California Real Estate Broker Practice Exam

214 free California Real Estate Broker practice questions with answers and explanations. No signup required. The California Real Estate Broker exam is administered by California DRE, with 200 questions, a time limit of 4 hours and a passing score of 75%.

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What is the general purpose of a loan-to-value ratio when a lender evaluates a mortgage application?

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Financing

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1. What is the general purpose of a loan-to-value ratio when a lender evaluates a mortgage application?
- A. It measures the borrower's monthly income against total monthly debts
- B. It compares the loan amount to the appraised value or price of the property
- C. It sets the interest rate the borrower will be charged
- D. It determines the length of the amortization schedule
Show answer & explanation
Answer: B
The loan-to-value ratio expresses the loan amount as a proportion of the property's appraised value (or sale price, whichever is lower). A lower ratio means more borrower equity and less lender risk. The concept is defined qualitatively here without asserting any specific ratio.
2. What best describes the primary function of a promissory note in a real estate financing transaction?
- A. It pledges the real property as security for the debt
- B. It is the borrower's written promise to repay the debt
- C. It transfers legal title of the property to the lender
- D. It is the government's record of the recorded lien
Show answer & explanation
Answer: B
A promissory note is the borrower's written, signed promise to repay a specified debt. The instrument that pledges the property as security (the deed of trust or mortgage) is separate from the note that evidences the debt itself.
3. In the context of mortgage lending, what does an acceleration clause allow a lender to do?
- A. Demand immediate payment of the entire remaining balance upon a specified default
- B. Reduce the monthly payment during periods of financial hardship
- C. Extend the loan term automatically if the borrower misses a payment
- D. Increase the interest rate at fixed intervals regardless of default
Show answer & explanation
Answer: A
An acceleration clause gives the lender the right to declare the entire unpaid balance immediately due and payable upon a triggering event such as default. It accelerates what would otherwise be a schedule of future installments into a single obligation.
4. In a fully amortized fixed-rate mortgage, how does the composition of a level monthly payment change from the first payment to the last?
- A. The principal and interest portions remain equal throughout the loan term
- B. The entire payment applies to principal until the balance is retired, then to interest
- C. The interest portion increases each month while the principal portion decreases
- D. The interest portion decreases each month while the principal portion increases
Show answer & explanation
Answer: D
In a fully amortized loan, each level payment first covers interest accrued on the outstanding balance, with the remainder reducing principal. As the balance falls, less interest accrues, so the interest share shrinks and the principal share grows over time. This is a conceptual property of amortization, requiring no specific rate or figure.
5. A borrower obtains a loan secured by a deed of trust. Which parties are associated with a deed of trust?
- A. Only a mortgagor and a mortgagee
- B. A trustor, a trustee, and a beneficiary
- C. A grantor and a grantee only
- D. A vendor and a vendee only
Show answer & explanation
Answer: B
A deed of trust involves three parties: the trustor (borrower), the trustee (a neutral third party who holds bare or naked title as security), and the beneficiary (the lender). This three-party structure distinguishes it from a two-party mortgage.
6. How does the secondary mortgage market primarily differ from the primary mortgage market?
- A. The secondary market only handles government-issued grants, not loans
- B. The secondary market originates new loans directly to homebuyers
- C. The secondary market buys and sells existing loans, providing liquidity to originating lenders
- D. The secondary market sets the appraised value of financed properties
Show answer & explanation
Answer: C
The primary market is where lenders originate loans directly with borrowers. The secondary market is where those existing loans are bought and sold among investors, replenishing lenders' funds so they can make additional loans. This distinction is conceptual and involves no specific figures.
7. A lender offers a borrower a lower interest rate in exchange for paying 2 discount points on a $200,000 loan. How much will the borrower pay in points at closing?
- A. $400
- B. $2,000
- C. $4,000
- D. $20,000
Show answer & explanation
Answer: C
One discount point equals one percent of the loan amount. Two points on a $200,000 loan equal 2% of $200,000, or $4,000, paid as prepaid interest to buy down the rate.
8. A buyer is obtaining a conventional loan with a 10 percent down payment. Based on standard industry practice for conventional financing, what will the lender most likely require?
- A. FHA mortgage insurance
- B. Private mortgage insurance
- C. A VA funding fee
- D. No mortgage insurance, since the loan is conventional
Show answer & explanation
Answer: B
Private mortgage insurance is typically required on conventional loans when the down payment is less than twenty percent. A 10 percent down payment falls below that threshold, so PMI would typically be required.
9. Under RESPA, which two disclosure documents are lenders required to provide to borrowers on federally related mortgage loans?
- A. The appraisal report and the title commitment
- B. The promissory note and the deed of trust
- C. The APR disclosure and the rescission notice
- D. The Loan Estimate and the Closing Disclosure
Show answer & explanation
Answer: D
RESPA requires the Loan Estimate and Closing Disclosure as part of its governance of federally related mortgage loans, giving borrowers standardized disclosures of loan terms and closing costs.
10. A homeowner refinances the mortgage on their principal residence with a new lender. Under TILA/Regulation Z, what right does the borrower have after signing the new loan documents?
- A. An unlimited right to cancel the refinance at any time
- B. A three-day right of rescission
- C. A thirty-day right of rescission
- D. No right of rescission on refinances
Show answer & explanation
Answer: B
TILA, implemented by Regulation Z, grants a three-day right of rescission on certain refinances of a principal residence, giving the borrower a short window to cancel after closing.
11. A veteran who qualifies for VA financing wants to minimize upfront cash needed to purchase a home. Which feature of VA-guaranteed loans most directly supports this goal?
- A. They are insured by the Federal Housing Administration
- B. They can permit no down payment for eligible veterans
- C. They automatically waive the need for a promissory note
- D. They are not government-backed, reducing lender fees
Show answer & explanation
Answer: B
VA loans are guaranteed for eligible veterans and can permit no down payment, directly supporting a buyer's goal of minimizing upfront cash. FHA loans, by contrast, are insured (not guaranteed) and allow low, not necessarily zero, down payments.
12. In a lien-theory state, which party holds legal title to real property during the term of a mortgage loan?
- A. The lender, until the debt is fully repaid
- B. The borrower, with the lender holding only a lien
- C. A neutral trustee appointed by the court
- D. Title is held jointly by borrower and lender as tenants in common
Show answer & explanation
Answer: B
In a lien-theory state the borrower holds title and the lender holds only a lien against the property, unlike a title-theory arrangement where the lender holds legal title until the debt is paid.
13. A lender fails to disclose the annual percentage rate on a borrower's loan for a principal residence. Which federal law and implementing regulation governs this disclosure requirement?
- A. RESPA, implemented by Regulation X
- B. The Fair Housing Act, implemented by Regulation B
- C. The Truth in Lending Act, implemented by Regulation Z
- D. The Statute of Frauds, implemented by state regulation
Show answer & explanation
Answer: C
TILA, implemented by Regulation Z, requires disclosure of the APR and total finance charge so borrowers can compare the true cost of credit, making it the governing law for APR disclosure failures.
14. A borrower defaults on mortgage payments, and the lender invokes a clause that makes the entire remaining loan balance immediately due. What is this clause called?
- A. Alienation clause
- B. Acceleration clause
- C. Defeasance clause
- D. Subordination clause
Show answer & explanation
Answer: B
The acceleration clause lets the lender declare the entire balance due upon default, allowing the lender to demand full repayment rather than waiting for further missed installments.
15. A borrower's loan documents include a promissory note and a deed of trust. What is the primary legal function of the promissory note in this transaction?
- A. It pledges the property as security for the debt
- B. It evidences the debt and the borrower's promise to repay
- C. It grants the lender legal title to the property
- D. It authorizes the lender to declare the full balance due upon default
Show answer & explanation
Answer: B
A mortgage loan involves a promissory note evidencing the debt and the borrower's promise to pay, and a mortgage or deed of trust that pledges the property as security. The note itself evidences the debt obligation, not the security interest.
16. A mortgage broker refers borrowers to a title company in exchange for an unearned fee for each referral. Which federal law most directly prohibits this practice?
- A. The Truth in Lending Act
- B. The Fair Housing Act
- C. The Real Estate Settlement Procedures Act
- D. The Civil Rights Act of 1866
Show answer & explanation
Answer: C
RESPA governs federally related mortgage loans and prohibits kickbacks and unearned referral fees, making it the law that directly addresses a broker receiving an unearned fee for referring business to a title company.
17. An eligible California veteran buys a farm through the Cal-Vet program. Which statement correctly describes how title is held during the financing period?
- A. The state buys the property and sells it to the veteran under a land contract, retaining legal title until payoff
- B. The veteran takes legal title immediately and gives the state a deed of trust
- C. A private lender holds title in trust for the veteran
- D. Title is held by the federal Department of Veterans Affairs
Show answer & explanation
Answer: A
The Cal-Vet program is distinctive because the state department actually purchases the property and resells it to the veteran under a land contract of sale, so the state retains legal title while the veteran holds equitable title until the contract is paid. The deed-of-trust answer describes conventional and VA financing structures, which is precisely the distinction the exam expects candidates to know.

