California Real Estate Salesperson Examination 2025

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: 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: 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 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: 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: 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: 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: 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 using the formula: Value = Net Operating Income ÷ Capitalization Rate (or V = I ÷ R).
Step-by-step calculation:

Net Operating Income (NOI) = $30,000
Capitalization Rate = 6% = 0.06 (convert percentage to decimal)
Value = $30,000 ÷ 0.06 = $500,000

Verification: A $500,000 property generating $30,000 annual income yields a 6% return ($30,000 ÷ $500,000 = 0.06 or 6%).
Why other answers are wrong:

Choice A ($180,000): Would require a much higher cap rate of about 16.7%
Choice B ($200,000): Would require a cap rate of 15%
Choice D ($600,000): Would imply a lower cap rate of 5%

The formula V = I ÷ R is a fundamental principle of the income approach to valuation.

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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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

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: 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: 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: 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: 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: 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: 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: 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: 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: 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 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: 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: 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: An agency relationship is automatically terminated by operation of law upon the death of the principal or agent.
Citation: California Civil Code §2355

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: 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: 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: The Business and Professions Code includes numerous provisions regulating truthful advertising and marketing practices for licensees.
Citation: California Business and Professions Code §10140

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: 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: 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: 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: 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 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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 agency disclosure must be presented and signed before entering into a listing agreement with a seller.
Citation: California Civil Code §2079.14

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: 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: 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: 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: 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: 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: '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: 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: 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: 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: 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 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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 '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: 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: 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: 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: 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: Contracts signed under duress are voidable by the party under pressure. The buyer may choose to rescind.
Citation: California Civil Code §1567

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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: 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: A real estate contract is formed when one party makes an offer and the other accepts it without any changes. When the seller signs the offer as-is, a binding agreement is created.

Explanation: Making specific, unsubstantiated claims about future investment value crosses the line into misrepresentation and can lead to disciplinary or legal consequences.

Explanation: A grant deed must be recorded to give constructive notice of the change in ownership. Other documents, like listing agreements and contracts, do not require recording to be valid.

Explanation: A subordination clause allows a future loan to take a senior position over the current lien, which is often used in land development financing to allow construction loans to take priority.

Explanation: The statute of limitations for a written contract in California is four years from the date of the breach or discovery of the breach.

Explanation: RESPA prohibits kickbacks and unearned fees in connection with settlement services involving federally related mortgage loans. Accepting a kickback from a home warranty company violates Section 8 of RESPA.

Explanation: Making a guaranteed statement of performance without conditions is considered misleading under California real estate law and may constitute a violation subject to discipline.

Explanation: Trust funds received by brokers must be deposited in a trust account, a neutral escrow, or given to the principal within three business days. Commingling with personal funds is prohibited.

Explanation: The federal Fair Housing Act prohibits discrimination in housing based on race, color, religion, sex, disability, national origin, and familial status.

Explanation: Under California Civil Code, the seller is legally obligated to complete and deliver the Transfer Disclosure Statement to the buyer before closing. Agents must also inspect and disclose observable issues.

Explanation: If the Transfer Disclosure Statement (TDS) is delivered after the purchase contract is signed, the buyer has a 3-day right of rescission (5 days if delivered by mail).

Explanation: In the cost approach, the appraiser determines the replacement or reproduction cost of improvements and then subtracts any accrued depreciation to estimate the current value.

Explanation: The agent has a fiduciary duty to present all written offers to the seller as soon as possible, regardless of price or terms.

Explanation: In California, a salesperson is not entitled to compensation unless they have a contractual agreement or are the procuring cause recognized by the broker. Hosting an open house does not guarantee commission.

Explanation: The final walk-through allows the buyer to verify that the property is in the same condition as agreed and that any repairs or items specified in the contract have been completed.

Explanation: In an exclusive agency listing, the broker earns commission only if they or another agent procure the buyer. If the seller finds the buyer without agent assistance, no commission is due.

Explanation: Commingling occurs when a licensee mixes client funds with personal or business funds. This violates fiduciary duty and state law, even if unintentional.

Explanation: In tenancy in common, each co-owner can will their share to heirs, unlike joint tenancy, which has the right of survivorship. Shares may be unequal and independently transferable.

Explanation: A hold harmless clause protects the broker from liability arising from inaccurate information supplied by the seller, provided the broker had no knowledge of the inaccuracy.

Explanation: Recording a deed in the county recorder’s office provides constructive notice of the transaction to the public. It does not, by itself, validate the deed or the transaction.

Explanation: Contingencies must be pursued in good faith. If the buyer fails to even apply for financing, they may be in breach for not making a reasonable effort to fulfill the contract terms.

Explanation: In a net lease, the tenant is responsible for rent as well as certain or all property-related expenses such as taxes, insurance, and maintenance, depending on whether it's a single, double, or triple net lease.

Explanation: A voluntary lien has nothing to do with agency creation. Agency can arise from oral or written agreement, ratification of acts, or even implication through conduct.

Explanation: Easements are real property interests that typically run with the land and are not revocable. Licenses are temporary permissions to use land and can usually be revoked at any time.

Explanation: Sellers in California are required to provide a Natural Hazard Disclosure (NHD) statement if the property is located in specified hazard zones, including Very High Fire Hazard Severity Zones.

