable material defects, supplementing the TDS 59] 59 The TDS is not required for commercial or multifamily properties with 5+ units (B is false – it’s required for 1-4 residential). “As is” sales are not exempt from TDS (C is false; “as is” only means no repairs, but disclosure is still mandatory). Having a home inspection does not waive the TDS requirement (D is false). Thus, only A is correct.
Citation: California Civil Code §1102 et seq. – Real Estate Transfer Disclosure Statement (1-4 units) 60] 60 61] 61
Q30. Under Civil Code §2079 (as codified after Easton v. Strassburger), a real estate agent in a 1–4 unit residential sale must:
Correct Answer: A
Explanation: California Civil Code §2079 requires that licensed agents involved in the sale of residential property (one-to-four units) perform a reasonably competent and diligent visual inspection of the property’s accessible areas and disclose to the buyer any material defects observed 62] 62 This codified the duty established in the Easton v. Strassburger case. Agents are not required to hire third-party inspectors (that is the buyer’s choice – B is incorrect), but must personally inspect and disclose obvious problems. They certainly cannot conceal defects until asked (D is wrong – they must affirmatively disclose known or visible material facts). And agents do not “insure” the buyer against defects (C is false); their duty is disclosure, not guarantee. Thus, the correct duty is described in A.
Citation: California Civil Code §2079.16; Easton v. Strassburger (1984) – Agent Inspection Duty 63] 63
Explanation: California Civil Code §2079 requires that licensed agents involved in the sale of residential property (one-to-four units) perform a reasonably competent and diligent visual inspection of the property’s accessible areas and disclose to the buyer any material defects observed 62] 62 This codified the duty established in the Easton v. Strassburger case. Agents are not required to hire third-party inspectors (that is the buyer’s choice – B is incorrect), but must personally inspect and disclose obvious problems. They certainly cannot conceal defects until asked (D is wrong – they must affirmatively disclose known or visible material facts). And agents do not “insure” the buyer against defects (C is false); their duty is disclosure, not guarantee. Thus, the correct duty is described in A.
Citation: California Civil Code §2079.16; Easton v. Strassburger (1984) – Agent Inspection Duty 63] 63
Q31. Which of the following is not required for the formation of a valid contract?
Correct Answer: D
Explanation: The four essential elements to form a valid contract are: (1) capable parties, (2) mutual consent (a meeting of the minds through offer and acceptance), (3) a lawful objective, and (4) consideration (something of value exchanged). These are required for any valid contract 64] 64 A written, notarized document (D) is not required for all contracts – many contracts can be oral (unless the Statute of Frauds requires writing for certain types, like real estate transfers). Even a real estate contract need not be notarized to be valid (notarization is only needed for recording certain documents, like deeds). Therefore, D is not a general requirement for contract formation, whereas A, B, and C are fundamental requirements.
Citation: California Civil Code §1550; Reference Book – Glossary (Contract Essentials) 65] 65
Explanation: The four essential elements to form a valid contract are: (1) capable parties, (2) mutual consent (a meeting of the minds through offer and acceptance), (3) a lawful objective, and (4) consideration (something of value exchanged). These are required for any valid contract 64] 64 A written, notarized document (D) is not required for all contracts – many contracts can be oral (unless the Statute of Frauds requires writing for certain types, like real estate transfers). Even a real estate contract need not be notarized to be valid (notarization is only needed for recording certain documents, like deeds). Therefore, D is not a general requirement for contract formation, whereas A, B, and C are fundamental requirements.
Citation: California Civil Code §1550; Reference Book – Glossary (Contract Essentials) 65] 65
Q32. In California, an exclusive listing agreement to sell real property must:
Correct Answer: A
Explanation: California law (Business & Professions Code §10176(f)) requires that all exclusive real estate listing contracts include a specified, definite termination date 66] 66 Failing to include a clear expiration date is grounds for license discipline. The listing cannot simply run indefinitely until sale or cancellation (so B is wrong). Automatic renewal clauses in exclusive listings are not allowed unless the client can cancel at will – generally, exclusive listings must end on the stated date (thus C is incorrect for standard practice). There is no DRE “approved” mandatory form – standard forms (like those from the Realtors) are used, but DRE doesn’t mandate a specific form (D is false). The key requirement is a definite expiration date in the agreement.
Citation: California Business & Professions Code §10176(f) – Exclusive Listing Must Have Termination Date 67] 67
Explanation: California law (Business & Professions Code §10176(f)) requires that all exclusive real estate listing contracts include a specified, definite termination date 66] 66 Failing to include a clear expiration date is grounds for license discipline. The listing cannot simply run indefinitely until sale or cancellation (so B is wrong). Automatic renewal clauses in exclusive listings are not allowed unless the client can cancel at will – generally, exclusive listings must end on the stated date (thus C is incorrect for standard practice). There is no DRE “approved” mandatory form – standard forms (like those from the Realtors) are used, but DRE doesn’t mandate a specific form (D is false). The key requirement is a definite expiration date in the agreement.
Citation: California Business & Professions Code §10176(f) – Exclusive Listing Must Have Termination Date 67] 67
Q33. In an option contract to purchase real estate, which of the following is true?
Correct Answer: C
Explanation: An option is a unilateral contract in which the optionor (usually the seller) is bound to keep an offer open for a specified time, but the optionee (buyer) has the right – not the obligation – to purchase within that time. If the optionee chooses not to exercise the option, it simply expires (is void), and the optionee is not in breach for failing to exercise. The optionor cannot revoke the option during the option period if consideration was given (so B is false – the optionor must honor the option). An option does require consideration to be enforceable (even nominal consideration) 68] 68 , so D is false. And importantly, the optionee is not obligated to buy (A is false); only if the optionee exercises does it become a bilateral purchase contract. Thus, the correct statement is that if the option is not exercised, it expires with no liability to the optionee.
Citation: California Real Estate Reference Book – Glossary (Option definition) 69] 69
Explanation: An option is a unilateral contract in which the optionor (usually the seller) is bound to keep an offer open for a specified time, but the optionee (buyer) has the right – not the obligation – to purchase within that time. If the optionee chooses not to exercise the option, it simply expires (is void), and the optionee is not in breach for failing to exercise. The optionor cannot revoke the option during the option period if consideration was given (so B is false – the optionor must honor the option). An option does require consideration to be enforceable (even nominal consideration) 68] 68 , so D is false. And importantly, the optionee is not obligated to buy (A is false); only if the optionee exercises does it become a bilateral purchase contract. Thus, the correct statement is that if the option is not exercised, it expires with no liability to the optionee.
Citation: California Real Estate Reference Book – Glossary (Option definition) 69] 69
Q34. A buyer made an offer on a house. The seller responded with a counteroffer. Before the buyer responded to the counter, the seller decided to accept the original offer. Which is TRUE in this situation?
Correct Answer: B
Explanation: A counteroffer legally rejects the original offer and presents new terms. Once a counteroffer is made, the original offer is dead and cannot be later “accepted” unless the original offeror (buyer) agrees to revive those terms. In this scenario, the seller’s counter was a rejection of the buyer’s offer. The seller cannot unilaterally go back and accept the original offer afterward – a new acceptance would be ineffective because there is no offer open to accept. The buyer would need to agree (e.g. the buyer could treat the seller’s “acceptance” as a new offer). Thus, B is correct: a counteroffer rejects the prior offer 70] 70 (A is wrong – signing the original offer after countering does not create a binding contract because the original offer was nullified. C is wrong – the original offer was not open; the counter killed it. D is wrong – the buyer is not bound because their original offer was rejected, and they have not accepted any new agreement.)
Citation: California Real Estate Reference Book – Glossary (Counteroffer effect) 71] 71
Explanation: A counteroffer legally rejects the original offer and presents new terms. Once a counteroffer is made, the original offer is dead and cannot be later “accepted” unless the original offeror (buyer) agrees to revive those terms. In this scenario, the seller’s counter was a rejection of the buyer’s offer. The seller cannot unilaterally go back and accept the original offer afterward – a new acceptance would be ineffective because there is no offer open to accept. The buyer would need to agree (e.g. the buyer could treat the seller’s “acceptance” as a new offer). Thus, B is correct: a counteroffer rejects the prior offer 70] 70 (A is wrong – signing the original offer after countering does not create a binding contract because the original offer was nullified. C is wrong – the original offer was not open; the counter killed it. D is wrong – the buyer is not bound because their original offer was rejected, and they have not accepted any new agreement.)
Citation: California Real Estate Reference Book – Glossary (Counteroffer effect) 71] 71
Q35. A broker plans to charge an advance fee to homeowners for a “pre-marketing” service (advertising their property in a special publication prior to listing). Before collecting any advance fee, the broker must:
Correct Answer: A
Explanation: California Real Estate Law ( Code §10085) requires brokers who want to collect advance fees (fees paid before services are rendered, commonly for things like advertising or loan modifications) to submit the advance fee contract/form and any solicitation materials to the DRE for review and approval prior to use 72] 72 The DRE checks that the materials are not false, misleading or fraudulent. Only after approval can the broker use them and collect such fees. There is no hard dollar cap like $250 (B is made up). Any advance fees received must be placed into a trust account (not a general account) until earned, so C is wrong. There is also no special bond via the Recovery Account for advance fees (D is not applicable). Therefore, the broker must follow procedure in A.
Citation: California Business & Professions Code §10085 – Advance Fee Agreements (DRE approval required) 73] 73
Explanation: California Real Estate Law ( Code §10085) requires brokers who want to collect advance fees (fees paid before services are rendered, commonly for things like advertising or loan modifications) to submit the advance fee contract/form and any solicitation materials to the DRE for review and approval prior to use 72] 72 The DRE checks that the materials are not false, misleading or fraudulent. Only after approval can the broker use them and collect such fees. There is no hard dollar cap like $250 (B is made up). Any advance fees received must be placed into a trust account (not a general account) until earned, so C is wrong. There is also no special bond via the Recovery Account for advance fees (D is not applicable). Therefore, the broker must follow procedure in A.
Citation: California Business & Professions Code §10085 – Advance Fee Agreements (DRE approval required) 73] 73
Q36. A purchase contract for a home included a liquidated damages clause, initialed by both buyer and seller. The buyer later defaults. Under California law (for a 1-4 unit residential property to be occupied by the buyer), the liquidated damages amount is generally limited to:
Correct Answer: B
Explanation: In a California residential 1–4 unit purchase contract where the buyer will live in the property, Civil Code §1675 limits the enforceability of liquidated damages (typically the forfeiture of buyer’s deposit) to no more than 3% of the purchase price, unless the seller can prove that a greater amount is reasonable. In standard practice, if the liquidated damages clause is initialed, the seller may retain the deposit up to 3%. Any excess must be refunded to the buyer. Therefore, answer B is correct. (If the deposit was smaller than 3%, then the smaller amount is the liquidated damages.) A is incorrect because there is a statutory limit for residential owner-occupied transactions. $1,000 is not the limit (C is wrong). Liquidated damages clauses are generally enforceable if properly done, so D is false.
Citation: California Civil Code §§1675–1677 – Liquidated Damages in Residential Purchase Contracts (3% guideline)
Explanation: In a California residential 1–4 unit purchase contract where the buyer will live in the property, Civil Code §1675 limits the enforceability of liquidated damages (typically the forfeiture of buyer’s deposit) to no more than 3% of the purchase price, unless the seller can prove that a greater amount is reasonable. In standard practice, if the liquidated damages clause is initialed, the seller may retain the deposit up to 3%. Any excess must be refunded to the buyer. Therefore, answer B is correct. (If the deposit was smaller than 3%, then the smaller amount is the liquidated damages.) A is incorrect because there is a statutory limit for residential owner-occupied transactions. $1,000 is not the limit (C is wrong). Liquidated damages clauses are generally enforceable if properly done, so D is false.