Property Ownership

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18. A candidate answers 140 questions correctly on the 200-question broker examination. Relative to the stated passing standard, how many additional correct answers would have been needed to pass?
- A. 5 more
- B. 10 more
- C. 15 more
- D. 20 more
Show answer & explanation
Answer: B
Passing requires 75% of 200 questions, which is 150 correct answers. A candidate with 140 correct would need 10 additional correct answers to reach 150.
19. A broker candidate answers 150 of the questions correctly on the examination. Assuming every question is scored equally, does this meet the stated passing standard?
- A. No, because 150 correct out of 200 is only 70%
- B. Yes, because 150 correct out of 200 is 75%, which meets the passing standard
- C. No, because a passing score requires 80%
- D. Yes, but only because partial credit applies
Show answer & explanation
Answer: B
The examination contains 200 questions and the passing standard is 75%. Since 150 of 200 equals 75%, a candidate answering 150 correctly exactly meets the passing standard.
20. Which of the following correctly pairs a feature of the broker examination with its official value?
- A. Examination fee: $150
- B. Number of questions: 150
- C. Passing score: 60 percent
- D. Number of questions: 250
Show answer & explanation
Answer: A
Per the official examinee information, the broker examination fee is $150. The examination contains 200 questions (not 150 or 250), and the passing score is 75% (not 60%), so only the fee pairing is correct.
21. A deed was signed by a grantor who was a minor at the time of the transaction. How would this deed most accurately be classified under contract-validity principles?
- A. Void, because it never legally existed
- B. Voidable, because the minor may disaffirm it
- C. Unenforceable, because it was never in writing
- D. Fully valid and permanent regardless of the grantor's age
Show answer & explanation
Answer: B
A contract that a party may disaffirm, such as one signed by a minor, is voidable, which is distinct from a void contract (missing a required element) or an unenforceable one (valid but barred from court enforcement, such as an unwritten land-sale agreement).
22. Which estate in land is described as the highest and most complete form of ownership, freely inheritable and freely transferable?
- A. Fee simple absolute
- B. Leasehold estate
- C. Life estate
- D. Easement appurtenant
Show answer & explanation
Answer: A
The fee simple absolute is the highest and most complete form of ownership, freely inheritable and transferable, unlike a life estate, which ends at the measuring life, or a leasehold, which is merely a possessory interest.
23. An owner grants a neighbor the right to cross a strip of the owner's land to reach a lake, and this right is tied to and benefits the neighbor's adjoining parcel. Which parcel is the 'servient tenement' in this arrangement?
- A. Neither parcel, since easements only affect public land
- B. The neighbor's parcel, because it benefits from the right
- C. The owner's parcel, because it is burdened by the right
- D. Both parcels equally
Show answer & explanation
Answer: C
An easement appurtenant benefits an adjoining dominant tenement and burdens the servient tenement; here, the owner's land that must be crossed is the servient tenement, while the neighbor's benefiting parcel is the dominant tenement.
24. Two neighboring lots are configured so that the owner of Lot 1 has the right to cross Lot 2 to reach a public road, and this right was created to benefit Lot 1 specifically. If Lot 1 is sold, what happens to this right?
- A. It terminates automatically because easements cannot be transferred
- B. It continues to benefit Lot 1 because it runs with the land
- C. It converts into a personal license held only by the original owner
- D. It must be renegotiated with the new owner of Lot 2
Show answer & explanation
Answer: B
An easement appurtenant benefits an adjoining dominant tenement (Lot 1), burdens the servient tenement (Lot 2), and runs with the land, so it passes automatically to a new owner of Lot 1.
25. For a deed to be effective in transferring title, which of the following combinations of requirements must all be satisfied?
- A. Notarization, recording, and a survey
- B. A legal description, a granting clause, and signature, delivery, and acceptance by the grantor
- C. Payment in full and a title insurance policy
- D. An appraisal and lender approval
Show answer & explanation
Answer: B
A deed must be in writing, name the parties, contain a legal description, include a granting clause, and be signed by the grantor and delivered and accepted to be effective; notarization, recording, appraisals, and title insurance are not listed among these core requirements.
26. A homeowner conveys a parcel by deed that names the parties, includes a legal description and granting clause, and is signed by the grantor, delivered, and accepted, but the deed includes no warranties of title whatsoever. Which type of deed was most likely used?
- A. General warranty deed
- B. Quitclaim deed
- C. Special warranty deed
- D. Bargain and sale deed
Show answer & explanation
Answer: B
A quitclaim deed carries no warranties and conveys only whatever interest the grantor may have, which distinguishes it from a general warranty deed, where the grantor warrants title against all defects.
27. A seller wants to convey a property with the strongest possible protection to the buyer, including warranties against title defects arising at any point in history, even before the seller owned the property. Which deed type provides this level of protection?
- A. Quitclaim deed
- B. General warranty deed
- C. Sheriff's deed
- D. Deed in lieu of foreclosure
Show answer & explanation
Answer: B
A general warranty deed offers the greatest protection because the grantor warrants title against all defects arising at any time, unlike a quitclaim deed, which offers no warranties at all.
28. A property owner falls behind on both a mortgage payment and a property tax bill, and the property is later sold in a foreclosure with insufficient proceeds to satisfy every lien. Which lien is generally paid first, regardless of recording date?
- A. The mortgage, because it was recorded first
- B. The property tax lien
- C. Whichever lien has the largest balance
- D. The mortgage, because home loans always have top priority
Show answer & explanation
Answer: B
Property tax liens and special assessments generally take priority over all other liens regardless of when they were recorded, so the tax lien is paid before the mortgage.
29. A grant conveys a home 'to my brother for life, then to my daughter.' Upon the brother's death, who holds title to the home?
- A. The grantor, automatically, by reversion
- B. The brother's heirs, through probate
- C. The daughter, as the named remainderman
- D. The state, by escheat
Show answer & explanation
Answer: C
A life estate lasts for the duration of a named person's life, after which title passes to a remainderman or reverts to the grantor; because a remainderman (the daughter) was named, title passes to her, not back to the grantor.
30. A buyer records her deed in the public land records immediately after closing. What is the primary legal effect of that recording?
- A. It cures any pre-existing defects in the chain of title
- B. It gives constructive notice to the world and establishes priority
- C. It guarantees the title is marketable
- D. It automatically removes any recorded easements
Show answer & explanation
Answer: B
Recording the deed in the public land records gives constructive notice to the world and establishes priority; it does not cure title defects or guarantee marketability.
31. A survey reveals that a homeowner's garage extends two feet over the boundary line onto the neighboring lot. What is this condition called?
- A. An easement by necessity
- B. A variance
- C. A party wall
- D. An encroachment
Show answer & explanation
Answer: D
An encroachment is the unauthorized physical intrusion of a structure or improvement onto adjoining land, which is precisely what a garage crossing the lot line represents. A party wall, the closest-sounding alternative, is a shared wall built on the boundary by agreement between the owners, so it lacks the unauthorized character that defines an encroachment.
32. A resident of an apartment building owns shares in the corporation that holds title to the entire property and occupies his unit under a proprietary lease tied to those shares. Which ownership form does this describe?
- A. A condominium
- B. A planned unit development
- C. A community apartment project
- D. A stock cooperative
Show answer & explanation
Answer: D
In a stock cooperative, a corporation owns the real property and each resident owns corporate shares carrying the right to occupy a particular unit under a proprietary lease, so the resident holds personal property in the shares rather than a deed to the unit. A condominium owner, by contrast, receives fee title to the unit itself, which is the key distinction examiners test.
33. A restaurant tenant installed ovens, counters, and a walk-in cooler for its business. As the lease expires, the landlord claims these items became part of the building. What is the general rule?
- A. All attached items automatically belong to the landlord
- B. The tenant must buy the items back from the landlord
- C. The items belong to whoever holds the security deposit
- D. Trade fixtures may be removed by the tenant before the lease ends, provided removal damage is repaired
Show answer & explanation
Answer: D
Items a tenant installs for the conduct of its trade or business are trade fixtures, which the tenant may remove before the tenancy expires so long as the premises are restored from any damage caused by removal. The general rule that attachments become part of the realty is what makes the landlord's claim tempting, but trade fixtures are a recognized exception created to encourage commerce.

