California Real Estate Broker Practice Exam

214 free California Real Estate Broker practice questions with answers and explanations.

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The California Real Estate Broker exam is administered by California DRE, with 200 scored questions, a time limit of 4 hours and a passing score of 75%.

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In a fully amortized fixed-rate mortgage, how does the composition of a level monthly payment change from the first payment to the last?

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1. 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.
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. 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.
4. 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.
5. 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.
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 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.
8. 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.
9. 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.
10. 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.
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. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. A borrower pledges real property as security for a debt while retaining possession and use of the property. What is this practice called?
- A. Hypothecation
- B. Subrogation
- C. Novation
- D. Alienation
Show answer & explanation
Answer: A
Hypothecation is the pledging of property as collateral for a debt without surrendering possession, which is exactly what happens when a homeowner gives a lender a deed of trust yet continues living in the home. Alienation refers to transferring ownership, and novation substitutes parties or obligations in a contract, so neither describes pledging while keeping possession.
18. An investor owns a property with a market value of $650,000 that is encumbered by loans totaling $410,000. What is the investor's equity in the property?
- A. $650,000
- B. $240,000
- C. $1,060,000
- D. $410,000
Show answer & explanation
Answer: B
Equity is the owner's interest measured as market value minus all debt secured by the property, so $650,000 less $410,000 leaves $240,000. Adding the figures together or citing the full market value ignores that the lenders' claims must be subtracted before the owner's residual interest can be determined.
19. A borrower wants to pay off a home loan several years early but discovers the lender will charge a fee for doing so. Which loan provision authorizes this charge?
- A. An acceleration clause
- B. A prepayment penalty clause
- C. An escalation clause
- D. A defeasance clause
Show answer & explanation
Answer: B
A prepayment penalty clause allows the lender to collect a charge when the borrower retires the debt ahead of schedule, compensating the lender for interest it will not receive. An acceleration clause works in the opposite direction: it lets the lender demand early payment after a default, rather than penalizing a borrower who chooses to pay early voluntarily.
20. A borrower signs a note that calls for monthly payments of interest only, with the entire principal balance due in a single lump sum at the end of the term. What type of loan is this?
- A. A fully amortized loan
- B. A straight (term) loan
- C. A partially amortized loan with a balloon
- D. A graduated payment loan
Show answer & explanation
Answer: B
A straight or term loan requires periodic payments of interest only, so the principal never declines during the term and must be repaid in one lump sum at maturity. A fully amortized loan retires the entire principal through level payments, and a partially amortized loan reduces some principal before a smaller balloon comes due, so neither matches a structure where none of the principal is paid until the end.
21. A borrower's monthly payment on a loan is less than the interest that accrues each month, and the unpaid interest is added to the loan balance. What is this condition called?
- A. Accelerated amortization
- B. Equity buildup
- C. Deferred subordination
- D. Negative amortization
Show answer & explanation
Answer: D
When scheduled payments do not cover the interest actually accruing, the shortfall is added to principal and the balance grows over time, which is the definition of negative amortization. Equity buildup describes the opposite situation, in which principal reduction and appreciation increase the owner's equity, so it is a tempting but incorrect answer here.
22. An adjustable-rate mortgage is due for a periodic rate adjustment. How is the borrower's new interest rate generally determined?
- A. By recalculating the borrower's original qualifying ratios
- B. By negotiating a new rate with the borrower at each adjustment date
- C. By adding the lender's fixed margin to the current value of a published index
- D. By applying the average rate the lender charges its newest customers
Show answer & explanation
Answer: C
An adjustable-rate loan ties the borrower's rate to a published index that moves with the market, plus a margin that is fixed by contract for the life of the loan. The adjustment is mechanical, not renegotiated at each change date, which is why the idea of the lender and borrower agreeing on a fresh rate each period is plausible-sounding but wrong.
23. A borrower with an adjustable-rate mortgage is worried about how high the payments could climb if market rates spike. Which loan feature most directly addresses this concern?
- A. The subordination clause
- B. The loan-to-value ratio
- C. Periodic and lifetime interest-rate caps
- D. The prepayment privilege
Show answer & explanation
Answer: C
Rate caps limit how much the interest rate on an adjustable loan may increase at any single adjustment and over the life of the loan, directly protecting the borrower from unlimited payment escalation. A prepayment privilege only lets the borrower pay the loan off early; it does nothing to limit how high the rate itself can move while the loan remains outstanding.
24. A landowner sells a parcel and carries back financing, agreeing in the loan documents that her lien will voluntarily take a lower priority position so the buyer can later obtain a construction loan that will be recorded first in priority. What is this provision called?
- A. An alienation clause
- B. A release clause
- C. A defeasance clause
- D. A subordination clause
Show answer & explanation
Answer: D