Citation: California Civil Code §§1675–1677 – Liquidated Damages in Residential Purchase Contracts (3% guideline)
Q37. A homeowner sells their property and closes on June 10. Property taxes of $3,600 have already been paid for the calendar year. Using a 360-day year, what is the seller’s prorated credit at closing?
Correct Answer: C
Explanation: The buyer owns the property from June 10 onward, so the seller should be credited for unused taxes. Seller’s share is Jan 1–June 9 = 159 days. (159/360)*3600 = $1,590. Buyer’s share is 201 days. Seller gets credited for 201 days: (201/360)*3600 = $2,175.
Citation: California Department of Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Explanation: The buyer owns the property from June 10 onward, so the seller should be credited for unused taxes. Seller’s share is Jan 1–June 9 = 159 days. (159/360)*3600 = $1,590. Buyer’s share is 201 days. Seller gets credited for 201 days: (201/360)*3600 = $2,175.
Citation: California Department of Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Q38. Which of the following best describes the ‘Doctrine of Emblements’ as it applies under California law?
Correct Answer: A
Explanation: Under the Doctrine of Emblements, tenants who planted crops with a reasonable expectation of continued tenancy may re-enter to harvest if the tenancy ends unexpectedly.
Citation: California Civil Code §1019 and Real Estate Reference Book, Chapter 2 – Property Ownership
Explanation: Under the Doctrine of Emblements, tenants who planted crops with a reasonable expectation of continued tenancy may re-enter to harvest if the tenancy ends unexpectedly.
Citation: California Civil Code §1019 and Real Estate Reference Book, Chapter 2 – Property Ownership
Q39. A real estate licensee places buyer trust funds in a personal account for a short period to expedite a transaction. This action is considered:
Correct Answer: A
Explanation: Placing client funds into a personal or business account constitutes commingling, which violates California real estate regulations. It may result in license suspension or revocation.
Citation: CA Business and Professions Code §10176(e); DRE Reference Book, Chapter 15 – Trust Funds
Explanation: Placing client funds into a personal or business account constitutes commingling, which violates California real estate regulations. It may result in license suspension or revocation.
Citation: CA Business and Professions Code §10176(e); DRE Reference Book, Chapter 15 – Trust Funds
Q40. An appraiser applies the income approach to a commercial building that generates $180,000 in annual NOI. If the market cap rate is 6%, what is the appraised value of the property?
Correct Answer: B
Explanation: Using the income approach: Value = Net Operating Income / Capitalization Rate. $180,000 ÷ 0.06 = $3,000,000.
Citation: California Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Explanation: Using the income approach: Value = Net Operating Income / Capitalization Rate. $180,000 ÷ 0.06 = $3,000,000.
Citation: California Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Q41. A buyer qualifies for a 90% LTV conventional loan on a $720,000 purchase. What is the required down payment?
Correct Answer: B
Explanation: 90% LTV means the loan covers 90% of $720,000 = $648,000. The down payment is 10% = $72,000.
Citation: CA DRE Reference Book, Chapter 10 – Real Estate Finance
Explanation: 90% LTV means the loan covers 90% of $720,000 = $648,000. The down payment is 10% = $72,000.
Citation: CA DRE Reference Book, Chapter 10 – Real Estate Finance
Q42. Which of the following deeds provides the least protection to a buyer and contains no warranties?
Correct Answer: C
Explanation: A quitclaim deed transfers whatever interest the grantor has without warranties or guarantees, making it the least protective deed.
Citation: CA Real Estate Reference Book, Chapter 6 – Transferring Real Property
Explanation: A quitclaim deed transfers whatever interest the grantor has without warranties or guarantees, making it the least protective deed.
Citation: CA Real Estate Reference Book, Chapter 6 – Transferring Real Property
Q43. Which type of listing allows a seller to list with multiple brokers but only pay commission to the one who procures a ready, willing, and able buyer?
Correct Answer: B
Explanation: An open listing allows the seller to work with multiple brokers and only pay commission to the broker who brings the buyer.
Citation: California Civil Code §1086–1090; Reference Book Chapter 8 – Listing Agreements
Explanation: An open listing allows the seller to work with multiple brokers and only pay commission to the broker who brings the buyer.
Citation: California Civil Code §1086–1090; Reference Book Chapter 8 – Listing Agreements
Q44. Under California law, how long must a broker retain records related to a real estate transaction?
Correct Answer: C
Explanation: California real estate brokers must retain transaction records for 3 years, beginning from the closing date or the date the listing was signed, whichever is later.
Citation: California Business and Professions Code §10148
Explanation: California real estate brokers must retain transaction records for 3 years, beginning from the closing date or the date the listing was signed, whichever is later.
Citation: California Business and Professions Code §10148
Q45. A home sells for $950,000. If the listing broker receives 2.5% commission and agrees to split 40% of it with the buyer’s agent, how much will the buyer’s agent earn?
Correct Answer: A
Explanation: 2.5% of $950,000 = $23,750. 40% of $23,750 = $9,500.
Citation: CA Real Estate Reference Book, Chapter 9 – Real Estate Contracts and Commissions
Explanation: 2.5% of $950,000 = $23,750. 40% of $23,750 = $9,500.
Citation: CA Real Estate Reference Book, Chapter 9 – Real Estate Contracts and Commissions
Q46. A tenant with a one-year lease is evicted for failure to pay rent. Which legal process must the landlord use to remove the tenant?
Correct Answer: A
Explanation: Eviction proceedings in California are initiated through an unlawful detainer action in court. This is the proper legal process for removing a non-paying tenant.
Citation: California Code of Civil Procedure §1161
Explanation: Eviction proceedings in California are initiated through an unlawful detainer action in court. This is the proper legal process for removing a non-paying tenant.
Citation: California Code of Civil Procedure §1161
Q47. A licensee hosts an open house and uses drone footage of the neighborhood without homeowner permission. This may violate laws related to:
Correct Answer: C
Explanation: Using drone footage that includes private backyards or properties without consent may violate privacy rights, even if technically captured in navigable airspace.
Citation: California Civil Code §1708.8 and FAA Small UAS Rule (Part 107)
Explanation: Using drone footage that includes private backyards or properties without consent may violate privacy rights, even if technically captured in navigable airspace.
Citation: California Civil Code §1708.8 and FAA Small UAS Rule (Part 107)
Q48. What is the main difference between a general lien and a specific lien in California real estate?
Correct Answer: C
Explanation: A general lien applies to all property owned by the debtor, including real and personal property. Examples include judgment liens and income tax liens. Specific liens attach only to a particular property.
Citation: California Real Estate Reference Book, Chapter 5 – Encumbrances
Explanation: A general lien applies to all property owned by the debtor, including real and personal property. Examples include judgment liens and income tax liens. Specific liens attach only to a particular property.
Citation: California Real Estate Reference Book, Chapter 5 – Encumbrances
Q49. Under California law, when must a real estate licensee disclose dual agency to both buyer and seller?
Correct Answer: C
Explanation: Dual agency must be disclosed and consented to in writing as soon as the dual representation is known or anticipated. This protects both parties’ interests and maintains compliance with fiduciary duties.
Citation: California Civil Code §2079.17
Explanation: Dual agency must be disclosed and consented to in writing as soon as the dual representation is known or anticipated. This protects both parties’ interests and maintains compliance with fiduciary duties.
Citation: California Civil Code §2079.17
Q50. A property is listed at $825,000. The seller agrees to pay a 5.5% total commission, with 60% going to the listing broker. What is the listing broker’s share?
Correct Answer: C
Explanation: 5.5% of $825,000 = $45,375. Listing broker gets 60% of this: 0.60 × $45,375 = $27,225.
Citation: California Real Estate Reference Book, Chapter 9 – Real Estate Contracts and Commissions
Explanation: 5.5% of $825,000 = $45,375. Listing broker gets 60% of this: 0.60 × $45,375 = $27,225.
Citation: California Real Estate Reference Book, Chapter 9 – Real Estate Contracts and Commissions
Q51. A deed is recorded in California. What is the main legal effect of recording the deed?
Correct Answer: C
Explanation: Recording a deed provides constructive notice to the world of the buyer’s interest in the property. It does not by itself transfer title or guarantee possession.
Citation: CA Real Estate Reference Book, Chapter 6 – Transferring Real Property
Explanation: Recording a deed provides constructive notice to the world of the buyer’s interest in the property. It does not by itself transfer title or guarantee possession.
Citation: CA Real Estate Reference Book, Chapter 6 – Transferring Real Property
Q52. Which of the following is considered a voluntary lien in California?
Correct Answer: C
Explanation: A mortgage is a voluntary lien because the property owner willingly pledges the property as collateral. The others are imposed by law and are involuntary.
Citation: California Real Estate Reference Book, Chapter 5 – Encumbrances
Explanation: A mortgage is a voluntary lien because the property owner willingly pledges the property as collateral. The others are imposed by law and are involuntary.
Citation: California Real Estate Reference Book, Chapter 5 – Encumbrances
Q53. In a real estate transaction, which of the following actions would most likely result in disciplinary action by the California Department of Real Estate?
Correct Answer: C
Explanation: Failing to disclose known material facts violates fiduciary duty and may result in disciplinary action, including license suspension or revocation.
Citation: California Business and Professions Code §10176
Explanation: Failing to disclose known material facts violates fiduciary duty and may result in disciplinary action, including license suspension or revocation.
Citation: California Business and Professions Code §10176
Q54. A buyer submits an offer contingent upon loan approval. Which of the following would make the contingency enforceable?
Correct Answer: B
Explanation: Contingencies must be in writing with clear terms and deadlines to be enforceable. Verbal terms or vague intent do not provide legal protection.
Citation: California Civil Code §1624; Statute of Frauds
Explanation: Contingencies must be in writing with clear terms and deadlines to be enforceable. Verbal terms or vague intent do not provide legal protection.
Citation: California Civil Code §1624; Statute of Frauds
Q55. Which of the following types of depreciation is generally considered incurable?
Correct Answer: D
Explanation: External obsolescence results from factors outside the property (e.g., nearby pollution, zoning changes) and is usually not curable by the property owner.
Citation: CA Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Explanation: External obsolescence results from factors outside the property (e.g., nearby pollution, zoning changes) and is usually not curable by the property owner.
Citation: CA Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Q56. Which of the following would most likely be classified as functional obsolescence in an appraisal?
Correct Answer: B
Explanation: Functional obsolescence occurs when a property has outdated features or design flaws that reduce its desirability. A home with an inadequate bathroom count relative to its size is a classic example.
Citation: CA Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Explanation: Functional obsolescence occurs when a property has outdated features or design flaws that reduce its desirability. A home with an inadequate bathroom count relative to its size is a classic example.
Citation: CA Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Q57. A borrower obtains a loan with an LTV ratio of 95%. What is the most likely consequence?
Correct Answer: A
Explanation: Loans with high LTV ratios (usually over 80%) often require mortgage insurance to protect the lender against borrower default.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Explanation: Loans with high LTV ratios (usually over 80%) often require mortgage insurance to protect the lender against borrower default.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Q58. Which document is used to transfer interest in real property from a trustor to a trustee in California?
Correct Answer: C
Explanation: A deed of trust transfers the legal title from the borrower (trustor) to a neutral third party (trustee) for the benefit of the lender (beneficiary).
Citation: California Civil Code §2924
Explanation: A deed of trust transfers the legal title from the borrower (trustor) to a neutral third party (trustee) for the benefit of the lender (beneficiary).
