New York Real Estate Salesperson Exam Study Guide

Agency is one of the most heavily tested subjects on the salesperson exam, and most questions come down to two things: knowing exactly what duties are owed, and knowing exactly who is owed them.

How agency is created

An agency relationship arises when a principal (the client) authorizes an agent (the licensee) to act on their behalf in dealings with third parties. Keep the vocabulary straight: the principal gives the authority, the agent acts under it, and everyone else in the deal is a third party.

The fiduciary duties: OLD CAR

The core fiduciary duties are summarized by the acronym OLD CAR:

• Obedience
• Loyalty — place the principal's interests above the agent's own and avoid conflicts of interest such as undisclosed self-dealing
• Disclosure
• Confidentiality — this duty survives termination of the agency, and it bars revealing information that would harm the principal's bargaining position, such as the seller's lowest acceptable price
• Accounting — safeguard all money and property entrusted to you; commingling client funds with your own is prohibited
• Reasonable care and diligence

Two of these generate the most trap questions. First, confidentiality does not end when the listing ends — an agent who tells a buyer next year what last year's seller would have accepted still breaches the duty. Second, accounting questions usually hinge on the word commingling: mixing entrusted funds with the agent's own money.

Client versus customer

Fiduciary duties run only to the client. A customer is owed honesty, fair dealing, and disclosure of known material defects — but not loyalty, obedience, or the other fiduciary duties. When a question asks what a listing agent owes a buyer-customer, the answer is honest treatment and material-defect disclosure, never fiduciary loyalty.

Dual agency

A licensee representing both buyer and seller in the same transaction is a dual agent. Dual agency is legal only with the informed written consent of both parties, and a dual agent cannot advocate for one party against the other. Exam answers that have a dual agent negotiating hard for one side are wrong by definition.

How agency ends

Agency terminates by completion of the transaction, expiration of the term, mutual agreement, revocation by the principal, renunciation by the agent, or operation of law — such as the death or incapacity of either party.

Contract questions reward precision: the three listing types differ by exactly one variable each, and offer-and-acceptance questions almost always turn on the counteroffer rule.

What a listing agreement is

A listing agreement is an employment contract between a seller and a broker. It authorizes the broker to market the property and find a ready, willing, and able buyer. On the exam, remember that the listing employs the broker — it is a personal-services contract, not a transfer of any property interest.

The three listing types

• Exclusive right to sell — the broker earns a commission if the property sells during the listing period regardless of who procures the buyer, including the seller personally.
• Exclusive agency — the broker earns a commission unless the seller personally finds the buyer, in which case no commission is owed.
• Open listing — non-exclusive; the seller may list with multiple brokers, and only the broker who actually procures the buyer is paid.

Test yourself with one question: who found the buyer? If the answer never matters, it is exclusive right to sell. If it matters only when the seller finds the buyer, it is exclusive agency. If it always matters, it is an open listing.

Elements of a valid contract

A valid real estate contract requires competent parties, mutual assent (offer and acceptance), consideration, a lawful object, and — because of the Statute of Frauds — a written and signed agreement.

Offers, counteroffers, and deposits

• Counteroffer rule: any change to the terms of an offer is a counteroffer that rejects and terminates the original offer. A buyer who counters cannot later go back and accept the original offer, because it no longer exists.
• Earnest money is a good-faith deposit held in the broker's trust account. It is not, by itself, the consideration for the contract.
• Contingencies — financing, inspection, and appraisal clauses give the buyer the right to cancel and recover the deposit if the condition is not met.
• Time is of the essence makes stated deadlines strictly enforceable; missing the date is a breach, not a technicality.

Deed questions test two skills: ranking the deed types by the protection they give the grantee, and understanding what recording actually does (and does not do).

What a deed is and what makes it work

A deed is the written instrument that conveys title to real property from a grantor (the one giving) to a grantee (the one receiving). A valid deed needs competent parties, words of conveyance, an adequate legal description, and the grantor's signature — and, critically, it must be delivered to and accepted by the grantee to transfer title. A signed deed sitting in the grantor's desk drawer transfers nothing.

The three deed types, ranked by protection

• General warranty deed — the greatest protection. The grantor warrants against all title defects arising at any time, even before the grantor owned the property, through covenants such as seisin, quiet enjoyment, and warranty forever.
• Special warranty deed — warrants only against defects that arose during the grantor's own period of ownership.
• Quitclaim deed — conveys only whatever interest the grantor may have, with no warranties at all. Its classic use is clearing clouds on title.

When a question asks which deed a cautious buyer should demand, the answer is general warranty; when it asks which deed fixes a title defect like a stray spousal interest, the answer is quitclaim.