A subordination clause is an agreement by an existing lienholder to accept a lower priority than a lien recorded later, and it is commonly used by land sellers who carry back financing so the buyer can obtain construction money that lenders insist be in first position. A release clause instead frees individual parcels from a blanket lien as portions of the debt are paid, which serves a different purpose entirely.
25. A homeowner sells her house to a buyer who plans to take over the existing loan, but the lender declares the entire balance due upon learning of the transfer, even though every payment is current. Which clause permits the lender to do this?
- A. A due-on-sale (alienation) clause
- B. An acceleration-on-default clause
- C. A subordination clause
- D. A prepayment penalty clause
Show answer & explanation
Answer: A
A due-on-sale or alienation clause lets the lender call the full balance due when the borrower transfers an interest in the secured property, regardless of whether payments are current. Acceleration triggered by default is the tempting confusion, but it requires a missed payment or other breach; here the loan was current and the trigger was the transfer itself.
26. A buyer acquires a property 'subject to' the seller's existing loan rather than formally assuming it, and the loan later goes into default. Who remains primarily liable to the lender on the note?
- A. The buyer, because possession transfers liability
- B. Both parties equally as co-makers
- C. The seller, who signed the original note
- D. Neither party once title has transferred
Show answer & explanation
Answer: C
Taking title subject to an existing loan means the buyer acknowledges the lien but never signs the note or promises the lender anything, so the original borrower remains primarily liable for the debt. Under a formal assumption the buyer would take on primary liability, which is exactly why the distinction between the two arrangements matters so much to a seller.
27. A seller carries back financing for the full purchase price using an instrument whose face amount includes the balance of an existing first loan that remains in place, and the buyer makes one payment to the seller, who continues paying the first lender. What financing device is this?
- A. A blanket encumbrance
- B. A wraparound (all-inclusive) trust deed
- C. An open-end mortgage
- D. A package loan
Show answer & explanation
Answer: B
An all-inclusive or wraparound trust deed wraps a new junior loan around an existing senior loan that stays in place; the buyer pays the wraparound holder, who remains responsible for servicing the underlying debt. A blanket encumbrance is superficially similar because one instrument covers more than one obligation, but it actually secures a single debt with multiple parcels of land rather than layering one loan over another.
28. A retiring couple sells their free-and-clear rental home and, instead of receiving all cash, accepts a note from the buyer secured by a deed of trust on the property they just sold. What kind of financing is this?
- A. A hard money loan
- B. A bridge loan
- C. An open-end loan
- D. A purchase-money carryback loan
Show answer & explanation
Answer: D
When a seller extends credit for part of the purchase price and secures it with the property being sold, the seller has made a purchase-money carryback loan. A hard money loan is the classic distractor, but hard money refers to cash advanced by a third-party lender against equity, whereas purchase money is credit extended as part of the sale price itself.
29. A private individual lends money directly to a borrower at an interest rate that exceeds the maximum allowed by law for that type of lender. Which legal concept has been violated?
- A. Redlining
- B. Usury
- C. Subordination
- D. Rescission
Show answer & explanation
Answer: B
Usury laws limit the interest that certain lenders, particularly private parties, may charge on loans, and charging above the permitted maximum violates those limits. Institutional lenders and loans arranged through licensed real estate brokers are commonly exempt from these ceilings, which is why usury issues arise most often in direct private-party lending like this scenario.
30. A first-time buyer compares a government-backed loan program in which the government protects the lender against loss on the entire loan through insurance funded by borrower premiums, with another program in which the government promises to reimburse the lender for only a portion of any loss. Which comparison is correct?
- A. Both FHA and VA insure the full loan amount
- B. FHA guarantees a portion; VA insures the whole loan
- C. Both programs lend government funds directly in most cases
- D. FHA insures the loan; VA guarantees a portion of it
Show answer & explanation
Answer: D
The FHA program operates as mutual mortgage insurance in which borrower-paid premiums fund coverage of the lender's loss on the loan, while the VA program guarantees repayment of a portion of the loan for eligible veterans. Reversing the two mechanisms is the classic trap; neither agency ordinarily lends its own funds, since both programs work through approved private lenders.
31. 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.
32. A savings bank sells a package of its existing home loans to a large government-sponsored enterprise and uses the proceeds to fund new mortgages. What function does this illustrate?
- A. Primary market origination
- B. Loan warehousing by the borrower
- C. The secondary market providing liquidity to lenders
- D. Disintermediation of deposits
Show answer & explanation
Answer: C
When existing loans are purchased from originating lenders by entities such as government-sponsored enterprises, the originators receive fresh cash to lend again, which is the liquidity function of the secondary mortgage market. Origination in the primary market is where the loans were first made to borrowers; the sale of those seasoned loans afterward is what defines secondary-market activity.
33. A California lender forecloses on a defaulted home loan by having the trustee sell the property under the power of sale in the deed of trust. Which consequence follows from choosing this method instead of a court foreclosure?
- A. The borrower keeps a lengthy post-sale right of redemption
- B. The lender gives up any right to a deficiency judgment against the borrower
- C. Junior liens survive the sale unaffected
- D. The sale requires confirmation by a judge
Show answer & explanation
Answer: B