State License Law and Broker Supervision

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34. A California licensee is selecting continuing education courses. Which subjects does California designate as mandatory within the required hours?
- A. Ethics, agency, trust fund handling, fair housing, risk management, and for many licensees a management and supervision course
- B. Any subjects the licensee chooses, with no designated content
- C. Only ethics and fair housing
- D. Only appraisal and construction subjects
Show answer & explanation
Answer: A
California designates specific consumer protection subjects that must appear within the required hours, so a licensee cannot satisfy the requirement with electives alone. The management and supervision component reflects that supervisory failures are a recurring enforcement theme, and brokers carry supervision-specific obligations beyond the general content.
35. A California broker keeps a small amount of the broker's own money in the trust account to absorb bank service charges. Under what condition is this permitted?
- A. A limited amount of broker funds, capped by regulation, may be kept solely to cover service charges; any greater amount is commingling
- B. Any amount of broker funds may be kept in a trust account
- C. No broker funds may be kept in a trust account for any purpose
- D. Service charges must be paid from beneficiary funds
Show answer & explanation
Answer: A
California permits a narrowly capped amount of the broker's own funds in the trust account for the sole purpose of covering bank service charges, so beneficiary money is not depleted by them. Exceeding the cap, or keeping broker funds there for any other reason, is commingling, which is among the most frequently cited violations in Department audits.
36. Under California case law, what duty does a listing licensee owe regarding the physical condition of residential property?
- A. A duty to conduct a reasonably competent and diligent visual inspection of accessible areas and disclose material facts revealed
- B. No duty, since disclosure is solely the seller's responsibility
- C. A duty to obtain a professional engineering report
- D. A duty to warrant the condition of the improvements
Show answer & explanation
Answer: A
California imposes an affirmative visual inspection duty on the licensee for residential one-to-four unit property, so the licensee cannot simply rely on the seller's statements about condition. The duty covers reasonably accessible areas and is not an engineering analysis or a warranty of condition.
37. A licensee negotiates residential mortgage loans in addition to brokerage. What additional credential is generally required?
- A. A mortgage loan originator endorsement obtained through the national licensing system
- B. No additional credential, since a broker license covers loan origination
- C. A separate contractor license
- D. An appraiser certification
Show answer & explanation
Answer: A
Originating residential mortgage loans requires a loan originator endorsement obtained through the nationwide licensing system, involving testing, a background check and continuing education, in addition to the real estate license. Acting as an originator without the endorsement is unlicensed activity notwithstanding the underlying real estate license.
38. A California seller of residential one-to-four unit property must deliver a Transfer Disclosure Statement. Can this requirement be waived?
- A. No, the statutory disclosure requirement for covered transactions may not be waived
- B. Yes, if both parties agree in writing
- C. Yes, if the buyer conducts an independent inspection
- D. Yes, if the property is sold as is
Show answer & explanation
Answer: A
The Transfer Disclosure Statement is a statutory requirement for covered residential transactions and cannot be waived by agreement, and an as-is clause does not excuse disclosure of known material facts. A buyer who receives it late may have a right to terminate within a statutory period after delivery.
39. A California buyer is purchasing in a community facilities district financed by special taxes. What disclosure requirement applies?
- A. A Mello-Roos notice of special tax must be provided, disclosing the special tax lien and its terms
- B. No disclosure is required because the tax appears on the tax bill
- C. Only the amount of the current year's tax must be stated verbally
- D. Disclosure is required only for commercial property
Show answer & explanation
Answer: A
A seller of property within a Mello-Roos community facilities district must deliver a notice of the special tax, because the obligation is a lien that materially affects the cost of ownership for years. Relying on the tax bill is insufficient, since the buyer needs the information before committing to purchase.
40. A California broker supervises salespersons in several offices. What supervisory obligation does the Real Estate Law impose?
- A. Reasonable supervision including written policies, procedures and systems to review transactions, advertising, trust funds and licensee compliance
- B. Supervision only of salespersons in the broker's primary office
- C. Personal handling of every transaction
- D. No supervisory duty where salespersons are independent contractors
Show answer & explanation
Answer: A
A responsible broker must exercise reasonable supervision over the activities of licensees, with written policies and review systems covering transactions, documents, advertising, trust funds and regulatory compliance across all offices. Independent contractor status for tax purposes does not diminish the broker's supervisory duty under the license law.
41. California requires a Natural Hazard Disclosure for covered residential transactions. What does it address?
- A. The seller's mortgage payoff amount
- B. The property's assessed value history
- C. Whether the property lies within designated hazard zones such as flood, fire and seismic areas
- D. The condition of the roof and mechanical systems
Show answer & explanation
Answer: C
The Natural Hazard Disclosure reports whether the property falls within mapped zones including special flood hazard areas, high fire hazard severity zones, earthquake fault zones, seismic hazard zones and dam inundation areas. It concerns location-based hazard designations rather than the condition of improvements, which the Transfer Disclosure Statement addresses.
42. A California broker wishes to collect an advance fee for marketing services before performing them. What does the Real Estate Law require?