Explanation: Brokers are prohibited from placing tenant security deposits (trust funds) into their own business or personal accounts. This is considered commingling, which is a serious regulatory violation.

Explanation: The duty of confidentiality obligates the agent to protect sensitive information shared by the client, even after the agency relationship ends, unless disclosure is required by law.

Explanation: The GRM is calculated using the property’s price and its gross scheduled income, usually on a monthly or annual basis. It does not require expenses or capitalization rates.

Explanation: Under California law, a dual agency must be disclosed to both buyer and seller as soon as it arises and must be agreed to in writing by both parties. Failure to do so may void the commission or create liability.

Explanation: A CLTA (California Land Title Association) standard policy primarily protects against title defects that existed prior to close of escrow, such as forgery, improper delivery, and certain undisclosed encumbrances.

Explanation: Rescission refers to the legal cancellation of a contract, where both parties are returned to their original positions as if the contract never existed.

Explanation: Knowingly failing to disclose material defects like a leaking roof constitutes fraudulent misrepresentation, which may entitle the buyer to rescind the contract or seek damages.

Explanation: A quitclaim deed conveys whatever interest the grantor may have in the property, with no warranties or guarantees. It is commonly used to clear title defects or transfer between related parties.

Explanation: California law requires a final public report from the DRE to be provided to prospective buyers before any lots or parcels in a subdivision can be sold or leased.

Explanation: An “as is” clause does not release the seller from their duty to disclose known material defects. It simply means the seller will not make repairs or improvements.

Explanation: A due-on-sale clause allows the lender to demand full repayment of the loan if the property is sold or transferred without their consent. This clause prevents unauthorized assumptions.

Explanation: The escrow holder acts as a neutral party responsible for carrying out the mutual instructions of the buyer and seller, ensuring that conditions of the agreement are met before closing.

Explanation: The escrow holder acts as a neutral party responsible for carrying out the mutual instructions of the buyer and seller, ensuring that conditions of the agreement are met before closing.

Explanation: Under California law, all compensation to a salesperson must go through their employing broker. Direct payments from clients are not permitted, regardless of intent.

Explanation: For unfurnished residential units, California limits the security deposit to two months’ rent. For furnished units, the limit is three months.

Explanation: When a buyer takes title “subject to” an existing loan, the buyer agrees to make the payments, but the lender cannot hold the buyer personally liable if the loan defaults. The seller remains liable.

Explanation: The seller typically pays the real estate commission out of their proceeds at closing, making it a debit on the seller’s side of the settlement statement.

Explanation: Blockbusting is an illegal and unethical practice where agents induce panic selling by suggesting that minority group members are moving into a neighborhood, causing property values to decline.

Explanation: Recording a mechanic’s lien gives constructive notice to the public of a contractor’s claim for unpaid work or materials on a property. It does not guarantee payment or immediate foreclosure.

Explanation: The grant deed is the most commonly used deed in California real estate transactions. It implies that the grantor has not previously conveyed the property and that the property is free of undisclosed encumbrances.

Explanation: California brokers are required by law to retain copies of real estate transaction records for at least three years from the date of the transaction or listing, whether or not a sale is completed.

Explanation: The lot and block (or subdivision) method is the most common legal description in California residential transactions. It references recorded subdivision maps filed with the county.

Explanation: Landlords must provide proper written notice before entering a rental unit except in emergencies. Unauthorized entry may be considered trespassing under California law.

Explanation: A preliminary title report discloses recorded encumbrances, liens, and conditions affecting title prior to closing, allowing the buyer to address issues or object before completing the transaction.

Explanation: Landlords must provide an itemized list of deductions from the security deposit within 21 days of tenant move-out. Failure to do so violates California’s landlord-tenant accounting rules.

Explanation: An exclusive right to sell listing ensures the broker is entitled to a commission regardless of who finds the buyer. It provides maximum protection for the broker’s efforts.

Explanation: California law protects borrowers from deficiency judgments on purchase-money loans used to acquire owner-occupied residential property of four units or fewer.

Explanation: Making an unsubstantiated financial claim about future appreciation can constitute negligent misrepresentation, especially if the statement influences the buyer’s decision and lacks factual basis.

Explanation: A deed includes a full legal description, identifies the grantor and grantee, and recites consideration. It is used to transfer title to real property.

Explanation: A variance allows a property owner to use land in a way that deviates from current zoning laws, but only for that specific parcel and under limited, approved conditions. It does not change zoning laws themselves.

Explanation: When acting as a principal in a real estate transaction, licensees must disclose their license status to the other party in writing, to avoid any appearance of undue advantage or concealment.

Explanation: A blind ad is an advertisement by a licensee that fails to disclose the fact they are a licensed agent or omits the broker’s name, violating state advertising rules.

eExplanation: Sellers may choose offers based on financial or contract terms, not on buyer characteristics protected under fair housing laws. Financing method alone is not a protected class.

Explanation: The NHD statement informs buyers whether a property lies within state-mapped zones such as flood, fire, or earthquake fault zones. It supplements other required disclosures, not replaces them.

Explanation: Steering occurs when an agent directs clients toward or away from neighborhoods based on race, religion, or other protected characteristics. This violates fair housing laws and licensing regulations.

Explanation: An option contract gives one party (usually the buyer) the exclusive right—but not the obligation—to purchase a property at a predetermined price within a specified timeframe. It is a unilateral contract until exercised.