Citation: California Civil Code §2924
Q59. Which of the following would violate the Real Estate Settlement Procedures Act (RESPA)?
Correct Answer: B
Explanation: RESPA prohibits giving or receiving anything of value in exchange for referrals of settlement services. Gift cards and other incentives are considered violations.
Citation: RESPA (12 U.S.C. §2607); DRE Reference Book, Chapter 20 – Federal Laws
Explanation: RESPA prohibits giving or receiving anything of value in exchange for referrals of settlement services. Gift cards and other incentives are considered violations.
Citation: RESPA (12 U.S.C. §2607); DRE Reference Book, Chapter 20 – Federal Laws
Q60. If a seller signs a purchase agreement but dies before closing, what happens to the agreement?
Correct Answer: B
Explanation: A valid real estate contract signed by a seller is still enforceable after their death. The buyer can require performance from the estate.
Citation: California Probate Code §5000; Real Estate Reference Book, Chapter 9 – Contracts
Explanation: A valid real estate contract signed by a seller is still enforceable after their death. The buyer can require performance from the estate.
Citation: California Probate Code §5000; Real Estate Reference Book, Chapter 9 – Contracts
Q61. In California, what is the main purpose of a Preliminary Title Report (Prelim)?
Correct Answer: C
Explanation: A Preliminary Title Report discloses legal issues like easements, encumbrances, and liens that may affect title. It is reviewed before the issuance of title insurance.
Citation: California Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Explanation: A Preliminary Title Report discloses legal issues like easements, encumbrances, and liens that may affect title. It is reviewed before the issuance of title insurance.
Citation: California Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Q62. A licensee who misrepresents a property’s boundary lines may be guilty of:
Correct Answer: C
Explanation: Misleading statements about boundary lines are factual misrepresentations and may constitute fraud or misrepresentation, not mere exaggeration (puffing).
Citation: CA Business and Professions Code §10176; Reference Book Chapter 7 – Agency and Disclosure
Explanation: Misleading statements about boundary lines are factual misrepresentations and may constitute fraud or misrepresentation, not mere exaggeration (puffing).
Citation: CA Business and Professions Code §10176; Reference Book Chapter 7 – Agency and Disclosure
Q63. In a 1031 exchange, what is the strict deadline to identify a replacement property?
Correct Answer: B
Explanation: In a 1031 exchange, the IRS requires that the replacement property be identified within 45 days of the sale of the original (relinquished) property.
Citation: IRS Code Section 1031; California Real Estate Reference Book, Chapter 14 – Taxation
Explanation: In a 1031 exchange, the IRS requires that the replacement property be identified within 45 days of the sale of the original (relinquished) property.
Citation: IRS Code Section 1031; California Real Estate Reference Book, Chapter 14 – Taxation
Q64. Which of the following events would terminate an agency relationship by operation of law?
Correct Answer: D
Explanation: An agency relationship is automatically terminated by operation of law upon the death of the principal or agent.
Citation: California Civil Code §2355
Explanation: An agency relationship is automatically terminated by operation of law upon the death of the principal or agent.
Citation: California Civil Code §2355
Q65. What does a subordination clause in a trust deed typically allow?
Correct Answer: B
Explanation: A subordination clause allows a new loan (such as construction financing) to take a senior position ahead of the original deed of trust.
Citation: CA Real Estate Reference Book, Chapter 10 – Real Estate Finance
Explanation: A subordination clause allows a new loan (such as construction financing) to take a senior position ahead of the original deed of trust.
Citation: CA Real Estate Reference Book, Chapter 10 – Real Estate Finance
Q66. What does the term ‘alienation clause’ in a loan agreement refer to?
Correct Answer: C
Explanation: An alienation clause (also known as a due-on-sale clause) requires full loan repayment if the property is sold or transferred.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Explanation: An alienation clause (also known as a due-on-sale clause) requires full loan repayment if the property is sold or transferred.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Q67. If a California licensee fails to renew their license within two years after expiration, the license will:
Correct Answer: C
Explanation: A license not renewed within two years after expiration is canceled. The licensee must requalify, including retaking the exam.
Citation: California Business and Professions Code §10156.5
Explanation: A license not renewed within two years after expiration is canceled. The licensee must requalify, including retaking the exam.
Citation: California Business and Professions Code §10156.5
Q68. Which law primarily governs advertising and marketing of real estate in California?
Correct Answer: C
Explanation: The Business and Professions Code includes numerous provisions regulating truthful advertising and marketing practices for licensees.
Citation: California Business and Professions Code §10140
Explanation: The Business and Professions Code includes numerous provisions regulating truthful advertising and marketing practices for licensees.
Citation: California Business and Professions Code §10140
Q69. What is the minimum legal requirement to create a valid lease agreement in California?
Correct Answer: C
Explanation: To be valid, a lease must meet general contract requirements: mutual consent, lawful object, consideration, and capacity of parties.
Citation: California Civil Code §1550
Explanation: To be valid, a lease must meet general contract requirements: mutual consent, lawful object, consideration, and capacity of parties.
Citation: California Civil Code §1550
Q70. What is the effect of a lis pendens recorded against a property?
Correct Answer: C
Explanation: A lis pendens provides constructive notice of a legal action that could affect the property’s title, warning future buyers or lenders.
Citation: California Code of Civil Procedure §405.20
Explanation: A lis pendens provides constructive notice of a legal action that could affect the property’s title, warning future buyers or lenders.
Citation: California Code of Civil Procedure §405.20
Q71. A buyer purchases a property with a septic system. Who is primarily responsible for disclosing its condition?
Correct Answer: C
Explanation: The seller is legally obligated to disclose known material facts about the property, including the condition of systems like septic tanks.
Citation: California Civil Code §1102
Explanation: The seller is legally obligated to disclose known material facts about the property, including the condition of systems like septic tanks.
Citation: California Civil Code §1102
Q72. A broker deposits trust funds into their personal account but does not use them. This is an example of:
Correct Answer: A
Explanation: Commingling occurs when trust funds are mixed with personal or business funds. Even if unused, it’s still a violation.
Citation: CA Business and Professions Code §10176(e)
Explanation: Commingling occurs when trust funds are mixed with personal or business funds. Even if unused, it’s still a violation.
Citation: CA Business and Professions Code §10176(e)
Q73. Which party typically requests a structural pest control inspection in a California home sale?
Correct Answer: C
Explanation: The buyer (or their lender) often requests a pest inspection, especially if obtaining financing. It’s not always mandatory but is common practice.
Citation: DRE Reference Book, Chapter 12 – Disclosures in Real Estate Transactions
Explanation: The buyer (or their lender) often requests a pest inspection, especially if obtaining financing. It’s not always mandatory but is common practice.
Citation: DRE Reference Book, Chapter 12 – Disclosures in Real Estate Transactions
Q74. Under California law, when must the agency disclosure form be presented to a prospective buyer?
Correct Answer: B
Explanation: The agency disclosure must be presented to the buyer before the licensee writes or presents any offer to purchase real property.
Citation: California Civil Code §2079.14
Explanation: The agency disclosure must be presented to the buyer before the licensee writes or presents any offer to purchase real property.
Citation: California Civil Code §2079.14
Q75. Which of the following contracts must be in writing to be enforceable under the Statute of Frauds?
Correct Answer: C
Explanation: Contracts for the sale of real estate must be in writing to be enforceable under the Statute of Frauds.
Citation: California Civil Code §1624
Explanation: Contracts for the sale of real estate must be in writing to be enforceable under the Statute of Frauds.
Citation: California Civil Code §1624
Q76. A buyer submits a full-price offer on a property, but the seller never responds. What is the legal status of the offer?
Correct Answer: D
Explanation: An offer does not constitute a binding contract unless the seller accepts it. Silence is not acceptance.
Citation: California Civil Code §1550; Contract Formation Requirements
Explanation: An offer does not constitute a binding contract unless the seller accepts it. Silence is not acceptance.
Citation: California Civil Code §1550; Contract Formation Requirements
Q77. Under California law, how long does a buyer have to file a lawsuit for breach of written real estate contract?
Correct Answer: C
Explanation: The statute of limitations for breach of a written contract in California is 4 years from the date of breach.
Citation: California Code of Civil Procedure §337
Explanation: The statute of limitations for breach of a written contract in California is 4 years from the date of breach.
Citation: California Code of Civil Procedure §337
Q78. A subdivider must provide a public report to prospective buyers under which of the following conditions?
Correct Answer: B
Explanation: A public report is required when five or more lots or parcels are offered for sale or lease, as regulated by the Subdivided Lands Law.
Citation: California Business and Professions Code §11010
Explanation: A public report is required when five or more lots or parcels are offered for sale or lease, as regulated by the Subdivided Lands Law.
Citation: California Business and Professions Code §11010
Q79. A real estate agent tells a Spanish-speaking family that a home is ‘not right for them.’ This could be a violation of:
Correct Answer: C
Explanation: Steering or discouraging buyers based on race, ethnicity, or national origin violates federal and state fair housing laws.
Citation: Fair Housing Act (42 U.S.C. §3601 et seq.); California Fair Employment and Housing Act
Explanation: Steering or discouraging buyers based on race, ethnicity, or national origin violates federal and state fair housing laws.
Citation: Fair Housing Act (42 U.S.C. §3601 et seq.); California Fair Employment and Housing Act
Q80. A homeowner hires an unlicensed contractor for a $12,000 remodel. The contractor fails to complete the job. Under California law, the homeowner may:
Correct Answer: C
Explanation: Under California law, unlicensed contractors may not sue to recover compensation and homeowners may recover money paid to them.
Citation: California Business and Professions Code §7031
Explanation: Under California law, unlicensed contractors may not sue to recover compensation and homeowners may recover money paid to them.
Citation: California Business and Professions Code §7031
Q81. Which of the following is a legal duty of the agent under a California listing agreement?
Correct Answer: C
Explanation: An agent is legally required to disclose all material facts that could affect the value or desirability of the property. This duty applies even if the agent represents the seller.
Citation: California Civil Code §2079
Explanation: An agent is legally required to disclose all material facts that could affect the value or desirability of the property. This duty applies even if the agent represents the seller.
Citation: California Civil Code §2079
Q82. What type of tenancy exists when two unmarried individuals buy a house together and the deed does not specify their rights?
Correct Answer: C
Explanation: Unless otherwise specified, California law presumes a tenancy in common, where each co-owner holds an undivided interest without right of survivorship.
Citation: California Civil Code §686
Explanation: Unless otherwise specified, California law presumes a tenancy in common, where each co-owner holds an undivided interest without right of survivorship.
Citation: California Civil Code §686
Q83. A property manager must deposit rent collected into a trust account within how many business days in California?
Correct Answer: C
Explanation: Trust funds received by a property manager must be deposited into a trust account within 3 business days of receipt.
Citation: California Code of Regulations §2832
Explanation: Trust funds received by a property manager must be deposited into a trust account within 3 business days of receipt.
Citation: California Code of Regulations §2832
Q84. Which appraisal approach is most appropriate for estimating the value of a church?
Correct Answer: B
Explanation: Since churches typically do not produce income and are rarely sold, the cost approach is used to estimate the value based on reproduction or replacement cost.
Citation: California Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Explanation: Since churches typically do not produce income and are rarely sold, the cost approach is used to estimate the value based on reproduction or replacement cost.
Citation: California Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Q85. Under California’s Megan’s Law, a real estate agent must:
Correct Answer: B
Explanation: Agents are not required to disclose specific offender locations but must inform buyers that a public Megan’s Law database exists and how to access it.
Citation: California Civil Code §2079.10a
Explanation: Agents are not required to disclose specific offender locations but must inform buyers that a public Megan’s Law database exists and how to access it.