Recording, priority, and title protection

• Recording a deed in the county land records provides constructive notice to the world of the grantee's interest and establishes priority — generally protecting the first party to record.
• Title insurance protects the insured against losses from covered title defects that existed but were unknown when the policy was issued. It looks backward at hidden past defects, not forward.
• Marketable title is title free from reasonable doubt or serious defects — the standard a prudent buyer would accept.

Financing questions are mostly definitional. Learn each instrument's job and the one number attached to it, and this section becomes reliable points.

The two documents behind every loan

Most purchases are financed through a mortgage or deed of trust that pledges the property as security for repayment of a promissory note. The note is the promise to pay; the mortgage is the collateral pledge that backs it up.

Lien theory versus title theory

In lien-theory states, the borrower retains title and the lender holds a lien. In title-theory states, legal title is held by the lender or a trustee until the debt is repaid.

Loan types

• Conventional — not insured or guaranteed by the federal government.
• FHA — insured by the Federal Housing Administration.
• VA — guaranteed by the Department of Veterans Affairs for eligible veterans.

Watch the verbs: FHA insures, VA guarantees. Exam answer choices often swap them.

Numbers worth memorizing

• PMI: private mortgage insurance is generally required on conventional loans when the down payment is less than 20 percent of the purchase price.
• Discount points: prepaid interest paid at closing to lower the note rate — one point equals 1 percent of the loan amount (not the purchase price).

Rate structures and repayment

• A fixed-rate mortgage keeps the same interest rate for the entire term; an adjustable-rate mortgage changes periodically based on an index plus a margin.
• Amortization repays principal and interest through scheduled payments — early payments go mostly to interest, later payments mostly to principal.
• A due-on-sale clause lets the lender demand full repayment when the property is sold, which prevents a buyer from assuming the loan without lender approval.

Fair housing is tested through vocabulary (name the violation) and through exemption traps (spot when an exemption does not apply). Both are learnable.

The federal framework

The federal Fair Housing Act — part of the Civil Rights Act of 1968, amended in 1988 — prohibits discrimination in the sale, rental, and financing of housing. Separately, the Civil Rights Act of 1866 prohibits all racial discrimination in property transactions with no exemptions. That second statute is why no fair-housing exemption ever excuses racial discrimination.

The seven protected classes

Race, color, religion, national origin, sex, familial status, and disability. Familial status protects households with children under eighteen and pregnant persons, and disability protection requires landlords to allow reasonable modifications and make reasonable accommodations.

The three named violations

• Steering — channeling buyers toward or away from neighborhoods based on a protected class.
• Blockbusting — inducing owners to sell by suggesting that people of a protected class are moving into the area.
• Redlining — denying loans or insurance in certain areas based on protected characteristics.

A quick way to keep them straight: steering is done to buyers, blockbusting is done to owners, and redlining is done by lenders and insurers.

Exemption traps

The Mrs. Murphy exemption for owner-occupied buildings of four or fewer units is narrow, and the exam loves its limits: it never applies to race, and it is lost if the owner uses discriminatory advertising or a real estate licensee. More broadly, advertising that indicates a preference or limitation based on a protected class is illegal even if the underlying transaction would be exempt. So an otherwise-exempt owner who places a discriminatory ad has still broken the law.

Exam math uses a handful of formulas over and over. Learn the formula, then practice deciding which number goes on top.

Commissions

Commission = sale price × commission rate. A property that sells for $300,000 at a 6 percent rate generates an $18,000 commission, which is then split between the listing and selling brokers per their agreement. Questions often add a split step — read carefully to see whether they ask for the total commission or one broker's share.

Loan-to-value ratio

LTV = loan amount ÷ the lesser of appraised value or purchase price, expressed as a percentage. A $240,000 loan on a $300,000 property is an 80 percent LTV, and the down payment equals the remaining 20 percent. The phrase lesser of matters: when the appraisal comes in below the purchase price, the appraised value drives the ratio.

Prorations

Proration divides shared expenses — property taxes, rent, interest — between buyer and seller based on the portion of the period each party owns the property, using the closing date as the dividing point. Two rules govern the direction of the credit:

• If the seller prepaid the expense, the buyer reimburses the seller for the unused portion.
• If the expense is paid in arrears, the seller credits the buyer for the seller's share.

Many exams use a 360-day banker's year with 30-day months, so the daily rate is the annual amount divided by 360. Applying that rule, a $3,600 annual expense works out to $10 per day — the round numbers are the point, since the banker's year exists to make daily rates clean.

Investor quick math

• Gross rent multiplier (GRM) = sale price ÷ monthly gross rent.
• Income capitalization: net operating income ÷ capitalization rate = estimated value of an income property.

Note the units: GRM uses monthly rent, while the capitalization formula uses annual net operating income concepts — swapping periods is the classic error.