- A. The advance fee agreement must be submitted to the Department in advance, and the funds are trust funds subject to accounting to the principal
- B. Advance fees may be collected and treated as earned income immediately
- C. Advance fees are prohibited in all circumstances
- D. Only verbal disclosure of the fee is required
Show answer & explanation
Answer: A
Advance fee arrangements require submission of the agreement and materials to the Department before use, and the money received is trust funds requiring deposit and periodic verified accounting to the principal. The rules exist because advance fee schemes historically took money for marketing that was never meaningfully performed.
43. The California Real Estate Commissioner investigates a broker and wishes to halt an ongoing practice before a formal hearing concludes. What order may the Commissioner issue?
- A. A desist and refrain order, which stops the conduct pending proceedings
- B. A criminal sentence imposed directly by the Commissioner
- C. An order that is final and not subject to any review
- D. No order; the Commissioner may only act after a completed hearing
Show answer & explanation
Answer: A
The Commissioner may issue a desist and refrain order to stop conduct violating the Real Estate Law without waiting for a full hearing, with the affected party entitled to a hearing thereafter. The Commissioner may also suspend or revoke licenses and impose fines, but criminal penalties require a court, and Commissioner orders are subject to judicial review.
44. A California broker maintains a trust account and is subject to Department audit. What record must the broker keep for each beneficiary?
- A. A separate record for each beneficiary or transaction, reconciled with the control record at least monthly
- B. A single aggregate ledger for all trust funds
- C. Bank statements only
- D. No records beyond deposit slips
Show answer & explanation
Answer: A
California requires both a control record of all trust funds received and disbursed and a separate record for each beneficiary or transaction, reconciled with each other at least monthly. This per-beneficiary structure is what reveals a shortage in one file even when the aggregate balance appears adequate.
45. A California salesperson wishes to qualify for a broker license. Beyond coursework, what experience requirement generally applies?
- A. Two years of full-time licensed salesperson experience within the prior five years, or a qualifying equivalent such as a degree with a real estate major
- B. No experience requirement, only additional coursework
- C. Ten years of licensed experience
- D. Experience in any sales occupation
Show answer & explanation
Answer: A
California requires two years of full-time licensed experience within the preceding five years, with alternatives including a four-year degree with a major or minor in real estate. Broker applicants also complete a longer list of statutory courses than salesperson applicants, so both prongs must be satisfied.
46. A listing broker secretly arranges for a relative to buy her client's underpriced listing, planning to share in the resale profit, without telling the seller of her interest. What has the broker done?
- A. Nothing wrong, because the seller received the listed price
- B. Earned a lawful bonus for finding a fast buyer
- C. Violated advertising rules only
- D. Taken a secret profit in breach of fiduciary duty, exposing her to discipline and liability to the principal
Show answer & explanation
Answer: D
A fiduciary may not acquire a hidden interest in the principal's property or profit secretly from the agency; funneling the purchase through a relative to capture resale profit is a secret profit, recoverable by the principal and grounds for discipline. Obtaining the list price does not cure the breach, because the duty of loyalty forbids undisclosed self-dealing regardless of the price achieved.
47. An applicant conceals a prior professional-license revocation on her real estate license application, and the Department discovers the concealment after issuing the license. What may the Commissioner do?
- A. Nothing, because issuance is final
- B. Increase the licensee's renewal fees as a penalty
- C. Only issue a private warning letter
- D. Suspend or revoke the license, since procuring a license by fraud or material misstatement is grounds for discipline
Show answer & explanation
Answer: D
Obtaining a license through fraud, misrepresentation, or material omission is an independent ground for discipline, so the Commissioner may proceed against the license even though it has already been issued. Issuance creates no immunity for a fraudulent application, and the disciplinary system operates through suspension and revocation proceedings rather than through punitive fee adjustments.
48. A salesperson, acting within the scope of her employment for her broker, makes a material misrepresentation that injures a buyer. Apart from the salesperson's own accountability, may the employing broker face consequences?
- A. No, because each licensee answers only for personal conduct
- B. Yes; the broker may be liable and subject to discipline for a salesperson's acts within the scope of the employment
- C. Only if the broker co-signed the purchase agreement
- D. Only if the buyer first sues the seller
Show answer & explanation
Answer: B
A salesperson acts on behalf of the employing broker, so the broker may bear civil responsibility and regulatory discipline for a salesperson's misconduct committed within the scope of that relationship, particularly where supervision was lacking. Requiring the broker's signature on the contract misunderstands agency: liability flows from the employment relationship, not from the broker's personal participation in the document.
49. After a disciplinary proceeding, the Commissioner issues a licensee a restricted license. Which statement accurately describes this license?
- A. It is a probationary license that may carry conditions and confers no automatic right of renewal
- B. It is identical to a regular license once issued
- C. It permits only property management activity
- D. It cannot be suspended for any reason
Show answer & explanation
Answer: A
A restricted license functions as a probationary license: the Commissioner may attach conditions such as reporting requirements or employment limitations, and the holder lacks the renewal rights of a regular licensee. Far from being immune to suspension, it may be suspended more readily, and its scope is set by its conditions rather than being confined to any single activity like property management.