Citation: California Civil Code §2079.10a
Q86. Which of the following is most likely to be considered a unilateral contract in real estate?
Correct Answer: C
Explanation: An open listing is a unilateral contract where the broker is only entitled to compensation if they produce a ready, willing, and able buyer. There is no obligation on the broker’s part to perform.
Citation: California Real Estate Reference Book, Chapter 8 – Listing Agreements
Explanation: An open listing is a unilateral contract where the broker is only entitled to compensation if they produce a ready, willing, and able buyer. There is no obligation on the broker’s part to perform.
Citation: California Real Estate Reference Book, Chapter 8 – Listing Agreements
Q87. A seller tells their agent not to disclose a roof leak. What should the agent do?
Correct Answer: B
Explanation: The agent has a legal duty to disclose all known material facts, even if the client instructs otherwise. Failure to do so is a breach of fiduciary duty.
Citation: California Civil Code §1102.3
Explanation: The agent has a legal duty to disclose all known material facts, even if the client instructs otherwise. Failure to do so is a breach of fiduciary duty.
Citation: California Civil Code §1102.3
Q88. A property sells for $780,000. The broker earns a 6% commission. If 40% of the commission goes to the buyer’s agent, how much does the listing broker keep?
Correct Answer: B
Explanation: Total commission: $780,000 × 6% = $46,800. Listing broker keeps 60%: 0.60 × $46,800 = $28,080.
Citation: CA Real Estate Reference Book, Chapter 9 – Real Estate Contracts and Commissions
Explanation: Total commission: $780,000 × 6% = $46,800. Listing broker keeps 60%: 0.60 × $46,800 = $28,080.
Citation: CA Real Estate Reference Book, Chapter 9 – Real Estate Contracts and Commissions
Q89. Which of the following actions by a licensee would most likely constitute ‘blockbusting’?
Correct Answer: C
Explanation: Blockbusting involves inducing homeowners to sell by suggesting neighborhood decline due to racial or ethnic changes, which is illegal under fair housing laws.
Citation: Fair Housing Act (42 U.S.C. §3604); California Fair Employment and Housing Act
Explanation: Blockbusting involves inducing homeowners to sell by suggesting neighborhood decline due to racial or ethnic changes, which is illegal under fair housing laws.
Citation: Fair Housing Act (42 U.S.C. §3604); California Fair Employment and Housing Act
Q90. A real estate salesperson fails to deliver a copy of a signed purchase agreement to the buyer. This is a violation of:
Correct Answer: C
Explanation: The DRE requires that licensees deliver copies of all signed documents to all parties involved. Failure to do so violates California Real Estate Regulations.
Citation: California Code of Regulations §2725
Explanation: The DRE requires that licensees deliver copies of all signed documents to all parties involved. Failure to do so violates California Real Estate Regulations.
Citation: California Code of Regulations §2725
Q91. When must a California real estate licensee provide an agency disclosure to a prospective seller?
Correct Answer: A
Explanation: The agency disclosure must be presented and signed before entering into a listing agreement with a seller.
Citation: California Civil Code §2079.14
Explanation: The agency disclosure must be presented and signed before entering into a listing agreement with a seller.
Citation: California Civil Code §2079.14
Q92. A real estate agent fails to report a felony conviction when renewing their license. What is the likely consequence?
Correct Answer: C
Explanation: Failing to disclose a criminal conviction during renewal can result in disciplinary action, including license suspension or revocation.
Citation: California Business and Professions Code §10177(b)
Explanation: Failing to disclose a criminal conviction during renewal can result in disciplinary action, including license suspension or revocation.
Citation: California Business and Professions Code §10177(b)
Q93. A broker receives a $5,000 earnest money deposit from a buyer. What must the broker do within three business days?
Correct Answer: C
Explanation: Trust funds must be deposited into a neutral escrow depository or broker’s trust account within 3 business days after receipt.
Citation: California Code of Regulations §2832
Explanation: Trust funds must be deposited into a neutral escrow depository or broker’s trust account within 3 business days after receipt.
Citation: California Code of Regulations §2832
Q94. Which of the following types of value is most often used by county assessors for property tax purposes?
Correct Answer: B
Explanation: County assessors use assessed value as the basis for calculating property taxes. In California, it’s often based on Proposition 13 rules.
Citation: California Revenue and Taxation Code §110.1
Explanation: County assessors use assessed value as the basis for calculating property taxes. In California, it’s often based on Proposition 13 rules.
Citation: California Revenue and Taxation Code §110.1
Q95. An acceleration clause in a mortgage or deed of trust allows the lender to:
Correct Answer: C
Explanation: An acceleration clause allows the lender to call the full loan balance due immediately if the borrower breaches the terms of the agreement.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Explanation: An acceleration clause allows the lender to call the full loan balance due immediately if the borrower breaches the terms of the agreement.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Q96. Which of the following would most likely require a real estate license under California law?
Correct Answer: C
Explanation: Anyone who negotiates a real estate transaction on behalf of another for compensation must be licensed in California.
Citation: California Business and Professions Code §10131
Explanation: Anyone who negotiates a real estate transaction on behalf of another for compensation must be licensed in California.
Citation: California Business and Professions Code §10131
Q97. What is the primary difference between a general partnership and a limited partnership in California?
Correct Answer: C
Explanation: General partners are liable for all partnership debts, while limited partners are only liable up to their investment and may not actively manage the business.
Citation: California Corporations Code §15901.01 et seq.
Explanation: General partners are liable for all partnership debts, while limited partners are only liable up to their investment and may not actively manage the business.
Citation: California Corporations Code §15901.01 et seq.
Q98. A home is sold ‘as-is’ and the buyer later discovers a major plumbing defect known to the seller. What remedy may the buyer pursue?
Correct Answer: B
Explanation: ‘As-is’ does not protect a seller from liability for failure to disclose known material defects. The buyer may sue for fraud or nondisclosure.
Citation: California Civil Code §1102 et seq.
Explanation: ‘As-is’ does not protect a seller from liability for failure to disclose known material defects. The buyer may sue for fraud or nondisclosure.
Citation: California Civil Code §1102 et seq.
Q99. Which of the following statements about escrow in California is TRUE?
Correct Answer: C
Explanation: Escrow is a neutral process where an independent third party manages funds, instructions, and documents until closing conditions are met.
Citation: California Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Explanation: Escrow is a neutral process where an independent third party manages funds, instructions, and documents until closing conditions are met.
Citation: California Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Q100. What is the effect of a recorded homestead declaration in California?
Correct Answer: C
Explanation: A recorded homestead declaration helps protect a portion of a homeowner’s equity from certain types of unsecured judgment creditors.
Citation: California Code of Civil Procedure §704.710 et seq.
Explanation: A recorded homestead declaration helps protect a portion of a homeowner’s equity from certain types of unsecured judgment creditors.
Citation: California Code of Civil Procedure §704.710 et seq.
Q101. A seller signs a purchase agreement but then receives a higher offer before closing. What is the seller legally obligated to do?
Correct Answer: C
Explanation: Once a valid purchase agreement is signed, the seller is contractually bound to its terms unless a contingency fails or both parties mutually cancel.
Citation: California Civil Code §1689; Contract Enforcement Principles
Explanation: Once a valid purchase agreement is signed, the seller is contractually bound to its terms unless a contingency fails or both parties mutually cancel.
Citation: California Civil Code §1689; Contract Enforcement Principles
Q102. In California, which of the following is NOT required to be included in a residential property transfer disclosure statement (TDS)?
Correct Answer: C
Explanation: The TDS requires disclosure of known material facts, but not external, non-material information such as local school performance.
Citation: California Civil Code §1102
Explanation: The TDS requires disclosure of known material facts, but not external, non-material information such as local school performance.
Citation: California Civil Code §1102
Q103. Which of the following best describes the function of the secondary mortgage market?
Correct Answer: C
Explanation: The secondary mortgage market helps lenders maintain liquidity by purchasing loans, allowing them to make more funds available for borrowers.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Explanation: The secondary mortgage market helps lenders maintain liquidity by purchasing loans, allowing them to make more funds available for borrowers.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Q104. A licensee preparing a competitive market analysis (CMA) is most similar in method to which type of appraisal approach?
Correct Answer: C
Explanation: CMAs are based on recently sold comparable properties, just like the sales comparison approach in appraisal.
Citation: California Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Explanation: CMAs are based on recently sold comparable properties, just like the sales comparison approach in appraisal.
Citation: California Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Q105. Under California law, which of the following can legally perform an appraisal for a federally related transaction?
Correct Answer: C
Explanation: Only licensed or certified appraisers may perform appraisals for federally related transactions, per state and federal law.
Citation: California Business and Professions Code §11300 et seq.
Explanation: Only licensed or certified appraisers may perform appraisals for federally related transactions, per state and federal law.
Citation: California Business and Professions Code §11300 et seq.
Q106. A property is encumbered by an easement that allows the neighbor to use the driveway. What type of interest does the neighbor hold?
Correct Answer: C
Explanation: An easement appurtenant benefits an adjacent parcel and runs with the land, allowing continued use by the dominant tenement.
Citation: California Real Estate Reference Book, Chapter 5 – Encumbrances
Explanation: An easement appurtenant benefits an adjacent parcel and runs with the land, allowing continued use by the dominant tenement.
Citation: California Real Estate Reference Book, Chapter 5 – Encumbrances
Q107. A buyer gives a broker a personal check for the earnest money deposit. The broker should:
Correct Answer: B
Explanation: Per DRE regulations, trust funds must be deposited into a neutral escrow or trust account within 3 business days of receipt.
Citation: California Code of Regulations §2832
Explanation: Per DRE regulations, trust funds must be deposited into a neutral escrow or trust account within 3 business days of receipt.
Citation: California Code of Regulations §2832
Q108. What is the primary function of the California Bureau of Real Estate Appraisers (BREA)?
Correct Answer: C
Explanation: The BREA is responsible for licensing and regulating real estate appraisers to ensure compliance with state and federal appraisal standards.
Citation: California Business and Professions Code §11300
Explanation: The BREA is responsible for licensing and regulating real estate appraisers to ensure compliance with state and federal appraisal standards.
Citation: California Business and Professions Code §11300
Q109. Which of the following would most likely be considered economic obsolescence?
Correct Answer: C
Explanation: Economic (external) obsolescence arises from factors outside the property that negatively affect its value, such as traffic, zoning, or environmental noise.
Citation: California Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Explanation: Economic (external) obsolescence arises from factors outside the property that negatively affect its value, such as traffic, zoning, or environmental noise.
Citation: California Real Estate Reference Book, Chapter 16 – Real Estate Appraisal
Q110. In California, the transfer of title through a valid will is referred to as a:
Correct Answer: A
Explanation: The term ‘devise’ refers to the transfer of real property through a will. A bequest is the transfer of personal property.
Citation: California Probate Code §32
Explanation: The term ‘devise’ refers to the transfer of real property through a will. A bequest is the transfer of personal property.
Citation: California Probate Code §32
Q111. Which of the following real estate transactions would require the use of a Natural Hazard Disclosure (NHD) Statement in California?
Correct Answer: C
Explanation: California law requires sellers of residential properties with 1–4 units to provide a Natural Hazard Disclosure Statement to buyers.
Citation: California Civil Code §1103
Explanation: California law requires sellers of residential properties with 1–4 units to provide a Natural Hazard Disclosure Statement to buyers.
Citation: California Civil Code §1103
Q112. An escrow officer may legally do which of the following?
Correct Answer: C
Explanation: Escrow officers are neutral third parties who disburse funds only after all instructions from both parties are met.
