National Real Estate Exam (PSI) flashcards

When an agent secretly acts for or favors both parties in a transaction without informed consent, violating fiduciary duties of loyalty and confidentiality.

• Illegal in most jurisdictions without consent
• Can void the transaction or listing agreement
• Exposes agent/broker to disciplinary action and lawsuits

Memory trick: Secret sides sink the ship

All real estate agents, regardless of who they represent, must disclose known material facts about a property that affect its value or desirability to all parties in the transaction.

• Applies even to non-client customers
• Failure to disclose known defects can lead to liability
• Distinct from fiduciary duties owed only to one's own client

Memory trick: Honesty to everyone, loyalty to your client only

A foreclosure process carried out by a trustee under a power-of-sale clause in a deed of trust, without court involvement.

• Faster and cheaper than judicial foreclosure
• Requires a deed of trust with power-of-sale language
• Trustee conducts the public sale

Memory trick: Power of sale skips the judge's tale.

When the sale price and commission dollar amount are known, the rate is found by dividing commission by sale price.

• Rate = Commission ÷ Sale Price
• Always convert decimal to percentage
• Check math by multiplying rate back into sale price

Memory trick: Divide the check by the price to find the price of the deal.

The percentage of a property's value that is financed by a loan, calculated as loan amount divided by appraised value or purchase price (whichever is lower).

• Higher LTV = higher risk to lender
• LTV above 80% usually requires PMI
• Formula: Loan Amount ÷ Property Value

Memory trick: Loan divided by value tells the lender how risky the deal will be.

A property that may be undesirable to buyers for psychological, not physical, reasons—such as a death or rumored haunting—generally not considered a material fact.

• Natural deaths are typically non-material
• Some states require disclosure of murder/suicide within a set timeframe
• Physical/legal defects, unlike stigma, must generally be disclosed

Memory trick: Stigma isn't structure — no duty to disclose the ghost story.

A complete transfer of a tenant's entire remaining leasehold interest to a third party, while the original tenant typically remains secondarily liable to the landlord.

• Assignment transfers the whole remaining term
• Sublease transfers only part of the term or premises
• Original tenant remains liable unless released via novation

Memory trick: Assign it ALL, sublease just a stall (partial).

A HUD-encouraged symbol/slogan in advertising signaling nondiscriminatory housing practices; its absence alone isn't automatically illegal.

• Encouraged, not always strictly mandated, in advertising
• Violation stems from discriminatory ad content/language, not missing logo
• Applies to sales and rental advertising

Memory trick: It's the words, not the logo, that break the law.

A form of co-ownership where two or more people hold undivided interests in a property, which may be unequal in size, with no right of survivorship.

• Owners can hold unequal percentage interests
• Each owner's share passes to heirs upon death
• Default form of co-ownership when unmarried parties buy together without specifying otherwise

Memory trick: Common shares can be uncommonly unequal.

An equitable remedy where a court orders a breaching party to perform their contractual obligations, often used in real estate due to the uniqueness of land.

• Common remedy for real estate breach
• Available when monetary damages are inadequate
• Court forces the seller to actually convey title

Memory trick: Land is one of a kind — make them hand it over.

The percentage of a borrower's gross monthly income used to pay total monthly debt obligations, used by lenders to assess qualification.

• Back-end ratio includes all debts, not just housing
• Front-end ratio includes only housing expense
• Conventional loans often cap back-end DTI around 36-43%

Memory trick: Debts over income, keep it below the line.

A leasehold estate that renews automatically for successive equal periods (e.g., month-to-month) until proper notice of termination is given by either party.

• No fixed termination date, unlike an estate for years
• Requires statutory notice period to terminate
• Common in month-to-month or week-to-week rental arrangements

Memory trick: Periodic = repeats like a calendar page turning until someone says stop.

A recording statute under which a subsequent bona fide purchaser without notice of a prior claim is protected only if they also record before the earlier purchaser.