A trustee's sale under a power of sale is faster and cheaper than judicial foreclosure, but the trade-off is that the lender cannot pursue the borrower for any deficiency after the sale. The idea that the borrower retains a long redemption period after the sale describes judicial foreclosure instead; after a trustee's sale the sale is final, and junior liens are generally wiped out rather than preserved.
34. A borrower falls several payments behind and receives notice that foreclosure proceedings have begun, but she now has the funds to catch up. What does the right of reinstatement allow her to do?
- A. Cancel the loan entirely and demand return of all interest paid
- B. Transfer the loan to a new buyer without lender approval
- C. Force the lender to rewrite the loan at a lower rate
- D. Cure the default by paying the delinquent amounts plus allowable costs and stop the foreclosure
Show answer & explanation
Answer: D
Reinstatement lets a defaulting borrower bring the loan current by paying the missed installments together with allowable fees and costs during the statutory window, which halts the foreclosure and restores the original loan terms. It does not cancel the debt or entitle the borrower to renegotiate the rate; it simply returns the loan to good standing as though the default had not occurred.
35. A lender holding a second deed of trust learns the borrower has stopped paying the first loan, and a foreclosure sale on that first loan is approaching. Why might the junior lender step in and advance the delinquent payments on the senior loan?
- A. Because a completed senior foreclosure sale would eliminate the junior lien from the property's title
- B. Because curing the senior default automatically promotes the junior loan to first position
- C. Because junior lenders are legally required to keep senior loans current
- D. Because the borrower's obligation to the junior lender ends if the senior loan forecloses
Show answer & explanation
Answer: A
A foreclosure sale by a senior lienholder generally extinguishes junior liens against the property, leaving the junior lender with only an unsecured claim, so advancing the delinquent payments protects its security while it pursues its own remedies. Curing the senior default does not reorder priorities; priority still follows the established recording order, and no law obligates a junior lender to act.
36. A developer finances the purchase of ten lots with a single loan secured by all ten parcels and plans to sell the lots individually as homes are completed. Which loan feature lets each sold lot be freed from the lien?
- A. A defeasance clause
- B. An acceleration clause
- C. A partial release clause in a blanket loan
- D. A subordination clause
Show answer & explanation
Answer: C
A blanket loan covers multiple parcels under one lien, and a partial release clause allows individual parcels to be released from that lien as agreed portions of the debt are paid, letting the developer deliver clear title lot by lot. A defeasance clause only cancels the entire lien upon full payment of the whole debt, which would trap every lot under the encumbrance until the final sale.
37. A homeowner's loan allows her to borrow additional funds from the same lender in the future, up to a stated maximum, using the same trust deed as security. What kind of loan is this?
- A. A wraparound loan
- B. An open-end loan
- C. A term loan
- D. A shared appreciation loan
Show answer & explanation
Answer: B
An open-end loan permits the borrower to draw additional advances against the same security instrument up to an agreed ceiling, functioning much like a revolving line secured by the property. A wraparound instead layers a new junior loan over an existing senior loan held by a different party, which involves no future advances to the borrower from the original secured instrument.
38. A buyer of a furnished vacation condominium obtains a single loan that finances both the real property and the appliances and furniture included in the sale. What is this loan called?
- A. A blanket loan
- B. An open-end loan
- C. A construction loan
- D. A package loan
Show answer & explanation
Answer: D
A package loan finances real property together with items of personal property such as appliances and furnishings under one obligation, which suits a furnished unit sale. A blanket loan is the tempting confusion because it also covers 'more than one thing,' but what it covers is multiple parcels of real estate securing a single debt, not a mix of real and personal property.
39. A homeowner has found her next house but has not yet closed the sale of her current one, so she takes a short-term loan against the equity in the current home to fund the new purchase until it sells. What is this financing called?
- A. A bridge (swing) loan
- B. A wraparound loan
- C. A purchase-money carryback
- D. An open-end loan
Show answer & explanation
Answer: A
A bridge or swing loan is short-term financing that spans the gap between purchasing a new property and closing the sale of an existing one, typically secured by the equity in the property being sold. A carryback would require the seller of the new home to extend the credit, and a wraparound restructures existing debt, so neither matches temporary gap financing from a lender.
40. A partially amortized loan calls for level monthly payments for its full term, but the payments are not large enough to retire the debt, leaving a substantial final payment. What is that final payment called?
- A. A reconveyance payment
- B. An impound payment
- C. A balloon payment
- D. A graduated payment
Show answer & explanation
Answer: C
When scheduled payments amortize only part of the principal, the remaining balance falls due at maturity in one significantly larger installment known as a balloon payment. An impound payment is a monthly reserve collected for taxes and insurance and has nothing to do with retiring principal, which makes it a plausible-sounding but incorrect label for the final lump sum.
41. A borrower owes $300,000 on an interest-only loan at an annual simple interest rate of 6 percent. How much interest accrues each month?
- A. $3,000
- B. $1,500
- C. $18,000
- D. $1,800
Show answer & explanation
Answer: B
Annual interest equals principal times rate, so $300,000 at 6 percent produces $18,000 per year, and dividing by twelve months yields $1,500 of interest each month. The $18,000 figure is the annual amount rather than the monthly one, and the other figures come from misplacing the decimal or dividing by ten, which are the arithmetic slips this problem is designed to catch.