Citation: California Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Explanation: Escrow officers are neutral third parties who disburse funds only after all instructions from both parties are met.
Citation: California Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Q113. Which of the following best describes the difference between a general warranty deed and a grant deed in California?
Correct Answer: B
Explanation: A grant deed provides implied warranties, while a general warranty deed includes extensive guarantees against title defects, even before the seller’s ownership.
Citation: California Real Estate Reference Book, Chapter 6 – Transferring Real Property
Explanation: A grant deed provides implied warranties, while a general warranty deed includes extensive guarantees against title defects, even before the seller’s ownership.
Citation: California Real Estate Reference Book, Chapter 6 – Transferring Real Property
Q114. A real estate licensee who uses a ‘blind ad’ in California is likely violating which rule?
Correct Answer: C
Explanation: A ‘blind ad’ is an advertisement that fails to disclose that the person placing the ad is a licensed real estate agent, violating state advertising regulations.
Citation: California Business and Professions Code §10140.6
Explanation: A ‘blind ad’ is an advertisement that fails to disclose that the person placing the ad is a licensed real estate agent, violating state advertising regulations.
Citation: California Business and Professions Code §10140.6
Q115. A tenant signs a one-year lease but moves out after six months. The landlord finds a new tenant immediately. What is the most likely legal outcome?
Correct Answer: B
Explanation: Once the landlord secures a replacement tenant, the original tenant is no longer liable for future rent under California’s duty to mitigate damages.
Citation: California Civil Code §1951.2
Explanation: Once the landlord secures a replacement tenant, the original tenant is no longer liable for future rent under California’s duty to mitigate damages.
Citation: California Civil Code §1951.2
Q116. A real estate broker mixes personal funds with trust account funds. This is an example of:
Correct Answer: A
Explanation: Commingling occurs when a licensee mixes client trust funds with personal or business funds. It is a violation of the Real Estate Law.
Citation: California Business and Professions Code §10176(e)
Explanation: Commingling occurs when a licensee mixes client trust funds with personal or business funds. It is a violation of the Real Estate Law.
Citation: California Business and Professions Code §10176(e)
Q117. Under California law, which of the following statements about dual agency is TRUE?
Correct Answer: C
Explanation: Dual agency is legal in California but must be disclosed and consented to in writing by both the buyer and the seller.
Citation: California Civil Code §2079.17
Explanation: Dual agency is legal in California but must be disclosed and consented to in writing by both the buyer and the seller.
Citation: California Civil Code §2079.17
Q118. A prospective buyer asks a licensee whether a neighborhood has a high crime rate. What is the most appropriate response?
Correct Answer: B
Explanation: To avoid steering or potential discrimination, licensees should refer buyers to objective third-party sources for crime data.
Citation: California Real Estate Reference Book, Chapter 12 – Disclosures in Real Estate Transactions
Explanation: To avoid steering or potential discrimination, licensees should refer buyers to objective third-party sources for crime data.
Citation: California Real Estate Reference Book, Chapter 12 – Disclosures in Real Estate Transactions
Q119. A buyer signs a contract under duress. What is the legal status of that contract?
Correct Answer: C
Explanation: Contracts signed under duress are voidable by the party under pressure. The buyer may choose to rescind.
Citation: California Civil Code §1567
Explanation: Contracts signed under duress are voidable by the party under pressure. The buyer may choose to rescind.
Citation: California Civil Code §1567
Q120. What type of legal description uses meridians, base lines, townships, and ranges?
Correct Answer: C
Explanation: The rectangular survey system, also called the government survey system, is based on principal meridians and base lines.
Citation: California Real Estate Reference Book, Chapter 6 – Legal Descriptions
Explanation: The rectangular survey system, also called the government survey system, is based on principal meridians and base lines.
Citation: California Real Estate Reference Book, Chapter 6 – Legal Descriptions
Q121. Which of the following items would be considered real property under California law?
Correct Answer: B
Explanation: Real property includes fixtures—items permanently affixed to the land or structure—like a built-in chandelier.
Citation: California Civil Code §658; Real Property vs. Personal Property Definitions
Explanation: Real property includes fixtures—items permanently affixed to the land or structure—like a built-in chandelier.
Citation: California Civil Code §658; Real Property vs. Personal Property Definitions
Q122. What is the effect of a Notice of Default in a nonjudicial foreclosure in California?
Correct Answer: D
Explanation: A Notice of Default is the formal start of the nonjudicial foreclosure process and must be recorded and served to the borrower.
Citation: California Civil Code §2924
Explanation: A Notice of Default is the formal start of the nonjudicial foreclosure process and must be recorded and served to the borrower.
Citation: California Civil Code §2924
Q123. A broker takes an exclusive agency listing. Which of the following is TRUE?
Correct Answer: C
Explanation: In an exclusive agency listing, the seller can sell the property themselves and avoid paying commission, but if any agent procures the buyer, the commission is owed.
Citation: California Real Estate Reference Book, Chapter 8 – Listing Agreements
Explanation: In an exclusive agency listing, the seller can sell the property themselves and avoid paying commission, but if any agent procures the buyer, the commission is owed.
Citation: California Real Estate Reference Book, Chapter 8 – Listing Agreements
Q124. What happens if a grant deed is signed but never delivered?
Correct Answer: B
Explanation: Delivery is essential to the validity of a deed. Without actual or constructive delivery, no transfer of title occurs.
Citation: California Real Estate Reference Book, Chapter 6 – Transferring Real Property
Explanation: Delivery is essential to the validity of a deed. Without actual or constructive delivery, no transfer of title occurs.
Citation: California Real Estate Reference Book, Chapter 6 – Transferring Real Property
Q125. In California, which of the following is required to create a valid joint tenancy?
Correct Answer: B
Explanation: Joint tenancy requires the four unities—time, title, interest, and possession—as well as equal ownership interest among all tenants.
Citation: California Civil Code §683
Explanation: Joint tenancy requires the four unities—time, title, interest, and possession—as well as equal ownership interest among all tenants.
Citation: California Civil Code §683
Q126. A licensee representing both the buyer and seller in a transaction must:
Correct Answer: C
Explanation: Dual agency is legal in California only if both the buyer and seller are informed and give written consent.
Citation: California Civil Code §2079.17
Explanation: Dual agency is legal in California only if both the buyer and seller are informed and give written consent.
Citation: California Civil Code §2079.17
Q127. The primary reason for using a land contract (contract for deed) is to:
Correct Answer: C
Explanation: A land contract allows the buyer to purchase property over time while the seller retains legal title until full payment is made. It serves as an alternative to bank financing.
Citation: California Real Estate Reference Book, Chapter 9 – Contracts
Explanation: A land contract allows the buyer to purchase property over time while the seller retains legal title until full payment is made. It serves as an alternative to bank financing.
Citation: California Real Estate Reference Book, Chapter 9 – Contracts
Q128. What is the maximum amount a broker can withdraw from a trust account for business purposes?
Correct Answer: D
Explanation: California allows brokers to maintain up to $200 in a trust account for bank charges or service fees, but not for general business expenses.
Citation: California Code of Regulations §2835
Explanation: California allows brokers to maintain up to $200 in a trust account for bank charges or service fees, but not for general business expenses.
Citation: California Code of Regulations §2835
Q129. Which of the following would be an example of involuntary alienation?
Correct Answer: C
Explanation: Involuntary alienation occurs when property is transferred without the owner’s consent, such as through eminent domain, foreclosure, or adverse possession.
Citation: California Real Estate Reference Book, Chapter 6 – Transferring Real Property
Explanation: Involuntary alienation occurs when property is transferred without the owner’s consent, such as through eminent domain, foreclosure, or adverse possession.
Citation: California Real Estate Reference Book, Chapter 6 – Transferring Real Property
Q130. Which law requires lenders to provide borrowers with a Loan Estimate and Closing Disclosure?
Correct Answer: B
Explanation: The TILA-RESPA Integrated Disclosure Rule (TRID) combines elements of RESPA and TILA to standardize and simplify disclosures about mortgage terms and closing costs.
Citation: TILA-RESPA Integrated Disclosure Rule (12 CFR §1026)
Explanation: The TILA-RESPA Integrated Disclosure Rule (TRID) combines elements of RESPA and TILA to standardize and simplify disclosures about mortgage terms and closing costs.
Citation: TILA-RESPA Integrated Disclosure Rule (12 CFR §1026)
Q131. What type of legal entity is formed when two or more people carry on a business for profit without formally incorporating?
Correct Answer: B
Explanation: A general partnership is created when two or more persons conduct a business for profit, whether or not they have a formal agreement or filing.
Citation: California Corporations Code §16202
Explanation: A general partnership is created when two or more persons conduct a business for profit, whether or not they have a formal agreement or filing.
Citation: California Corporations Code §16202
Q132. A broker hires a salesperson as an independent contractor. What is the broker still legally responsible for?
Correct Answer: C
Explanation: Even when a salesperson is classified as an independent contractor for tax purposes, the broker must still supervise their activities under DRE regulations.
Citation: California Business and Professions Code §10177(h); IRS Publication 15-A
Explanation: Even when a salesperson is classified as an independent contractor for tax purposes, the broker must still supervise their activities under DRE regulations.
Citation: California Business and Professions Code §10177(h); IRS Publication 15-A
Q133. Which of the following is considered a capital improvement under California property tax rules?
Correct Answer: C
Explanation: A capital improvement is a physical addition that adds value or extends the life of the property, such as adding a new room or structure.
Citation: California Revenue and Taxation Code §70
Explanation: A capital improvement is a physical addition that adds value or extends the life of the property, such as adding a new room or structure.
Citation: California Revenue and Taxation Code §70
Q134. A licensee fails to disclose that they are acting as a principal in a transaction. This is most likely a violation of:
Correct Answer: C
Explanation: If a licensee is acting as a buyer or seller in their own deal, they must disclose their licensed status to all parties. Failure to do so is a violation of DRE rules.
Citation: California Business and Professions Code §10177(o)
Explanation: If a licensee is acting as a buyer or seller in their own deal, they must disclose their licensed status to all parties. Failure to do so is a violation of DRE rules.
Citation: California Business and Professions Code §10177(o)
Q135. Which document typically specifies the exact loan terms, including interest rate and repayment schedule, in a financed real estate transaction?
Correct Answer: C
Explanation: The promissory note outlines the borrower’s promise to repay the loan, including the principal amount, interest rate, payment schedule, and penalties.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Explanation: The promissory note outlines the borrower’s promise to repay the loan, including the principal amount, interest rate, payment schedule, and penalties.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Q136. In California, which of the following would terminate an agency relationship by operation of law?
Correct Answer: C
Explanation: An agency relationship is terminated automatically by operation of law upon the death or incapacity of the principal or agent.
Citation: California Civil Code §2355
Explanation: An agency relationship is terminated automatically by operation of law upon the death or incapacity of the principal or agent.
Citation: California Civil Code §2355
Q137. Which of the following is TRUE about escrow in California?
Correct Answer: C
Explanation: Escrow instructions must be mutually agreed upon and in writing to be valid. The escrow officer acts only on these instructions.
Citation: California Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Explanation: Escrow instructions must be mutually agreed upon and in writing to be valid. The escrow officer acts only on these instructions.
Citation: California Real Estate Reference Book, Chapter 21 – Escrow and Title Insurance
Q138. Which of the following actions by a landlord would most likely violate California habitability laws?
Correct Answer: B
Explanation: Landlords are required to maintain basic habitability, including providing functioning hot water. Failing to do so violates health and safety codes.
Citation: California Civil Code §1941.1
Explanation: Landlords are required to maintain basic habitability, including providing functioning hot water. Failing to do so violates health and safety codes.