• Combines elements of 'race' (who records first) and 'notice' (no knowledge of prior claim)
• Most common type of recording statute in the U.S.
• Failing to record promptly can cost a buyer their priority

Memory trick: Race-notice = win the race to the recorder's office AND have clean hands (no notice).

A future interest created in a third party (not the grantor) that becomes possessory automatically when a preceding life estate ends.

• Vested remainder: certain to take effect, no conditions attached
• Contingent remainder: depends on an uncertain future event
• Reversion: future interest that returns to the grantor, not a third party

Memory trick: Remainder REMAINS with someone else; Reversion REVERTS back to the grantor.

A court order requiring a defaulted borrower to pay the remaining balance owed after a foreclosure sale fails to cover the full debt.

• Available primarily in judicial foreclosure states
• Some states restrict or prohibit deficiency judgments
• Calculated as debt owed minus sale proceeds

Memory trick: Sale falls short, judge makes up the rest.

A listing agreement where one broker is the sole agent, but the seller reserves the right to sell the property personally without owing a commission.

• Differs from exclusive-right-to-sell (commission owed no matter who sells)
• Seller can sell property themselves commission-free
• Only one broker represents the seller
• Common alternative to open or exclusive-right-to-sell listings

Memory trick: 'Agency lets the seller find their own family buyer for free'

Federal law (Residential Lead-Based Paint Hazard Reduction Act) requiring sellers of pre-1978 housing to disclose known lead hazards and provide an EPA pamphlet, with a 10-day inspection opportunity for buyers.

• Applies to housing built before 1978
• Seller must disclose known lead hazards
• Buyer gets a 10-day period to test/inspect before contract becomes binding

Memory trick: '78 or before, lead paint disclosure galore.

A lien filed by a contractor or supplier for unpaid work or materials, whose priority typically relates back to the date the work or delivery of materials first began, not the recording date.

• Priority date = start of work/materials, not filing date
• Can outrank mortgages recorded after work began
• Property tax liens still generally hold superpriority over mechanic's liens

Memory trick: Mechanic's lien time-travels back to the first swing of the hammer.

A deed only conveys title when the grantor delivers it with intent to transfer ownership and the grantee accepts it.

• Signing alone does not transfer title
• Delivery must show grantor's intent to give up control
• Acceptance is presumed if the transfer benefits the grantee

Memory trick: 'Deliver and Accept' — a gift isn't given until it's handed over and taken.

A defeasible fee estate that automatically ends and reverts to the grantor if a stated condition is violated, typically signaled by words like 'so long as' or 'while used for.'

• Grantor retains a possibility of reverter
• Reversion is automatic, not by court action
• Contrast with fee simple subject to condition subsequent, which requires grantor action to retake title

Memory trick: 'So long as' means it snaps back automatically.

A fiduciary duty requiring an agent to act solely in the principal's best interest and avoid self-dealing or conflicts of interest.

• Prohibits secret profits or commissions
• Requires disclosure of any conflicts of interest
• Breach can result in loss of commission and license discipline

Memory trick: Loyalty means the client's interest, not the agent's wallet, comes first.

A blanket mortgage covers multiple parcels of real estate under a single loan; a partial release clause allows individual parcels to be released from the lien as agreed payments are made.

• Common in subdivision development financing
• Release amount per lot is specified in the mortgage
• Without release clause, buyers could not get clear title to individual lots

Memory trick: Blanket covers all, release peels off one at a time.

A limited FHA exemption allowing owners of buildings with four or fewer units, who live in one unit, to make certain rental decisions without full FHA liability, provided no discriminatory advertising or agent is used.

• Applies only to buildings with 4 or fewer units where owner resides
• Discriminatory advertising is never exempt
• Does not exempt race discrimination under the Civil Rights Act of 1866

Memory trick: Mrs. Murphy lives next door and picks her own neighbor.

The illegal practice of directing homebuyers toward or away from certain neighborhoods based on a protected class.