42. A lender quotes a borrower a lower note rate in exchange for the borrower paying discount points at closing. From the lender's perspective, what do the points accomplish?
- A. They reduce the lender's total return on the loan
- B. They insure the lender against borrower default
- C. They substitute for the borrower's down payment
- D. They increase the lender's effective yield above the note rate
Show answer & explanation
Answer: D
Discount points are prepaid interest collected up front, which raises the lender's effective yield on the loan above the stated note rate and compensates for quoting a below-market rate. Points are not mortgage insurance and do not protect against default, and they are paid in addition to, not instead of, whatever down payment the transaction requires.
43. After closing, a borrower makes monthly payments to a company that collects the money, maintains the impound account, and forwards principal and interest to the loan's investor. What function is this company performing?
- A. Loan warehousing
- B. Loan origination
- C. Loan underwriting
- D. Loan servicing
Show answer & explanation
Answer: D
Servicing is the ongoing administration of a loan after it closes, including collecting payments, managing tax and insurance reserves, and remitting funds to whoever owns the loan. Origination and underwriting occur before the loan is made, when the application is taken and the risk evaluated, so they cannot describe activities that continue for the life of the loan.
44. One mortgage company funds loans with its own credit lines and often continues to service them after selling the loans to investors, while another firm merely brings borrowers and lenders together for a fee and never funds loans itself. How are these two businesses classified?
- A. Both are institutional lenders
- B. The first is a loan servicer only; the second is an underwriter
- C. The first is a mortgage banker; the second is a mortgage broker
- D. The first is a mortgage broker; the second is a mortgage banker
Show answer & explanation
Answer: C
A mortgage banker uses its own funds or credit lines to make loans, frequently retaining servicing after selling the paper to investors, whereas a mortgage broker acts purely as an intermediary who arranges loans between borrowers and lenders for compensation. Reversing the two labels is the common error, and neither business is an institutional lender in the sense of a bank holding insured deposits.
45. A deed of trust contains a provision authorizing the trustee to sell the secured property without court involvement if the borrower defaults. What is this provision called?
- A. A habendum clause
- B. A power of sale clause
- C. A granting clause
- D. A forfeiture clause
Show answer & explanation
Answer: B
The power of sale clause is what authorizes nonjudicial foreclosure: upon default and proper notice, the trustee may sell the property at public auction without filing a lawsuit. A habendum clause defines the extent of the estate granted in a deed and a granting clause conveys title, so both belong to conveyancing language rather than to default remedies.
46. A lender requires a borrower to pay one-twelfth of the estimated annual property taxes and hazard insurance premium with each monthly loan payment. What is the purpose of this arrangement?
- A. To increase the lender's yield on the note
- B. To amortize the principal more quickly
- C. To prepay the final balloon payment
- D. To accumulate an impound reserve ensuring taxes and insurance are paid when due
Show answer & explanation
Answer: D
An impound or escrow account accumulates monthly deposits so the lender can pay property taxes and insurance premiums when they come due, protecting the security from tax liens and uninsured loss. The deposits are held in reserve rather than applied to principal, so they neither speed amortization nor add to the lender's yield on the debt itself.
47. Two lenders quote the same note rate, but one charges substantially higher origination fees and points. Which measure best allows the borrower to compare the true cost of the two loans?
- A. The loan-to-value ratio of each offer
- B. The nominal interest rate stated in each note
- C. The annual percentage rate (APR)
- D. The monthly principal and interest payment alone
Show answer & explanation
Answer: C
The annual percentage rate expresses the total cost of credit, including certain fees and points, as a yearly rate, so it exposes the difference between two loans whose note rates look identical. Comparing only the nominal rates or the monthly payments would hide the upfront charges, which is precisely the situation the APR disclosure was designed to prevent.
48. A homeowner defaults on the loan she used to purchase her owner-occupied residence, and the foreclosure sale brings less than the balance owed. May the purchase-money lender sue her for the shortfall in California?
- A. Yes, whenever the shortfall exceeds the costs of sale
- B. Yes, but only if the loan was also insured
- C. No, because deficiency judgments are generally barred on purchase-money loans secured by the buyer's residence
- D. No, but only if the borrower files for bankruptcy first
Show answer & explanation
Answer: C
California's anti-deficiency protections generally prevent a lender from recovering a personal judgment for the shortfall when the loan was purchase money secured by the borrower's owner-occupied dwelling, leaving the lender to look solely to the security. The protection flows from the character of the loan itself, so the borrower does not need bankruptcy or any other filing to invoke it.
49. During a period of tight money, market interest rates climb sharply and fewer buyers can qualify for institutional loans. Which effect is a real estate market most likely to experience?
- A. An immediate surge in new construction lending
- B. Increased use of seller financing and assumptions of existing loans
- C. A rise in the percentage of all-cash institutional purchases by first-time buyers
- D. Automatic reductions in existing fixed loan rates
Show answer & explanation
Answer: B
When credit is expensive and hard to obtain, buyers and sellers turn to alternatives such as seller carryback financing and taking over existing lower-rate loans, so creative financing activity rises. Construction lending contracts rather than surges in a tight market, and existing fixed-rate notes do not adjust downward simply because market conditions change.