Citation: California Civil Code §1941.1
Q139. If a property’s assessed value increases more than 2% in one year, this would most likely be due to:
Correct Answer: C
Explanation: Under Proposition 13, assessed value increases are limited to 2% annually unless there is new construction or a change in ownership.
Citation: California Revenue and Taxation Code §51
Explanation: Under Proposition 13, assessed value increases are limited to 2% annually unless there is new construction or a change in ownership.
Citation: California Revenue and Taxation Code §51
Q140. A borrower pays $9,000 annually in interest on a loan with a 6% interest rate. What is the original loan amount?
Correct Answer: C
Explanation: Loan amount = Annual interest ÷ Interest rate = $9,000 ÷ 0.06 = $150,000.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance (Math Section)
Explanation: Loan amount = Annual interest ÷ Interest rate = $9,000 ÷ 0.06 = $150,000.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance (Math Section)
Q141. Which of the following best defines ‘subordination’ in a trust deed?
Correct Answer: B
Explanation: Subordination allows a new lien to take priority over an existing one, usually by agreement between lenders.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Explanation: Subordination allows a new lien to take priority over an existing one, usually by agreement between lenders.
Citation: California Real Estate Reference Book, Chapter 10 – Real Estate Finance
Q142. Under California law, which of the following is TRUE regarding trust accounts?
Correct Answer: C
Explanation: Trust funds must be deposited into escrow, a neutral depository, or a trust account within 3 business days of receipt.
Citation: California Code of Regulations §2832
Explanation: Trust funds must be deposited into escrow, a neutral depository, or a trust account within 3 business days of receipt.
Citation: California Code of Regulations §2832
Q143. A seller receives multiple offers on a property. What must the listing agent do?
Correct Answer: B
Explanation: A listing agent must present all offers to the seller promptly and allow the seller to make the decision.
Citation: California Business and Professions Code §10176(a)
Explanation: A listing agent must present all offers to the seller promptly and allow the seller to make the decision.
Citation: California Business and Professions Code §10176(a)
Q144. Which item would most likely be considered a fixture under California law?
Correct Answer: C
Explanation: Fixtures are items that are affixed or integrated into the property, such as built-in appliances, and are considered real property.
Citation: California Civil Code §660
Explanation: Fixtures are items that are affixed or integrated into the property, such as built-in appliances, and are considered real property.
Citation: California Civil Code §660
Q145. A buyer applies for a loan and is denied based on marital status. This may violate which law?
Correct Answer: C
Explanation: The Equal Credit Opportunity Act prohibits credit discrimination based on characteristics such as marital status, race, religion, or age.
Citation: Equal Credit Opportunity Act (15 U.S.C. §1691)
Explanation: The Equal Credit Opportunity Act prohibits credit discrimination based on characteristics such as marital status, race, religion, or age.
Citation: Equal Credit Opportunity Act (15 U.S.C. §1691)
Q146. A home is listed for $640,000. A buyer offers $620,000 and the seller counters with $630,000. The buyer rejects the counteroffer. What is the current status?
Correct Answer: C
Explanation: Once a counteroffer is made, the original offer is terminated. If the counteroffer is rejected, no contract exists unless further negotiation occurs.
Citation: California Real Estate Reference Book, Chapter 9 – Contracts
Explanation: Once a counteroffer is made, the original offer is terminated. If the counteroffer is rejected, no contract exists unless further negotiation occurs.
Citation: California Real Estate Reference Book, Chapter 9 – Contracts
Q147. Under California license law, a salesperson may lawfully accept a commission from:
Correct Answer: C
Explanation: A salesperson must receive all compensation through their employing broker; direct payment from any other party is prohibited.
Citation: California Business and Professions Code §10137
Explanation: A salesperson must receive all compensation through their employing broker; direct payment from any other party is prohibited.
Citation: California Business and Professions Code §10137
Q148. What is the primary purpose of the Truth in Lending Act (TILA)?
Correct Answer: C
Explanation: TILA requires lenders to disclose credit terms in a clear, standardized manner to help consumers compare loan offers.
Citation: Truth in Lending Act (15 U.S.C. §1601 et seq.)
Explanation: TILA requires lenders to disclose credit terms in a clear, standardized manner to help consumers compare loan offers.
Citation: Truth in Lending Act (15 U.S.C. §1601 et seq.)
Q149. Which of the following is considered a unilateral contract in real estate?
Correct Answer: C
Explanation: An open listing is a unilateral contract where the broker is only entitled to compensation if they successfully procure a buyer.
Citation: California Real Estate Reference Book, Chapter 8 – Listings and Agency
Explanation: An open listing is a unilateral contract where the broker is only entitled to compensation if they successfully procure a buyer.
Citation: California Real Estate Reference Book, Chapter 8 – Listings and Agency
Q150. A California property is sold with a termite inspection contingency. If active infestation is found, who typically pays for the corrective work?
Correct Answer: B
Explanation: While negotiable, sellers typically cover the cost of corrective work for active infestations discovered during the termite inspection.
Citation: California Structural Pest Control Act; Standard Residential Purchase Agreement Practices
Explanation: While negotiable, sellers typically cover the cost of corrective work for active infestations discovered during the termite inspection.
Citation: California Structural Pest Control Act; Standard Residential Purchase Agreement Practices
Q151. When a buyer submits a written offer to purchase, and the seller signs it without changes, what is the legal status of the agreement?
Q152. A licensee tells a buyer that a home is “the best investment in town” and will double in value within five years. This statement may be considered:
Q153. Under California law, which of the following documents is required to be recorded to be legally effective?
Q154. What is the purpose of a subordination clause in a trust deed?
Q155. According to the California Civil Code, what is the statute of limitations for filing a lawsuit based on a written real estate contract?
Q156. Which of the following actions would most likely violate the Real Estate Settlement Procedures Act (RESPA)?
Q157. A licensee tells a homeowner that their property will definitely sell within 30 days if listed. This is considered:
Q158. When a broker manages trust funds on behalf of clients, which of the following is a correct legal requirement?
Q159. A real estate agent who discriminates in the sale of property based on a buyer’s familial status is violating:
Q160. In a real estate transaction, which of the following parties is legally required to complete and deliver the Transfer Disclosure Statement (TDS)?
Q161. A seller delivers the Transfer Disclosure Statement after the buyer has signed the purchase agreement. What is the buyer’s right in this situation?
Q162. When an appraiser applies the cost approach, which of the following is deducted from the current replacement cost?
Q163. A licensee receives multiple offers on a listed property. According to ethical and legal standards, what must the licensee do?
Q164. A salesperson hosts an open house and discusses a property with a buyer who has no agent. If the buyer later submits an offer through another broker, what is the original agent entitled to?
Q165. What is the primary purpose of the final walk-through before close of escrow?
Q166. Under California law, which of the following is true about an exclusive agency listing agreement?
Q167. A broker places a client’s earnest money deposit into the firm’s general operating account. This is an example of:
Q168. What is the primary benefit of tenancy in common as a form of property ownership?
Q169. Which of the following is true regarding a hold harmless clause in a listing agreement?
Q170. What is the effect of recording a deed in California?
Q171. A buyer signs a purchase agreement contingent on financing but then refuses to apply for a loan. What is the likely legal consequence?
Q172. What is a key characteristic of a net lease in a commercial real estate transaction?
Q173. An agency relationship can be created by all of the following EXCEPT:
Q174. Which of the following best describes the difference between a license and an easement?
Q175. Which disclosure is required when selling a property located in a state-designated Very High Fire Hazard Severity Zone?
Q176. A broker manages an apartment complex and places tenant security deposits into the operating account. What violation has occurred?
Q177. A real estate licensee receives confidential information from a client during the course of representation. Which fiduciary duty does this relate to most directly?
Q178. A residential income property is valued using the gross rent multiplier (GRM) method. Which of the following is required?
Q179. A dual agency must be disclosed to both parties:
Q180. What is the main purpose of a CLTA standard policy of title insurance?
Q181. What does the term “rescission” mean in a real estate contract?
Q182. A seller knowingly fails to disclose a leaking roof in the Transfer Disclosure Statement (TDS). What legal concept applies?
Q183. A deed that states the grantor “remises, releases, and quitclaims” any interest in a property provides:
Q184. A subdivider must provide a public report issued by the Department of Real Estate (DRE) before:
Q185. When a property is sold “as is,” what does this imply legally?
Q186. When a buyer assumes the seller’s existing loan without lender approval, what clause in the loan agreement may be violated?
Q187. In a real estate transaction, what is the main function of the escrow holder?
Q188. A broker is advertising a property using only the listing price and a phone number, without identifying themselves. What is this a violation of?
Q189. A real estate salesperson receives a bonus check directly from a client for exceptional service. What must the salesperson do?
Q190. What is the maximum allowable security deposit for an unfurnished residential rental in California?
Correct Answer: B
Explanation: California law caps security deposits for unfurnished residential rentals at two months’ rent.
Citation: California Civil Code §1950.5(a)
Explanation: California law caps security deposits for unfurnished residential rentals at two months’ rent.
Citation: California Civil Code §1950.5(a)
Q191. A property is sold “subject to” an existing mortgage. What does this mean for the buyer?
Correct Answer: C
Explanation: Taking title “subject to” an existing loan means the buyer agrees to make payments but remains not personally liable; the seller remains obligated to the lender.
Citation: California Real Estate Reference Book – Chapter 10 “Transfer of Title Subject To”
Explanation: Taking title “subject to” an existing loan means the buyer agrees to make payments but remains not personally liable; the seller remains obligated to the lender.
Citation: California Real Estate Reference Book – Chapter 10 “Transfer of Title Subject To”
Q192. A buyer gives a broker a personal check for the earnest money deposit. The broker should:
Correct Answer: B
Explanation: Trust funds must be deposited into a neutral escrow or trust account within three business days of receipt.
Citation: California Code of Regulations §2832
Explanation: Trust funds must be deposited into a neutral escrow or trust account within three business days of receipt.
Citation: California Code of Regulations §2832
Q193. Which of the following actions by a licensee would most likely constitute ‘blockbusting’?
Correct Answer: C
Explanation: Blockbusting involves inducing homeowners to sell by suggesting that entry of a protected group will lower property values, which is illegal under fair housing laws.
Citation: 42 U.S.C. §3604; California Government Code §12955
Explanation: Blockbusting involves inducing homeowners to sell by suggesting that entry of a protected group will lower property values, which is illegal under fair housing laws.
Citation: 42 U.S.C. §3604; California Government Code §12955
Q194. What is the legal effect of recording a mechanic’s lien?
Correct Answer: C
Explanation: Recording a mechanic’s lien gives constructive notice to the public of the contractor’s claim against the property.
Citation: California Civil Code §8424
Explanation: Recording a mechanic’s lien gives constructive notice to the public of the contractor’s claim against the property.
Citation: California Civil Code §8424
Q195. Which type of deed provides the least protection to a buyer and contains no warranties?
Correct Answer: C
Explanation: A quitclaim deed conveys whatever interest the grantor has without warranties or guarantees, offering the least protection.
Citation: California Civil Code §1091
Explanation: A quitclaim deed conveys whatever interest the grantor has without warranties or guarantees, offering the least protection.
Citation: California Civil Code §1091
Q196. Under California law, how long must a broker retain records related to a real estate transaction?
Correct Answer: C
Explanation: Brokers must retain transaction documents for at least three years from the date of closing or listing.
Citation: California Business & Professions Code §10148
Explanation: Brokers must retain transaction documents for at least three years from the date of closing or listing.
Citation: California Business & Professions Code §10148
Q197. In California, which type of legal description is most commonly used in urban residential transactions?