Contracts

16 of 32 questions loaded

50. A purchase agreement states that if the buyer defaults, the seller may retain the buyer's earnest money deposit as the agreed measure of damages, rather than suing for actual losses. What type of clause is this?
- A. An acceleration clause
- B. A liquidated damages clause
- C. A contingency clause
- D. A due-on-sale clause
Show answer & explanation
Answer: B
Liquidated damages clauses let the seller retain the earnest money as the agreed measure of the buyer's default.
51. A buyer breaches a signed purchase agreement for a single-family home by refusing to close. The seller wants a court to force the buyer to complete the purchase rather than simply awarding money damages. Which remedy is the seller seeking?
- A. Liquidated damages
- B. Rescission
- C. Specific performance
- D. Novation
Show answer & explanation
Answer: C
Specific performance compels conveyance because land is deemed unique, which is why a seller may ask a court to force completion of the purchase rather than accept money damages alone.
52. A seller and a buyer are negotiating the sale of a home. Before the buyer communicates acceptance of the seller's written offer, the seller decides to withdraw it. Under contract law principles, may the seller do this?
- A. No, because a written offer becomes irrevocable once it is delivered to the buyer
- B. Yes, because an offer may be revoked any time before acceptance is communicated
- C. No, because the buyer's reliance on the offer makes it binding
- D. Yes, but only if the seller pays the buyer's expenses incurred in reliance on the offer
Show answer & explanation
Answer: B
An offer may be revoked at any time before the other party communicates acceptance, so the seller's withdrawal is effective and no contract has yet formed.
53. A purchase agreement provides that the buyer's obligation to close is dependent on the buyer obtaining loan approval and the property passing a satisfactory inspection. What are these provisions called?
- A. Liquidated damages clauses
- B. Contingencies
- C. Acceleration clauses
- D. Granting clauses
Show answer & explanation
Answer: B
Contingencies are conditions that must be satisfied before a party is obligated to perform, commonly including financing, inspection, and appraisal contingencies.
54. A 16-year-old signs a contract to purchase a parcel of vacant land. Which term best describes the status of this contract?
- A. Void, because minors can never be parties to a contract
- B. Unenforceable, because land contracts require a licensed attorney
- C. Voidable, because the minor may choose to disaffirm it
- D. Valid and binding on both parties regardless of age
Show answer & explanation
Answer: C
A contract that a party may disaffirm, such as one signed by a minor, is voidable rather than void or unenforceable.
55. A buyer submits a written offer to purchase a property at a stated price. The seller responds by signing the offer but changing the closing date to a date the buyer never proposed. What is the legal effect of the seller's response?
- A. It is a valid acceptance because the price term was unchanged
- B. It is a counteroffer that rejects and extinguishes the buyer's original offer
- C. It is enforceable as a modification of the original offer without further action
- D. It has no legal effect because closing dates cannot be altered after an offer is signed
Show answer & explanation
Answer: B
Acceptance must be unqualified; because the seller made a material change to a term, the response operates as a counteroffer that rejects and extinguishes the buyer's original offer.
56. A landlord and tenant orally agree to a five-year lease and shake hands, but nothing is ever signed. Which legal concept most directly explains why this lease cannot be enforced in court?
- A. The parol evidence rule
- B. The Statute of Frauds requirement that leases longer than one year be in writing and signed by the party to be charged
- C. The doctrine of specific performance
- D. The rule against commingling of funds
Show answer & explanation
Answer: B
The Statute of Frauds requires that leases longer than one year be in writing and signed by the party to be charged in order to be enforceable, so an oral five-year lease is unenforceable.
57. A buyer and seller execute a written agreement for the sale of a home, but the agreement omits the purchase price entirely. Applying the essential elements of a valid contract, what is the legal status of this document?
- A. It is void, because it lacks the required element of consideration
- B. It is voidable at the buyer's option only
- C. It is unenforceable, but only until the parties agree to a price
- D. It is fully valid because mutual assent alone is sufficient
Show answer & explanation
Answer: A
A valid real estate contract requires mutual assent, consideration, legally competent parties, and a lawful object; an agreement missing consideration lacks a required element, making it void rather than merely voidable or unenforceable.
58. A seller receives two competing written offers on the same day. The seller signs one offer without any changes and has it delivered back to that buyer's agent before doing anything else. Under contract formation principles, what has occurred?
- A. A counteroffer, because two offers existed simultaneously
- B. A valid acceptance, because the seller's signature was an unqualified acceptance of that offer's terms
- C. Nothing, because acceptance requires the buyer to sign a second time
- D. A void contract, because competing offers cannot both be considered
Show answer & explanation
Answer: B
Acceptance must be unqualified; because the seller signed the offer without altering any terms, the seller's signature constitutes a valid, unqualified acceptance, forming a contract with that buyer, since a material change would instead have created a counteroffer.
59. Which combination of elements must be present for a real estate purchase agreement to be legally valid?
- A. Mutual assent, consideration, legally competent parties, and a lawful object
- B. A licensed broker's signature, consideration, and a recorded deed
- C. Mutual assent, a title insurance policy, and a lawful object
- D. Consideration, an appraisal, and legally competent parties
Show answer & explanation
Answer: A
A valid real estate contract requires four essential elements: mutual assent (offer and acceptance), consideration, legally competent parties, and a lawful object.
60. A seller extends a written offer to sell her lot to a neighbor, who asks for a week to think it over without paying for that time. Before the neighbor responds, the seller dies. The neighbor then attempts to accept. What is the result?
- A. The acceptance binds the seller's estate
- B. The offer remains open for a reasonable time after death
- C. The estate must extend a new offer on the same terms
- D. No contract forms, because the offeror's death terminated the offer before acceptance
Show answer & explanation
Answer: D
An ordinary offer terminates by operation of law upon the death of the offeror before acceptance, so there was nothing left for the neighbor to accept and no contract arose. Because the neighbor gave no consideration for an option, the offer was freely revocable and perishable; an option supported by consideration would have survived and bound the estate, which is the key distinction.
61. A homeowner lists with a single brokerage but reserves the right to sell the home herself without paying any commission if she finds her own buyer. Which listing arrangement matches these terms?
- A. An exclusive right to sell listing
- B. A net listing
- C. A multiple listing
- D. An exclusive agency listing
Show answer & explanation
Answer: D
An exclusive agency listing appoints one broker as the sole agent while preserving the owner's right to procure her own buyer commission-free. Under an exclusive right to sell arrangement the broker would collect even on the owner's self-procured sale, which is exactly the obligation this homeowner bargained to avoid, making the two exclusive forms the critical contrast to master.
62. A property owner grants a prospective buyer the exclusive right to purchase her ranch at a set price within a stated period, in exchange for a nonrefundable payment. The buyer is not obligated to purchase. What has been created?
- A. A bilateral purchase agreement
- B. An option contract, binding the owner but not the option holder
- C. A right of first refusal
- D. An open listing
Show answer & explanation
Answer: B
An option is a unilateral contract: the optionor is bound to sell on the stated terms if the optionee exercises within the option period, while the optionee remains free to walk away, forfeiting only the option consideration. A right of first refusal is the tempting confusion, but it gives no fixed price or exercise right; it merely lets the holder match an offer if the owner ever decides to sell.
63. A listing expires without a sale, but shortly afterward the seller closes a deal with a buyer whom the broker had introduced to the property during the listing term. The broker claims a commission under a clause in the expired listing. Which clause supports the claim?
- A. The arbitration clause
- B. The liquidated damages clause
- C. The protection (safety) clause covering buyers procured during the listing period
- D. The subordination clause
Show answer & explanation
Answer: C
A protection or safety clause entitles the broker to a commission if, within a stated period after expiration, the owner sells to someone the broker introduced during the listing term, preventing parties from waiting out the listing to evade the fee. Liquidated damages clauses fix the remedy between buyer and seller for breach of the purchase contract, which is a different relationship entirely.
64. An apartment tenant transfers only a portion of her remaining lease term to another person, collecting rent from that person while continuing to pay the landlord herself. How is this arrangement classified?
- A. An assignment of the lease
- B. A novation of the lease
- C. A sublease, with the original tenant remaining liable to the landlord
- D. A surrender of the premises
Show answer & explanation
Answer: C
Transferring less than the entire remaining term creates a sublease: the original tenant becomes the sublessor, collects rent from the sublessee, and remains fully liable to the landlord under the master lease. An assignment would transfer the entire remaining term directly to the newcomer, which is the distinction between the two transfers examiners consistently test.
65. A buyer assigns his rights under a purchase contract to an investor, and the seller is notified but never agrees to release the original buyer. If the investor fails to perform, what is the original buyer's position?
- A. He is automatically released because assignment ends his role
- B. He may sue the seller for allowing the assignment
- C. He becomes the seller's agent by operation of law
- D. He remains secondarily liable to the seller for performance of the contract
Show answer & explanation
Answer: D
An assignment transfers the assignor's rights to the assignee, but the assignor's contractual obligations persist as secondary liability unless the other party agrees to a novation releasing him. Believing that assignment alone cuts off responsibility is the classic error; only the seller's consent to substitute the investor entirely would have freed the original buyer from the deal.