• Violates Fair Housing Act
• Limits housing choice based on race, religion, etc.
• Distinct from redlining (lending) and blockbusting (panic selling)

Memory trick: Steering = 'steering' buyers like a wheel toward/away from areas

An agency relationship implied by law when a principal's words or conduct cause a third party to reasonably believe someone is their agent, preventing the principal from later denying that relationship.

• Based on reasonable reliance by a third party
• Principal is 'estopped' from denying the agency
• Different from ratification, which approves a completed act

Memory trick: Estoppel = 'You said it, so you're stuck with it'

The agent whose uninterrupted efforts are the direct cause of a completed sale is generally entitled to the commission in a procuring cause dispute.

• Common issue in commission disputes between cooperating agents
• Focuses on unbroken chain of causation, not just first contact
• Often resolved through arbitration at local real estate boards

Memory trick: Procuring cause: follow the unbroken chain to the sale.

An agency relationship ends when both the principal and agent voluntarily agree, in writing, to cancel the agreement before its natural conclusion.

• Requires consent of both parties
• Also called mutual rescission
• Different from unilateral revocation or renunciation

Memory trick: Mutual = both sign to end it early

An agreement by both parties to cancel a contract and restore each other to the positions they held before the contract was formed.

• Requires mutual consent of both original parties
• Distinct from novation, which substitutes new terms/parties
• Typically involves returning consideration, such as earnest money

Memory trick: Rescission hits rewind — back to before the deal began.

The area of a trapezoid equals one-half the sum of its parallel sides multiplied by the height (depth).

• Area = ½ × (side1 + side2) × height
• Common for irregular lots with two parallel boundaries
• Multiply area by price per square foot for total value

Memory trick: Average the parallel sides, then multiply by depth

An agent's duty to protect a former client's confidential information continues indefinitely, even after the agency relationship ends.

• Survives termination of listing or buyer agency
• Applies to information gained during the agency, like motivation to sell
• Violation can lead to liability even without an active agency

Memory trick: Confidentiality never expires, even when the contract does.

An item of personal property becomes a fixture (real property) when it is attached to real estate and intended to remain permanently.

• Test factors: method of attachment, adaptation to use, and intent
• Fixtures automatically convey with the sale of real property unless excluded in the contract
• Trade fixtures installed by commercial tenants are an exception and remain personal property

Memory trick: Screwed in and meant to stay? It's here to stay — a fixture!

Federal law imposing strict, joint, and several liability for hazardous substance cleanup on current owners, past owners, and operators, regardless of fault.

• Liability is strict—no need to prove negligence
• Current owners can be liable even if they didn't cause contamination
• Innocent landowner defense may apply with proper due diligence (Phase I ESA)

Memory trick: CERCLA: 'Current owners can't escape liability, always.'

Fair housing law prohibits any advertisement, notice, or statement that indicates a preference, limitation, or discrimination based on a protected class, regardless of the advertiser's actual intent.

• Applies to print, online, and verbal advertising
• Violation exists even if no one is actually denied housing
• HUD advertising guidelines list examples of prohibited words and phrases

Memory trick: If the words hint at who belongs, the ad is on trial.

A protected class under the Fair Housing Act covering families with children under 18, pregnant women, and those securing custody of children.

• Cannot refuse to rent/sell based on presence of children
• Occupancy standards must be reasonable, not exclusionary
• Exemption exists for qualified 55+ senior housing

Memory trick: Kids can't be kicked out for being kids.

A lease in which the tenant pays a fixed rent and the landlord is responsible for property expenses like taxes, insurance, and maintenance.

• Common in residential and some office leases
• Opposite of a net lease
• Tenant's payment is simple and predictable

Memory trick: Gross means landlord grabs all the bills.

Sellers must generally disclose known mold contamination or water intrusion history, as it can be a material fact impacting health and property value.