Correct Answer: B
Explanation: The lot and block (subdivision) method is the most common legal description in California residential transactions.
Citation: California Real Estate Reference Book – Chapter 6 (Legal Descriptions)
Explanation: The lot and block (subdivision) method is the most common legal description in California residential transactions.
Citation: California Real Estate Reference Book – Chapter 6 (Legal Descriptions)
Q198. If a landlord enters a tenant’s apartment without proper notice or emergency, this may be considered:
Correct Answer: B
Explanation: Unauthorized entry without proper notice is trespass under California Civil Code §1927.
Citation: California Civil Code §1927
Explanation: Unauthorized entry without proper notice is trespass under California Civil Code §1927.
Citation: California Civil Code §1927
Q199. What is the primary purpose of a preliminary title report (Prelim)?
Correct Answer: C
Explanation: A preliminary title report discloses recorded liens, easements, and encumbrances prior to closing.
Citation: California Real Estate Reference Book – Chapter 21 (Escrow and Title Insurance)
Explanation: A preliminary title report discloses recorded liens, easements, and encumbrances prior to closing.
Citation: California Real Estate Reference Book – Chapter 21 (Escrow and Title Insurance)
Q200. A property manager deducts repair costs from a tenant’s security deposit without providing an itemized list. What violation may have occurred?
Correct Answer: C
Explanation: Landlords must provide an itemized list of deposit deductions and receipts within 21 days of tenant move-out; failure is improper accounting.
Citation: California Civil Code §1950.5(g)
Explanation: Landlords must provide an itemized list of deposit deductions and receipts within 21 days of tenant move-out; failure is improper accounting.
Citation: California Civil Code §1950.5(g)
Q201. What type of listing agreement provides the most protection to a broker for earning a commission?
Correct Answer: D
Explanation: An exclusive right to sell listing ensures the broker receives commission regardless of who sells the property.
Citation: California Business & Professions Code §10176(f)
Explanation: An exclusive right to sell listing ensures the broker receives commission regardless of who sells the property.
Citation: California Business & Professions Code §10176(f)
Q202. Under California’s Anti-Deficiency Laws, which loan is most likely protected from a deficiency judgment?
Correct Answer: B
Explanation: Purchase-money loans for owner-occupied 1–4 unit residences are protected from deficiency judgments.
Citation: California Code of Civil Procedure §580d
Explanation: Purchase-money loans for owner-occupied 1–4 unit residences are protected from deficiency judgments.
Citation: California Code of Civil Procedure §580d
Q203. A real estate agent tells a potential buyer that a home will triple in value in five years. This could expose the agent to liability for:
Correct Answer: A
Explanation: Specific, unsubstantiated claims about future appreciation constitute negligent misrepresentation under B&P Code §10176(a).
Citation: California Business & Professions Code §10176(a)
Explanation: Specific, unsubstantiated claims about future appreciation constitute negligent misrepresentation under B&P Code §10176(a).
Citation: California Business & Professions Code §10176(a)
Q204. Which document typically includes a legal description, names of the parties, and consideration?
Correct Answer: C
Explanation: A deed conveys title and includes legal description, grantor/grantee names, and recites consideration.
Citation: California Civil Code §1091
Explanation: A deed conveys title and includes legal description, grantor/grantee names, and recites consideration.
Citation: California Civil Code §1091
Q205. What is the legal impact of a zoning variance granted by a city?
Correct Answer: B
Explanation: A variance grants a property-specific deviation from zoning rules without altering the zoning ordinance.
Citation: California Government Code §65906
Explanation: A variance grants a property-specific deviation from zoning rules without altering the zoning ordinance.
Citation: California Government Code §65906
Q206. In California, a real estate licensee must disclose their license status when:
Correct Answer: B
Explanation: Licensees acting as principals (e.g., buying/selling personally) must disclose their licensure status.
Citation: California Business & Professions Code §10177(a)
Explanation: Licensees acting as principals (e.g., buying/selling personally) must disclose their licensure status.
Citation: California Business & Professions Code §10177(a)
Q207. A “blind ad” is one that:
Correct Answer: C
Explanation: A blind ad omits the licensee’s name or license number, violating advertising regulations.
Citation: California Business & Professions Code §10140.6
Explanation: A blind ad omits the licensee’s name or license number, violating advertising regulations.
Citation: California Business & Professions Code §10140.6
Q208. A seller receives two offers: one from a cash buyer and another from a buyer using FHA financing. Which statement is true?
Correct Answer: B
Explanation: Sellers may choose offers based on terms; financing type alone is not a protected characteristic.
Citation: 42 U.S.C. §3604
Explanation: Sellers may choose offers based on terms; financing type alone is not a protected characteristic.
Citation: 42 U.S.C. §3604
Q209. What is the purpose of a Natural Hazard Disclosure (NHD) Statement?
Correct Answer: C
Explanation: The NHD informs buyers of designated hazard zones (flood, fire, seismic).
Citation: California Civil Code §1103
Explanation: The NHD informs buyers of designated hazard zones (flood, fire, seismic).
Citation: California Civil Code §1103
Q210. Which action constitutes unlawful steering?
Correct Answer: C
Explanation: Steering based on a protected characteristic (race) violates fair housing laws.
Citation: 42 U.S.C. §3604; California Government Code §12955
Explanation: Steering based on a protected characteristic (race) violates fair housing laws.
Citation: 42 U.S.C. §3604; California Government Code §12955
Q211. Which best describes an “option contract” in real estate?
Correct Answer: B
Explanation: An option contract grants the buyer the exclusive right to purchase at a set price within a specified period.
Citation: California Civil Code §1585
Explanation: An option contract grants the buyer the exclusive right to purchase at a set price within a specified period.
Citation: California Civil Code §1585
Q212. A listing agent receives multiple offers. What is the agent’s duty?
Correct Answer: C
Explanation: Agents must present all written offers to the seller promptly under fiduciary duty.
Citation: California Civil Code §2079.16
Explanation: Agents must present all written offers to the seller promptly under fiduciary duty.
Citation: California Civil Code §2079.16
Q213. Which is considered real property rather than personal property?
Correct Answer: B
Explanation: Fructus naturales (trees, vegetation) are considered real property.
Citation: California Civil Code §658
Explanation: Fructus naturales (trees, vegetation) are considered real property.
Citation: California Civil Code §658
Q214. Which principle suggests maximum value when properties are similar in style and use?
Correct Answer: B
Explanation: The principle of conformity holds that properties are most valuable when similar in design and use.
Citation: California Real Estate Reference Book – Chapter 16 (Principle of Conformity)
Explanation: The principle of conformity holds that properties are most valuable when similar in design and use.
Citation: California Real Estate Reference Book – Chapter 16 (Principle of Conformity)
Q215. Who customarily pays documentary transfer tax in California?
Correct Answer: B
Explanation: Sellers customarily pay the documentary transfer tax, though it’s negotiable.
Citation: California Revenue and Taxation Code §11911
Explanation: Sellers customarily pay the documentary transfer tax, though it’s negotiable.
Citation: California Revenue and Taxation Code §11911
Q216. What is the main purpose of a home warranty plan?
Correct Answer: C
Explanation: Home warranty plans cover repair or replacement of major home systems and appliances post-sale.
Citation: California Real Estate Reference Book – Chapter 20 (Home Warranty Plans)
Explanation: Home warranty plans cover repair or replacement of major home systems and appliances post-sale.
Citation: California Real Estate Reference Book – Chapter 20 (Home Warranty Plans)
Q217. What must a broker do when acting as a dual agent in California?
Correct Answer: B
Explanation: Dual agency requires written disclosure and consent from both buyer and seller.
Citation: California Civil Code §2079.17
Explanation: Dual agency requires written disclosure and consent from both buyer and seller.
Citation: California Civil Code §2079.17
Q218. In a 1031 exchange, what deadline applies for identifying a replacement property?
Correct Answer: B
Explanation: IRS rules require identification of replacement property within 45 days of selling the relinquished property.
Citation: Internal Revenue Code §1031(a)
Explanation: IRS rules require identification of replacement property within 45 days of selling the relinquished property.
Citation: Internal Revenue Code §1031(a)
Q219. A buyer learns a property is in a flood zone that was not disclosed. What recourse does the buyer have?
Correct Answer: B
Explanation: Non-disclosure of flood-zone status gives the buyer the right to rescind the purchase.
Citation: California Civil Code §1103
Explanation: Non-disclosure of flood-zone status gives the buyer the right to rescind the purchase.
Citation: California Civil Code §1103
Q220. In a probate sale, what is typically required before closing?
Correct Answer: B
Explanation: Probate court confirmation is required to finalize a probate sale.
Citation: California Probate Code §10300
Explanation: Probate court confirmation is required to finalize a probate sale.
Citation: California Probate Code §10300
Q221. A broker arranging a loan fails to provide the Mortgage Loan Disclosure Statement. What has been violated?
Correct Answer: D
Explanation: Article 7 of Real Estate Law requires brokers to deliver the Mortgage Loan Disclosure Statement timely.
Citation: California Business & Professions Code §10166
Explanation: Article 7 of Real Estate Law requires brokers to deliver the Mortgage Loan Disclosure Statement timely.
Citation: California Business & Professions Code §10166
Q222. A tenant moves out and leaves significant damage. What must the landlord do before retaining deposit funds?
Correct Answer: C
Explanation: Landlords must provide an itemized list of deposit deductions and receipts within 21 days of tenant move-out.
Citation: California Civil Code §1950.5(g)
Explanation: Landlords must provide an itemized list of deposit deductions and receipts within 21 days of tenant move-out.
Citation: California Civil Code §1950.5(g)
Q223. What does “as is” imply in a property sale?
Correct Answer: C
Explanation: “As is” means the seller won’t repair but must still disclose all known material defects.
Citation: California Civil Code §1102 et seq.
Explanation: “As is” means the seller won’t repair but must still disclose all known material defects.
Citation: California Civil Code §1102 et seq.
Q224. When must the Agency Disclosure form be provided to a buyer?
Correct Answer: B
Explanation: Must be provided before writing or presenting a purchase offer.
Citation: California Civil Code §2079.14
Explanation: Must be provided before writing or presenting a purchase offer.
Citation: California Civil Code §2079.14
Q225. A buyer’s deposit is held in trust. Transaction falls through and broker won’t return it. What violation?
Correct Answer: B
Explanation: Refusing to return a deposit constitutes conversion of trust funds.
Citation: California Code of Regulations §2832
Explanation: Refusing to return a deposit constitutes conversion of trust funds.
Citation: California Code of Regulations §2832
Q226. In a lease, the covenant of quiet enjoyment guarantees that:
Correct Answer: C
Explanation: Ensures tenant’s right to possess and enjoy property without landlord interference.
Citation: California Civil Code §1927
Explanation: Ensures tenant’s right to possess and enjoy property without landlord interference.
Citation: California Civil Code §1927
Q227. An agent tells a seller “I already have the perfect buyer, no need to market.” If untrue, this is:
Correct Answer: B
Explanation: Deliberately making a false statement to induce a client is fraudulent misrepresentation under B&P Code §10176(b).
Citation: California Business & Professions Code §10176(b)
Explanation: Deliberately making a false statement to induce a client is fraudulent misrepresentation under B&P Code §10176(b).
Citation: California Business & Professions Code §10176(b)
Q228. A deed must be acknowledged before it can be:
Correct Answer: C
Explanation: A deed must be acknowledged (notarized) to be recorded and give constructive notice.
Citation: California Civil Code §§1189, 1215
Explanation: A deed must be acknowledged (notarized) to be recorded and give constructive notice.