State Law

16 of 32 questions loaded

66. Two parties orally agree to the sale of a parcel of land, and neither ever signs a written document. If the seller later refuses to convey the property, what is the legal status of the oral agreement?
- A. Void, because no agreement was ever legally formed
- B. Unenforceable, because the Statute of Frauds requires real estate sale contracts to be in writing
- C. Enforceable, because real estate custom permits oral sale agreements
- D. Voidable at the buyer's option only
Show answer & explanation
Answer: B
The Statute of Frauds requires contracts for the sale of real estate to be in writing and signed by the party to be charged; an unwritten land-sale agreement is unenforceable even though it may otherwise be valid.
67. A broker represents a seller under a listing agreement limited to that single property sale, with no other authority to act for the seller. Which category of agency does this describe?
- A. General agent
- B. Special agent
- C. Universal agent
- D. Ostensible agent
Show answer & explanation
Answer: B
A special agent has limited authority for a single transaction, whereas a general agent, such as a property manager, may bind the principal across a range of matters.
68. Months after a sale closes, a former buyer-client asks the agent to disclose information that would weaken the seller's position in a separate, unrelated negotiation. What does the fiduciary duty of confidentiality require?
- A. The agent must disclose only to a court
- B. The agent must disclose because the agency relationship has already terminated
- C. The agent may disclose only with a fee
- D. The agent must withhold the information, because confidentiality survives termination of the agency
Show answer & explanation
Answer: D
Confidentiality survives termination of the agency and forbids revealing information that would harm the principal's bargaining position, regardless of when the request is made.
69. A seller receives a buyer's purchase offer and signs the acceptance but crosses out the closing date and writes in a new one before returning it. What is the legal effect of this change?
- A. It is a valid acceptance because the seller signed the document
- B. It operates as a counteroffer that rejects and extinguishes the original offer
- C. It has no legal effect until escrow closes
- D. It automatically binds the buyer to the new closing date
Show answer & explanation
Answer: B
Acceptance must be unqualified, so any material change to the terms, such as altering the closing date, operates as a counteroffer that rejects and extinguishes the original offer.
70. A buyer submits a written offer to purchase a home. Before the seller communicates acceptance, the buyer changes their mind. Under contract law principles, may the buyer withdraw the offer?
- A. No, once submitted in writing an offer cannot be withdrawn
- B. Yes, an offer may be revoked any time before acceptance is communicated
- C. Only if the seller has not yet reviewed the offer
- D. Only with the listing broker's written permission
Show answer & explanation
Answer: B
An offer may be revoked any time before acceptance is communicated, so the buyer retains the right to withdraw up to that point.
71. A purchase agreement includes a clause requiring the buyer to obtain loan approval before being obligated to close. What is this clause called, and what is its function?
- A. An acceleration clause, which speeds up the closing date
- B. A contingency, which is a condition that must be satisfied before a party is obligated to perform
- C. A granting clause, which conveys title
- D. A liquidated damages clause, which sets a default remedy
Show answer & explanation
Answer: B
Contingencies are conditions that must be satisfied before a party is obligated to perform, and a financing contingency is a common example.
72. A minor signs a contract to purchase a small parcel of real estate. Which term best describes the legal status of this contract?
- A. Void, because it never existed legally
- B. Voidable, because the minor may disaffirm it
- C. Unenforceable in every case involving a minor
- D. Fully enforceable against both parties
Show answer & explanation
Answer: B
A contract that a party may disaffirm, such as one signed by a minor, is voidable, distinguishing it from a void contract that never existed legally or an unenforceable one that is otherwise valid but barred from court enforcement.
73. An agent representing the seller is dealing with an unrepresented buyer who is a customer, not a client. Which statement correctly describes the agent's obligations to that buyer?
- A. The agent owes the buyer no duties whatsoever
- B. The agent owes the buyer the same full fiduciary duties owed to the seller
- C. The agent owes honesty, fair dealing, and disclosure of known material latent defects, but not fiduciary duties
- D. The agent owes only the duty of loyalty to the buyer
Show answer & explanation
Answer: C
Agents owe customers honesty and fair dealing and must disclose known material latent defects, but customers are not owed fiduciary duties, which are reserved for the agent's own principal.
74. A buyer breaches a contract to purchase a uniquely situated parcel of land. Rather than seeking money damages, the seller asks a court to force the buyer to complete the purchase as agreed. What remedy is the seller pursuing?
- A. Liquidated damages
- B. Rescission
- C. Specific performance
- D. Novation
Show answer & explanation
Answer: C
Specific performance compels conveyance because land is deemed unique, making it the appropriate remedy when a party wants the actual property rather than a monetary substitute.
75. A licensee is representing both the buyer and the seller in the same transaction. Under agency law principles, what must occur for this arrangement to be permissible?
- A. Nothing; dual representation is automatically allowed once a contract is signed
- B. The broker's manager must approve verbally
- C. Both parties must give informed written consent
- D. Only the seller's consent is required
Show answer & explanation
Answer: C
Dual agency is permitted only with the informed written consent of both parties to the transaction.
76. An agent working with a minority family repeatedly shows them homes only in neighborhoods where similar families already live, despite their stated interest in other areas within budget. What violation does this conduct illustrate?
- A. Redlining
- B. Blind advertising
- C. Steering
- D. Blockbusting
Show answer & explanation
Answer: C
Steering is channeling prospective buyers toward or away from particular neighborhoods based on a protected characteristic, which limits their housing choices and violates fair housing law even when done with polite intentions. Redlining is the lending-side counterpart involving credit decisions, and blockbusting involves frightening owners into selling, neither of which matches guided showings.
77. While completing the agent's section of the Transfer Disclosure Statement, a listing agent notes that she inspected the home's interior, yard, and accessible areas but did not enter the crawl space or move stored belongings. Has the agent met her inspection duty?
- A. Yes, because the duty is waived whenever a buyer hires a home inspector
- B. No, because only a licensed contractor may perform the inspection
- C. No, because the duty extends to every part of the structure including concealed spaces
- D. Yes, because the duty is a reasonably competent and diligent visual inspection of the property's accessible areas
Show answer & explanation
Answer: D
The statutory duty codified for licensees is a reasonably competent and diligent visual inspection of reasonably accessible areas of residential property, with disclosure of material facts the inspection reveals. It does not require entering concealed spaces, moving stored items, or professional-grade testing, and a buyer's separate decision to hire an inspector does not create or excuse the agent's own duty.
78. At closing, a county charges a tax on the recorded transfer of real property, computed with reference to the consideration paid, excluding the value of liens the buyer assumes. What is this charge called?
- A. A supplemental assessment
- B. An ad valorem property tax
- C. The documentary transfer tax
- D. A Mello-Roos special tax
Show answer & explanation
Answer: C
The documentary transfer tax is levied when an interest in real property is conveyed and is measured by the consideration or value transferred, customarily excluding existing liens the buyer takes over. An ad valorem property tax is an annual levy on assessed value rather than a one-time charge on a conveyance, which is the distinction the wrong answers blur.
79. A California home sells after being owned by the same family for decades. Shortly after closing, the new owner's property tax bill is far higher than the seller's had been. What most likely explains the increase?
- A. The sale triggered reassessment of the property to its current market value
- B. The county always doubles taxes for new owners
- C. The buyer failed to record the deed
- D. Transfer taxes are added to the annual bill permanently
Show answer & explanation
Answer: A
California reassesses real property upon a change of ownership, so a long-held home whose assessed value lagged far behind the market is revalued at current market value when it sells, producing a sharply higher bill for the buyer. The documentary transfer tax is a one-time closing charge, not a recurring addition, and recording status does not set assessed values.
80. A buyer of a California home wants to research whether registered sex offenders live near the property. What are the licensee's obligations on this subject?
- A. Personally investigate the neighborhood and report findings
- B. Refuse to discuss the topic entirely
- C. Ensure the transaction documents include the statutorily required notice about the public sex-offender database
- D. Order a background check on all adjacent occupants
Show answer & explanation
Answer: C
California requires residential transaction documents to carry a statutory notice informing parties that information about registered sex offenders is available through a public database maintained by law enforcement, directing buyers to that resource. The licensee is not obligated to conduct a neighborhood investigation, and refusing to acknowledge the topic would fail the notice obligation that the statute imposes.
81. A broker wants to operate her brokerage under a catchy trade name rather than her own legal name. What must she do before conducting licensed activity under that name?
- A. Simply begin using the name in advertising
- B. Obtain a license bearing the fictitious business name from the Department of Real Estate
- C. Register the name only with the federal trademark office
- D. Have each client approve the name in writing
Show answer & explanation
Answer: B
A broker may do business under a fictitious name only after complying with fictitious business name requirements and obtaining a license from the Department bearing that name, so the public record connects the trade name to a responsible licensee. Trademark registration protects brand rights but does not satisfy licensing law, and client approval is not the mechanism the statute uses.