Property Ownership

13 questions

50. 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.
51. 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.
52. 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.
53. 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.
54. 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.
55. 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.
56. 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.
57. 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.
58. 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.
59. 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.
60. 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.
61. 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.
62. 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).

State Law

10 questions

63. 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.
64. 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.
65. 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.
66. 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.
67. 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.
68. 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.
69. 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.
70. 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.
71. 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.
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.

Contracts

10 questions

73. 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.
74. 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.
75. 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.
76. 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.
77. 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.
78. 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.
79. 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.
80. 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.
81. 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.
82. 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.

State License Law and Broker Supervision

12 questions

83. 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.
84. 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.
85. 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.
86. 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.
87. 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.
88. 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.
89. 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.
90. 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.
91. 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.
92. 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.
93. 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.
94. 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.

Property Management and Trust Accounts

3 questions

95. 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.
96. 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.
97. 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.

Valuation, Appraisal and Finance

3 questions

98. 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.
99. 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.
100. 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.

Showing 100 of 214 questions.

2026 statistics

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 to California DRE's official content outline, last checked against it 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: Financing, Property Ownership, State Law, Contracts, State License Law and Broker Supervision, Property Management and Trust Accounts and Valuation, Appraisal and Finance.

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

How the California Real Estate Broker practice bank covers the outline

214 questions across 7 outline areas — the same areas the page's sections use.

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 are the live question bank, grouped by the outline area each question was written to.

214 questions across seven outline areas. The largest, Financing, holds 51 questions (24%); the page's sections follow the same split.

Exam format and study resources

Real Estate Broker licensing

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In the same family

Official sources

Primary documents used to verify the exam details shown on this page.

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 the official exam content outline: 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.