• Concealing evidence (e.g., painting over mold) can constitute fraud
• Mold is linked to moisture/flooding history
• Many states include mold on standard disclosure forms

Memory trick: Paint over mold, and you paint yourself into legal trouble.

A transfer of less than the entire leasehold interest—either partial space or partial remaining term—while the original tenant remains responsible under the lease.

• Original tenant remains liable to landlord
• Differs from assignment, which transfers the entire interest
• Can involve partial space, partial term, or both

Memory trick: Sublease splits it; assignment sends it all away.

Permission granted by a zoning board to deviate from a specific dimensional or use requirement due to unique hardship, without changing the underlying zoning.

• Addresses dimensional issues like setbacks or lot size
• Requires proof of unique hardship not self-created
• Different from a special use permit, which allows a conditional use

Memory trick: Variance = 'vary' the numbers (setbacks, height, size).

Seven classes protected from housing discrimination under federal law.

• Race, color, national origin, religion, sex, familial status, disability
• Enacted as Title VIII of the Civil Rights Act of 1968
• States/localities may add additional protected classes

Memory trick: 'RECS FaD' - Race, Ethnicity(national origin), Color, Sex, Familial status, and Disability

Deed restrictions (covenants) are private agreements enforced by affected property owners or associations through civil lawsuits, typically seeking an injunction, not by government zoning authorities.

• Enforced privately, not by government zoning departments
• Typically enforced via injunction in civil court
• HOAs often have specific enforcement authority in the covenants

Memory trick: Covenants are neighbor-to-neighbor business, not city business.

An invalid or suspect rezoning of a single parcel that is inconsistent with surrounding zoning and the comprehensive plan, typically benefiting one landowner without public purpose.

• Rezones one lot inconsistently with surrounding uses
• Often struck down by courts as arbitrary
• Differs from legitimate zoning amendments tied to comprehensive planning

Memory trick: One lot, one favor, one lawsuit—that's spot zoning.

A deed with a forged grantor signature is legally void and transfers no title, even to a bona fide purchaser for value.

• Void deeds convey nothing, ever
• Good faith purchase does not protect against a void deed
• Contrast with 'voidable' deeds, which remain effective until challenged

Memory trick: 'A forgery is a ghost deed — it was never really there.'

Most states allow brokers to keep a small, specified personal amount in a trust account solely to cover bank service charges.

• Amount is typically capped and defined by state regulation
• Purpose is limited strictly to covering bank fees
• Using this reserve for other purposes becomes commingling

Memory trick: A pinch of personal cash keeps the account from starving on fees.

The Fair Housing Act permits religious organizations to give preference to members of their own religion in housing they own for noncommercial purposes, as long as membership itself isn't restricted by race, color, or national origin.

• Applies only to noncommercial housing owned by the religious body
• Membership in the religion cannot be restricted by other protected classes
• Similar to but distinct from the private club exemption

Memory trick: A church can keep its own house for its own flock.

The area of a triangular lot equals one-half the base times the height.

• Area = ½ × base × height
• Always convert area to price using price per square foot
• Common shapes on the exam: rectangle, triangle, trapezoid

Memory trick: Half the base times height, triangles are always sliced pies

A Fair Housing Act exemption allowing housing to exclude families with children if it qualifies as housing for older persons.

• 80% of units must have one resident 55+
• Must publish and adhere to policies/procedures showing intent
• Separate 100% rule applies to 62+ housing

Memory trick: '80 for 55, 100 for 62' - remember the two senior housing thresholds

A contractual right giving a party the first opportunity to purchase or lease a property under the same terms offered by a third party, triggered only when the owner receives a bona fide offer.

• Different from an option, which allows purchase at any time within the option period
• Owner is not obligated to sell, but must offer to the right holder first if they do
• Common in leases granting tenants future purchase priority

Memory trick: First refusal waits for an offer; an option can strike anytime.

The illegal act of using client trust funds for personal or unauthorized purposes.