Valuation, Appraisal and Finance

10 questions

82. An investor evaluates an apartment building's operating expense ratio. How is it computed and what does it indicate?
- A. Net operating income divided by operating expenses
- B. Debt service divided by effective gross income
- C. Operating expenses divided by the purchase price
- D. Operating expenses divided by effective gross income, indicating what share of collected income operations consume
Show answer & explanation
Answer: D
The operating expense ratio expresses expenses as a share of effective gross income, so an unusually low figure may signal deferred maintenance or expenses omitted from the seller's statement, and an unusually high figure may signal inefficiency or an opportunity. Comparing it to market norms for the property type is the point of the measure.
83. An investor computes cash on cash return for a leveraged property. What does this measure?
- A. Gross rent divided by cash invested
- B. Net operating income divided by the purchase price
- C. Total return including appreciation and tax benefits
- D. Annual pre-tax cash flow after debt service divided by the cash invested
Show answer & explanation
Answer: D
Cash on cash return, sometimes called the equity dividend rate, measures the cash the investor actually receives relative to the cash they put in, after debt service. It differs from the capitalization rate, which ignores financing, and it omits appreciation and tax effects, so it is one lens rather than a complete return measure.
84. A property is purchased with substantial leverage and the return on equity exceeds the return the property would produce unleveraged. What is this effect called?
- A. Positive leverage, occurring when the cost of borrowed funds is below the property's unleveraged return
- B. Negative leverage
- C. Neutral leverage
- D. Leverage has no effect on return on equity
Show answer & explanation
Answer: A
Positive leverage arises when borrowing costs less than the property earns, so debt amplifies the equity return. If borrowing costs more, leverage becomes negative and magnifies losses. Because leverage amplifies outcomes in both directions, it raises risk as well as expected return, which is central to any investment recommendation.
85. A well-maintained home loses value because a noisy freeway interchange is built next to the neighborhood. How would an appraiser classify this loss?
- A. External (economic) obsolescence, which is generally incurable
- B. Curable physical deterioration
- C. Functional obsolescence within the structure
- D. Deferred maintenance
Show answer & explanation
Answer: A
Value loss caused by conditions outside the property's boundaries, such as neighborhood nuisances or economic decline, is external or economic obsolescence, and because the owner cannot fix conditions on land he does not control, it is treated as incurable. Physical deterioration and deferred maintenance arise from wear within the property, and functional obsolescence stems from outdated design, none of which describes freeway noise.
86. A rental house just sold for $480,000 and rents for $3,000 per month. What monthly gross rent multiplier does this sale indicate for use in valuing similar rentals?
- A. 6.25
- B. 160
- C. 1,600
- D. 16
Show answer & explanation
Answer: B
A monthly gross rent multiplier is the sale price divided by the monthly gross rent, so $480,000 divided by $3,000 produces a multiplier of 160, which an appraiser can then apply to the rents of comparable properties. Dividing rent by price, or slipping a decimal place, generates the other figures, which is why setting up the ratio correctly matters more than the arithmetic itself.
87. An appraiser valuing a nearly new custom home estimates the land value from comparable land sales, estimates the current cost to build an equivalent structure, and subtracts observed depreciation. Which approach is she applying?
- A. The sales comparison approach
- B. The income capitalization approach
- C. The cost approach
- D. The gross rent multiplier technique
Show answer & explanation
Answer: C
The cost approach values property as land value plus the current cost of constructing an equivalent improvement minus accrued depreciation, and it is most reliable for newer or special-purpose buildings where depreciation is small or comparables are scarce. The sales comparison approach relies on adjusted sale prices of similar properties, not on construction cost, which distinguishes the two methods.
88. An appraiser is analyzing a vacant lot and considers several possible uses before selecting the one that is legally permissible, physically possible, financially feasible, and produces the greatest value. What has the appraiser determined?
- A. The interim use
- B. The property's highest and best use
- C. The assemblage potential
- D. The property's plottage increment
Show answer & explanation
Answer: B
Highest and best use is the reasonably probable use that passes the four tests of legal permissibility, physical possibility, financial feasibility, and maximum productivity, and it anchors the entire valuation because value is estimated for that use. Plottage and assemblage concern gains from combining parcels, and an interim use is a temporary use pending the highest and best use, so each names a different concept.
89. An appraiser defines the figure she is seeking as the most probable price a property should bring in a competitive, open market, with buyer and seller each acting prudently, knowledgeably, and free of undue pressure. What is she defining?
- A. Assessed value
- B. Market value
- C. Listing price
- D. Replacement cost
Show answer & explanation
Answer: B
Market value is defined as the most probable price in an open, competitive market between informed parties acting without duress, which distinguishes it from any particular transaction figure. The price actually paid or asked can deviate from market value because of pressure, ignorance, or special motivations, and assessed value is an administrative figure for taxation, not a market conclusion.
90. An apartment building produces an annual net operating income of $60,000 and just sold for $800,000. What capitalization rate does this sale indicate?
- A. 13.3 percent
- B. 7.5 percent
- C. 6.0 percent
- D. 8.0 percent
Show answer & explanation
Answer: B
The capitalization rate is net operating income divided by value or price, so $60,000 divided by $800,000 yields 7.5 percent. Inverting the division produces the 13.3 percent figure, and the other rates come from arithmetic slips; keeping the income in the numerator and the price in the denominator is the discipline this computation tests.
91. A buyer refuses to pay more for a house than the cost of acquiring an equally desirable substitute home nearby. Which principle of value does this behavior illustrate, and which appraisal approach rests on it?
- A. The principle of substitution, which underlies the sales comparison approach
- B. The principle of regression, which underlies the cost approach
- C. The principle of contribution, which underlies the income approach
- D. The principle of anticipation, which underlies the gross rent multiplier
Show answer & explanation
Answer: A
Substitution holds that a prudent buyer will pay no more for a property than the cost of an equally desirable alternative, and this ceiling-setting logic is the foundation of the sales comparison approach. Regression concerns the drag of lesser neighboring properties on value and anticipation concerns expected future benefits, so pairing them with these approaches misstates both principles.