Citation: California Civil Code §§1189, 1215
Q229. Which action constitutes commingling?
Correct Answer: A
Explanation: Commingling is mixing client trust funds with personal/business funds, prohibited by B&P Code §10145(a).
Citation: California Business & Professions Code §10145(a)
Explanation: Commingling is mixing client trust funds with personal/business funds, prohibited by B&P Code §10145(a).
Citation: California Business & Professions Code §10145(a)
Q230. What happens if a deed is delivered but not accepted by the grantee?
Correct Answer: B
Explanation: Delivery and acceptance by the grantee are required to effectuate title transfer.
Citation: California Civil Code §1050
Explanation: Delivery and acceptance by the grantee are required to effectuate title transfer.
Citation: California Civil Code §1050
Q231. Who is liable if a salesperson misstates square footage at an open house?
Correct Answer: B
Explanation: Brokers are liable for their salespersons’ actions if they fail to supervise per Civil Code §2079.13.
Citation: California Civil Code §2079.13
Explanation: Brokers are liable for their salespersons’ actions if they fail to supervise per Civil Code §2079.13.
Citation: California Civil Code §2079.13
Q232. What is the function of an impound (escrow) account in a mortgage loan?
Correct Answer: B
Explanation: Impound accounts hold borrower funds for taxes and hazard insurance to ensure timely payment.
Citation: California Real Estate Reference Book – Chapter 10 (Escrow Accounts)
Explanation: Impound accounts hold borrower funds for taxes and hazard insurance to ensure timely payment.
Citation: California Real Estate Reference Book – Chapter 10 (Escrow Accounts)
Q233. Which lease must be in writing to be enforceable in California?
Correct Answer: B
Explanation: Leases over one year must be in writing under Statute of Frauds.
Citation: California Civil Code §1624(a)(3)
Explanation: Leases over one year must be in writing under Statute of Frauds.
Citation: California Civil Code §1624(a)(3)
Q234. A seller refuses to sell to a buyer because of national origin. What law is violated?
Correct Answer: C
Explanation: Discrimination based on national origin breaches the federal Fair Housing Act.
Citation: 42 U.S.C. §3604
Explanation: Discrimination based on national origin breaches the federal Fair Housing Act.
Citation: 42 U.S.C. §3604
Q235. What is “ratification” in agency law?
Correct Answer: C
Explanation: Ratification is when a principal accepts an agent’s unauthorized act, binding the principal.
Citation: California Civil Code §2317
Explanation: Ratification is when a principal accepts an agent’s unauthorized act, binding the principal.
Citation: California Civil Code §2317
Q236. A broker advertises a guaranteed rent program but owns no properties. This may be:
Correct Answer: C
Explanation: Advertising services that don’t exist is false or misleading under B&P Code §10140.
Citation: California Business & Professions Code §10140
Explanation: Advertising services that don’t exist is false or misleading under B&P Code §10140.
Citation: California Business & Professions Code §10140
Q237. Which element is NOT required to form a valid contract?
Correct Answer: C
Explanation: A performance bond is not required; essential elements are mutual consent, lawful object, consideration, and capacity.
Citation: California Civil Code §1550
Explanation: A performance bond is not required; essential elements are mutual consent, lawful object, consideration, and capacity.
Citation: California Civil Code §1550
Q238. An agent learns a buyer will pay more than their written offer. What must they do?
Correct Answer: C
Explanation: Agents owe a duty of disclosure to their client and must promptly disclose such information.
Citation: California Civil Code §2079.16
Explanation: Agents owe a duty of disclosure to their client and must promptly disclose such information.
Citation: California Civil Code §2079.16
Q239. The capitalization rate primarily reflects:
Correct Answer: C
Explanation: The cap rate represents the investor’s required rate of return, converting NOI into value.
Citation: California Real Estate Reference Book – Chapter 16 (Income Approach)
Explanation: The cap rate represents the investor’s required rate of return, converting NOI into value.
Citation: California Real Estate Reference Book – Chapter 16 (Income Approach)
Q240. Recording a deed provides:
Correct Answer: C
Explanation: Recording gives constructive notice of the transfer to the public.
Citation: California Civil Code §1215
Explanation: Recording gives constructive notice of the transfer to the public.
Citation: California Civil Code §1215
Q241. In the cost approach, what follows estimating replacement cost?
Correct Answer: B
Explanation: After estimating replacement cost, accrued depreciation is deducted in the cost approach.
Citation: California Real Estate Reference Book – Chapter 16 (Cost Approach)
Explanation: After estimating replacement cost, accrued depreciation is deducted in the cost approach.
Citation: California Real Estate Reference Book – Chapter 16 (Cost Approach)
Q242. How must a salesperson receive compensation?
Correct Answer: B
Explanation: Salespersons must receive all compensation through their employing broker.
Citation: California Business & Professions Code §10150
Explanation: Salespersons must receive all compensation through their employing broker.
Citation: California Business & Professions Code §10150
Q243. What is the effect of a lis pendens?
Correct Answer: C
Explanation: A lis pendens serves as constructive notice of pending litigation affecting the property.
Citation: California Code of Civil Procedure §405.20
Explanation: A lis pendens serves as constructive notice of pending litigation affecting the property.
Citation: California Code of Civil Procedure §405.20
Q244. What distinguishes a general lien from a specific lien?
Correct Answer: C
Explanation: General liens attach to all property of a debtor, while specific liens attach to a particular property.
Citation: California Real Estate Reference Book – Chapter 5 (Encumbrances)
Explanation: General liens attach to all property of a debtor, while specific liens attach to a particular property.
Citation: California Real Estate Reference Book – Chapter 5 (Encumbrances)
Q245. What violates the Sherman Antitrust Act in real estate?
Correct Answer: B
Explanation: Colluding to set commission rates is illegal price-fixing under the Sherman Antitrust Act.
Citation: 15 U.S.C. §1
Explanation: Colluding to set commission rates is illegal price-fixing under the Sherman Antitrust Act.
Citation: 15 U.S.C. §1
Q246. What does title insurance cover?
Correct Answer: C
Explanation: Title insurance protects against losses from defects in title that occurred before policy issuance.
Citation: California Civil Code §1227
Explanation: Title insurance protects against losses from defects in title that occurred before policy issuance.
Citation: California Civil Code §1227
Q247. What is the consequence of unlicensed real estate activity for compensation?
Correct Answer: C
Explanation: Engaging in compensated real estate activities without a license is a misdemeanor and incurs civil penalties.
Citation: California Business & Professions Code §10131
Explanation: Engaging in compensated real estate activities without a license is a misdemeanor and incurs civil penalties.
Citation: California Business & Professions Code §10131
Q248. A home sells for $950,000. Transfer tax is $1.10 per $1,000. What is tax due?
Correct Answer: D
Explanation: $950,000 ÷ $1,000 = 950; 950 × $1.10 = $1,045.
Citation: California Revenue and Taxation Code §11911
Explanation: $950,000 ÷ $1,000 = 950; 950 × $1.10 = $1,045.
Citation: California Revenue and Taxation Code §11911
Q249. What is the purpose of the Real Estate Commissioner’s Regulations?
Correct Answer: C
Explanation: Regulations interpret and administer the Real Estate Law and protect the public.
Citation: California Business & Professions Code §10160
Explanation: Regulations interpret and administer the Real Estate Law and protect the public.
Citation: California Business & Professions Code §10160
Q250. Which is TRUE about escrow in California?
Correct Answer: C
Explanation: Escrow holders are neutral and act only on the written instructions of both buyer and seller.
Citation: California Civil Code §1057
Explanation: Escrow holders are neutral and act only on the written instructions of both buyer and seller.
Citation: California Civil Code §1057
Q251. Which of the following actions by a broker would most likely constitute a violation of fiduciary duty?
Q252. When must the Transfer Disclosure Statement (TDS) be delivered in a California residential sale?
Q253. A buyer makes an offer on a property, and the seller accepts but changes the closing date. Legally, this is considered:
Q254. A broker receives a $5,000 check as an earnest money deposit. What must the broker do to comply with trust fund handling rules?
Q255. What type of legal ownership allows unequal interest and no right of survivorship?
Q256. A broker representing both buyer and seller in the same transaction must:
Q257. In real estate appraisal, “external obsolescence” refers to:
Q258. A seller tells their listing agent not to disclose a known roof leak. What should the agent do?
Q259. Which of the following is required for a deed to be valid in California?
Q260. A property is located in an area recently designated as part of a new flood zone. What must the seller disclose?
Q261. A broker places a client’s check into a personal account “temporarily” to hold it over a weekend. This action is considered:
Q262. What does the term “highest and best use” mean in real estate appraisal?
Q263. A licensee receives a referral fee from a home warranty company without disclosure. This may violate:
Q264. In a tenancy in common, which of the following rights do co-owners have?
Q265. A seller receives multiple offers on their home. What is the agent’s legal duty regarding these offers?
Q266. What is a primary characteristic of a gross lease in commercial real estate?
Q267. A real estate licensee fails to renew their license before expiration. Which of the following is TRUE?
Q268. A deed of trust in California is typically used to:
Q269. A valid contract must include all of the following EXCEPT:
Q270. Which of the following forms of depreciation is usually considered incurable?
Q271. A listing agreement must contain which of the following to be enforceable in California?
Q272. Which of the following best describes “equity” in a property?
Q273. What is the primary role of a home inspection contingency in a residential purchase agreement?
Q274. An appraiser uses comparable properties that recently sold to determine value. This is an example of which approach?
Q275. What does it mean when a loan is described as a “non-recourse” loan?
Q276. A “red flag” in a visual inspection might include:
Q277. What is the purpose of a “subordination clause” in a trust deed?
Q278. In California, what is the minimum number of years a broker must retain transaction records?
Q279. Which party typically pays for the title insurance policy protecting the buyer in a California real estate sale?
Q280. What is the primary function of the Preliminary Title Report?
Q281. Which of the following would most likely be considered functional obsolescence?
Q282. In California, when must a buyer receive the Homeowner’s Guide to Earthquake Safety?
Q283. What is the function of a deed restriction?
Q284. Which of the following would terminate an agency relationship by operation of law?
Q285. A seller accepts an offer from a buyer, and the transaction enters escrow. What type of contract is now in place?
Q286. In a residential real estate transaction, who typically orders the pest (termite) inspection report in California?
Q287. Which of the following is a voluntary lien?
Q288. What is the main advantage of an ARM (Adjustable Rate Mortgage) for a borrower?
Q289. If a seller’s agent knows the roof is leaking but fails to inform the buyer, this would be considered:
Q290. A property is sold and escrow closes. When is the buyer considered the legal owner?
Q291. A real estate salesperson prepares a flyer advertising a listed property but fails to include the name and license number of their broker. This is an example of:
Q292. What happens if a buyer cancels a real estate contract during the inspection period for a reason allowed in the contingency?
Q293. A buyer offers to purchase a property with a written offer. The seller changes the price and signs it. What is the legal status of this document?
Q294. The main difference between an easement and a license is:
Q295. Which of the following items would be considered real property under California law?
Q296. When is the buyer entitled to receive a copy of the Natural Hazard Disclosure (NHD) Statement?
Q297. Which of the following best describes the concept of “agency by estoppel”?
Q298. What is the purpose of a closing disclosure (CD) in a federally related mortgage transaction?
Q299. A homeowner builds a fence that slightly encroaches onto a neighbor’s lot. The neighbor learns of the fence but says nothing for many years. Which legal doctrine may prevent the neighbor from forcing removal?
Q300. A licensee misrepresents a material fact in a transaction, and the buyer suffers financial harm. What is the most likely legal consequence?