• More severe than commingling
• Intent to repay does not excuse the violation
• Can lead to criminal prosecution and license revocation

Memory trick: Conversion = 'converting' someone else's money into your own use

Agency relationships end automatically due to events like death, incapacity, bankruptcy, or destruction of the property, without any action by the parties.

• Death of either principal or agent typically ends agency
• Incapacity can also terminate agency
• No formal notice or lawsuit is required

Memory trick: Death ends the deal, by law's appeal

A VA-guaranteed loan allows eligible veterans to purchase a home with no down payment, backed by a government guarantee to the lender.

• Guaranteed by the Department of Veterans Affairs
• No down payment typically required for qualified veterans
• Funding fee applies unless exempt (e.g., disability)

Memory trick: Veterans get to walk in the door with zero down.

Using the 360-day/30-day method, each month is treated as 30 days for calculating prorated amounts like insurance or taxes.

• 360-day year = 12 months × 30 days
• Daily rate = annual amount ÷ 360
• Count remaining days from closing date to year end

Memory trick: Every month is 30 days in proration math

A nonpossessory right to use another's land that benefits a specific person or entity rather than an adjoining parcel of land; commonly used for utility lines.

• No dominant estate exists—only a servient estate
• Personal easements in gross typically do not transfer with land
• Commercial easements in gross (like utility lines) often are transferable

Memory trick: No neighbor land means it's 'in gross,' benefiting a person or company instead.

A contract giving one party the right, but not the obligation, to buy or lease property at agreed terms within a specified time.

• Optionee has the right, not obligation
• Optionor is bound if optionee exercises
• Requires separate consideration to be valid
• If not exercised, option simply expires

Memory trick: Options are like a 'maybe' ticket - you choose whether to use it

A response to an offer that changes its terms, which rejects the original offer and creates a new offer for the other party to accept or reject.

• A counteroffer terminates the original offer
• Roles reverse: original offeror becomes offeree
• Mirror image rule: acceptance must match offer exactly or it's a counteroffer

Memory trick: Change one word, kill the offer — counteroffer is born.

A contract in which only one party makes a binding promise, contingent upon the other party's performance of a specified act; commonly seen in open listing agreements.

• Only one party is bound by a promise
• The other party's performance, not promise, forms the contract
• Common example: open listings and option contracts

Memory trick: Unilateral = one promise, waiting for action.

An antitrust violation where competitors coordinate to refuse business dealings with a targeted competitor or firm.

• Per se illegal under Sherman Antitrust Act
• Often targets discount or non-traditional brokerages
• Requires coordination among two or more parties

Memory trick: Boycott = 'block-out' a competitor by group agreement

A loan with scheduled periodic payments that include both principal and interest, resulting in full repayment by the end of the term.

• Early payments are mostly interest
• Later payments are mostly principal
• Balance reaches zero at maturity

Memory trick: Amortize means to slowly kill the debt until it's gone.

A use of property that was lawful when established but no longer conforms to current zoning, and is allowed to continue under a 'grandfather' clause.

• Must have existed legally before the zoning change
• Cannot usually be expanded or substantially rebuilt
• Use is typically eliminated once discontinued for a set period

Memory trick: 'Grandfathered in' means the old use gets to stay.

A closing method where a neutral third party holds funds and documents, releasing them only when all conditions of the contract have been satisfied.

• Common in western/escrow states as an alternative to 'table closings'
• Escrow agent is neutral, not representing buyer or seller
• Agent disburses funds and records deed once conditions are met

Memory trick: Escrow = a neutral referee holding the ball until both teams are ready.

A junior financing arrangement where a new loan 'wraps around' an existing loan; the seller/lender collects payments on the full new balance while continuing to pay the underlying loan.

• Seller profits from the interest rate spread
• Underlying loan remains in the seller's name
• Risky if underlying loan has a due-on-sale clause

Memory trick: Wrap the old loan inside the new, pocket the interest spread.