Property Management and Trust Accounts

9 questions

92. A California residential landlord wishes to increase rent on a month-to-month tenancy. What general principle governs the notice required?
- A. Statutory notice periods apply and lengthen for larger increases, and local rent regulations may impose further limits
- B. No notice is required for month-to-month tenancies
- C. The same short notice applies regardless of the increase amount
- D. Rent may never be increased during a month-to-month tenancy
Show answer & explanation
Answer: A
Notice requirements scale with the size of the increase, and many California jurisdictions add local rent stabilization limiting both the amount and the frequency of increases, along with just cause requirements for termination. A property manager must check state law and the specific local ordinance rather than applying a single rule statewide.
93. A California commercial property is leased with the tenant paying a percentage of gross sales above a breakpoint in addition to base rent. What must the lease define carefully?
- A. What constitutes gross sales, including exclusions such as returns and inter-store transfers, and the audit rights supporting it
- B. Only the base rent amount
- C. Only the lease term
- D. Nothing beyond the percentage rate
Show answer & explanation
Answer: A
Percentage rent turns entirely on the definition of gross sales, so leases specify inclusions and exclusions such as returns, discounts, sales taxes and transfers, and grant the landlord audit rights. A vague definition invites disputes and understatement, which is why this provision receives disproportionate negotiation attention.
94. A broker manages an apartment building and is asked by the owner to deposit rents into the owner's personal account rather than a trust account. What should the broker do?
- A. Follow the license law's trust fund requirements, which govern regardless of the owner's preference, unless the funds go directly to the principal as permitted
- B. Comply, since the owner may direct the handling of their own funds
- C. Deposit the rents into the broker's general account for convenience
- D. Refuse the management engagement entirely
Show answer & explanation
Answer: A
Trust fund handling rules protect the public and the regulatory system, not merely the individual owner, so a client cannot direct a broker into non-compliance. Direct delivery to the principal is a recognized permitted handling, but that is different from the broker receiving funds and then depositing them improperly.
95. A broker's bookkeeper maintains the trust account records for a busy property management operation. How should the broker verify that the trust account records remain accurate?
- A. By relying on the bank to flag any errors
- B. By reviewing records only when the Department schedules an audit
- C. By closing and reopening the account annually
- D. By regularly reconciling the account balance against the bank statement and the separate beneficiary records
Show answer & explanation
Answer: D
Sound trust fund practice requires the broker to reconcile the trust account control record with the bank statement and with the individual beneficiary ledgers on a regular basis, so the total of all beneficiary balances always matches the funds on deposit. Waiting for a regulatory audit or expecting the bank to catch discrepancies abdicates the broker's personal responsibility for trust fund integrity.
96. A California broker receives an earnest money deposit check from a buyer along with an accepted offer. Which of the following is a proper way for the broker to handle the check?
- A. Promptly deposit it into the broker's trust account, place it into a neutral escrow, or deliver it to the principal as the parties direct
- B. Hold it in the office safe indefinitely until closing
- C. Deposit it into the brokerage's general operating account for safekeeping
- D. Endorse it over to the listing salesperson pending escrow
Show answer & explanation
Answer: A
Trust funds must be handled promptly and only through authorized channels: the broker's trust account, a neutral escrow depository, or delivery to the principal when the parties so instruct. Depositing client money into the general operating account is commingling, a serious violation, and holding the check indefinitely fails the requirement that trust funds be placed without unreasonable delay.
97. A broker managing rental homes collects security deposits from new tenants on behalf of the owners. How must the broker treat these deposits while holding them?
- A. As the broker's earned income once the tenant moves in
- B. As funds that may cover office payroll if repaid later
- C. As trust funds held for the benefit of others, kept separate from the broker's own money
- D. As the owner's petty cash, available for any purpose
Show answer & explanation
Answer: C
Security deposits collected in the course of management are trust funds: they belong to others and must be safeguarded in the trust account, fully accounted for, and never mixed with the broker's own funds. Treating them as income or borrowing against them for operating expenses is conversion of trust funds, one of the most serious violations a licensee can commit.
98. A broker who manages several properties keeps one ledger showing only the total balance of the trust account, with no breakdown by client. An owner demands an accounting of her funds. What deficiency does this record-keeping reveal?
- A. Nothing, because a single total balance is all that is required
- B. The account should have been split into multiple banks
- C. The broker needed the tenants' consent to keep ledgers
- D. The broker failed to maintain a separate record for each beneficiary showing that person's receipts, disbursements, and running balance
Show answer & explanation
Answer: D
Trust accounting requires both a control record for the account as a whole and a separate ledger for each beneficiary reflecting every receipt, disbursement, and the resulting balance, so any owner's funds can be identified at any moment. A lone aggregate balance makes it impossible to prove whose money is whose, which is exactly the failure an accounting demand exposes.
99. During an office audit, a broker is found to have left a substantial earned management fee sitting in the trust account for many months after it was earned, mixed with client funds. Why is this a problem?
- A. Because earned fees must always be paid directly to the salespersons
- B. Because the fee should have been converted to a client refund
- C. Because trust accounts may never receive fee income even temporarily
- D. Because leaving earned fees in the trust account beyond a reasonable time constitutes commingling of broker funds with trust funds
Show answer & explanation
Answer: D
Once a fee is earned it becomes the broker's own money, and allowing it to remain in the trust account beyond a reasonable time mixes broker funds with client funds, which is commingling even though the money entered the account legitimately. Fees may flow through the trust account briefly in the ordinary course; the violation lies in leaving them there instead of promptly withdrawing them.
100. An investor hires a broker to manage a twelve-unit apartment building, including leasing, rent collection, and maintenance coordination. What should the parties execute before management begins?
- A. A verbal understanding confirmed by a handshake
- B. A written property management agreement defining the broker's authority, duties, and compensation
- C. A grant deed transferring the building to the broker
- D. A listing agreement to sell the property
Show answer & explanation
Answer: B
A written management agreement establishes the agency, spells out the broker's authority over leasing and expenditures, and fixes how compensation is earned, protecting both parties and satisfying the expectation that compensation agreements be documented. An oral arrangement invites disputes over authority and fees, and a listing to sell has nothing to do with ongoing management services.

Showing 100 of 214 questions.

Key facts: California Real Estate Broker exam

Questions: 200
Time limit: 4h
Passing score: 75%
Exam fee: $150
Governing body: California DRE

This free California Real Estate Broker practice test has 214 original questions written from California DRE's official sources, last checked against them on July 18, 2026, 100 of them listed on this page and the rest loaded by the drill. Every question shows a worked explanation, and nothing here requires a signup.

The questions are grouped under seven outline areas: Property Ownership, Financing, Contracts, State Law, Valuation, Appraisal and Finance, State License Law and Broker Supervision and Property Management and Trust Accounts.

As of 2026, the California Real Estate Broker exam fee is $150.

Questions by topic in the California Real Estate Broker practice bank

Financing51 · 24%

Property Ownership42 · 20%

State License Law and Broker Supervision38 · 18%

Contracts32 · 15%

State Law32 · 15%

Valuation, Appraisal and Finance10 · 5%

Property Management and Trust Accounts9 · 4%

Counts describe our practice categories, which may subdivide official domains. They are not the exam’s official topic weights.

214 practice questions across seven practice categories. The largest, Financing, holds 51 questions (24%).

About these practice questions

Written by Every Exam Prep Editorial TeamSource and review policy

Verified against California Department of Real Estate's official sources July 18, 2026

These are original study questions written from published exam objectives—not recalled, copied, or confidential live-exam items. Always confirm current coverage with the official sources linked on this page.

Exam format and study resources

Real Estate Broker licensing

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In the same family

Official sources

The official documents our facts about this exam are taken from.

Requirements to Apply for a Real Estate Broker LicenseCalifornia Department of Real Estatedre.ca.gov
Continuing Education RequirementsCalifornia Department of Real Estatedre.ca.gov
Broker Examination Content OutlineCalifornia Department of Real Estatedre.ca.gov
California Broker Exam OverviewCalifornia DREdre.ca.gov
Renew Your Real Estate LicenseCalifornia Department of Real Estatedre.ca.gov
Fee SchedulesCalifornia Department of Real Estatedre.ca.gov

Last verified against California Department of Real Estate's official sources: July 18, 2026

Frequently asked questions

Do these practice questions match the real California broker exam?

Yes, they are written in the same multiple-choice format the real exam uses and cover the same core domains, including agency, contracts, finance, ownership, fair housing, and valuation. The actual exam consists of 200 multiple-choice questions, and our items mirror that style, offering one best answer among realistic wrong choices. They are practice questions, not leaked exam content, so treat them as skill-building rather than memorization targets.

How many practice questions should I do, and how often?

Aim for a steady daily habit, such as 20 to 50 questions per session, rather than one giant cram session. Spacing your practice over several weeks helps concepts like fiduciary duties and contract elements move into long-term memory. In your final week, take at least a couple of full-length timed sets to build stamina for a long exam sitting.

How should I use the answer explanations?

Read the explanation on every question, including the ones you got right, because you may have guessed correctly for the wrong reason. When you miss a question, identify whether the gap was a fact you never learned, a rule you confused, or a question stem you misread. Keep a short list of recurring mistakes and re-drill those topics until the errors disappear.

What practice score means I'm ready for the real broker exam?

The real exam requires answering 75% of questions correctly, so you want to be scoring comfortably above that on fresh practice sets before test day. A good benchmark is consistently hitting the low-to-mid 80s on questions you have never seen, since exam-day nerves and unfamiliar wording usually cost a few points. If you are only passing sets you have already repeated, keep drilling new material.

Are these California broker practice questions really free?

Yes, the practice questions on this page are completely free, and you do not need to create an account or hand over an email address to use them. You can start answering immediately and come back as often as you like. Full explanations are included with every question at no cost.