National Real Estate Exam (PSI) flashcards

The EPA recommends radon mitigation when the average indoor radon concentration is 4.0 pCi/L or higher.

• Radon is a colorless, odorless radioactive gas
• Action level is 4.0 pCi/L (picocuries per liter)
• Short-term tests should be averaged, not viewed individually

Memory trick: Average it, don't waver it — 4.0 is the number.

A structural change to a dwelling that a tenant with a disability may make at their own expense to allow full use of the property.

• Tenant typically pays for the modification
• Landlord may require restoration upon move-out in some cases
• Differs from 'reasonable accommodation,' which is a change in rules/policies

Memory trick: Ramp it up—tenant pays, landlord can't say no.

A contract provision specifying a predetermined amount (often the earnest money) as the sole remedy for breach, replacing the need to prove actual damages.

• Common in real estate purchase contracts
• Limits seller's remedy to a set amount
• Must be reasonable, not a penalty, to be enforceable
• Alternative remedies include specific performance or compensatory damages

Memory trick: Liquidated = 'Locked-in' amount, no extra lawsuits allowed

A deed in which the grantor only warrants against title defects that occurred during their own ownership, not before.

• Often used in commercial transactions
• Less protection than a general warranty deed
• Grantor is not liable for defects from prior owners

Memory trick: 'Special' = only special to 'my time', not before.

An agency relationship created through the actions and conduct of the parties, rather than through an explicit oral or written agreement.

• Based on reasonable interpretation of conduct
• Can create fiduciary duties even without signed paperwork
• Distinct from express agency (clearly stated) and agency by estoppel (third-party reliance)

Memory trick: Actions speak louder than contracts

The transfer of a tenant's entire remaining leasehold interest to a third party, who then becomes primarily responsible for lease obligations.

• Default rule: leases are assignable unless prohibited
• Original tenant may remain secondarily liable unless released
• Different from subletting, which transfers only part of the interest/term
• Landlords often add consent clauses to control assignments

Memory trick: Silent lease = Sail freely, unless a wall (restriction clause) blocks it

Generally, liens are paid in order of recording date ('first in time, first in right'), but property tax liens have superpriority and are paid first regardless of recording date.

• General rule: earlier recorded lien has higher priority
• Exception: property tax liens have automatic superpriority
• Mechanic's liens sometimes relate back to the start of work in some states

Memory trick: Uncle Sam always eats first at the foreclosure table.

A FEMA-designated zone with a 1% annual chance of flooding (100-year floodplain); federally regulated lenders must require flood insurance for properties located there.

• SFHA = 1% annual flood chance zone
• Triggers mandatory flood insurance for federally backed loans
• Based on FEMA flood maps, not personal flood history

Memory trick: In the SFHA zone? Insurance is not optional, it's known.

A deed of trust is a three-party security instrument (borrower, lender, trustee) where a neutral trustee holds legal title until the loan is repaid, unlike a two-party mortgage.

• Trustee holds bare legal title as security
• Enables nonjudicial (power-of-sale) foreclosure in many states
• Borrower retains equitable title and possession during the loan term

Memory trick: 'Trust has three: borrower, lender, and the trustee referee.'

A deed in which the grantor guarantees clear title against defects arising at any point in history, offering the greatest buyer protection.

• Covers defects from before and during grantor's ownership
• Includes covenants like seisin, quiet enjoyment, and further assurance
• Considered the strongest type of deed for a buyer

Memory trick: 'General' goes back to Genesis — covers all time.

Certain sellers (e.g., lenders in foreclosure sales, fiduciaries, estates) are often statutorily exempt from completing the standard seller's property disclosure form, but licensees remain obligated to disclose known material facts.

• Common exemptions: foreclosure/REO sales, court-ordered transfers, new construction, transfers between co-owners
• Exemption applies to the disclosure FORM, not to the licensee's independent duty to reveal known defects
• Agents must disclose material facts they personally know, regardless of seller's exempt status

Memory trick: Exempt from the FORM, not from the TRUTH.

An item of personal property attached to real estate by a commercial tenant for business use, which remains personal property and is removable by the tenant.

• Exception to the general rule that attached items become real property
• Must be removed before or at the end of the lease term
• Tenant must repair damage caused by removal

Memory trick: Business owners take their tools when they leave the shop.

Puffing consists of subjective opinions, exaggerations, or sales talk that are not treated as fraudulent misrepresentation, unlike false statements of verifiable material fact.

• Opinions about quality/value are generally not actionable
• Misrepresentation involves false statements of fact
• Buyers are expected to recognize obvious sales talk

Memory trick: Puffing is 'talk,' misrepresentation is 'fact gone wrong'

A deceptive advertising practice of promoting an attractive but unavailable listing to lure customers toward other, often less favorable, options.

• Considered fraudulent and unethical under advertising regulations
• Differs from puffing, which involves subjective exaggeration, not falsehood
• Can result in license discipline and consumer protection violations

Memory trick: Hook them with a low price, then switch the catch.

When one joint tenant transfers their interest to a new party, that share becomes a tenancy in common while unaffected co-owners retain joint tenancy among themselves.

• Requires four unities: time, title, interest, possession
• Conveyance by one owner breaks unity only for that share
• Remaining original joint tenants keep survivorship rights with each other

Memory trick: Selling your slice cuts you out of the survivorship pie.

A contract clause making strict adherence to specified deadlines a material and enforceable term, where failure to meet them constitutes breach.

• Elevates deadlines from flexible to legally critical
• Missing a deadline can be treated as material breach
• Without this clause, courts may allow reasonable delay

Memory trick: Essence means deadlines have teeth — miss it, breach it.

A private agreement recorded against a property that limits use and automatically binds all future owners, functioning as an encumbrance on title.

• Must be recorded to give constructive notice to future buyers
• Enforced through injunctions or HOA action, not necessarily as a monetary lien
• Differs from an easement because it restricts use rather than granting access rights

Memory trick: Rules recorded in the deed follow the land like a shadow.

A seller-financing arrangement in which the buyer makes installment payments directly to the seller, who retains legal title until the contract is fully paid.

• Also called an installment land contract
• Buyer holds equitable title during payments
• Buyer receives legal title only after final payment

Memory trick: Deed stays with seller till the last dollar's paid.

Rights held by owners of land bordering a river or stream, generally including reasonable use of the water and ownership to the center (thread) of a non-navigable waterway.

• Riparian = rivers/streams; littoral = lakes/oceans/tidal waters
• Non-navigable stream owners typically own to the midpoint
• Rights include reasonable use but not exclusive ownership of the water itself

Memory trick: Riparian = river — split down the middle like slicing a stream in half.

To find the required sale price when a seller wants a specific net amount after commission, divide the net amount by (1 − commission rate).

• Sale Price = Net ÷ (1 − Commission Rate)
• Never simply add the commission percentage to the net
• Verify by subtracting commission from resulting sale price

Memory trick: Divide, don't add, to find what the house must sell for.

Insurance required on FHA loans consisting of an upfront premium and an annual premium, protecting the lender against borrower default.

• Upfront MIP paid at closing (can be financed)
• Annual MIP paid monthly as part of payment
• With less than 10% down, MIP lasts for the life of the loan

Memory trick: FHA's insurance sticks around for life if you put down less than 10%.

A form of co-ownership available only to married couples that includes right of survivorship and protects the property from creditors of only one spouse.

• Requires marriage between the co-owners
• Neither spouse can convey or encumber the property without the other's consent
• Not recognized in all states

Memory trick: Married as one unit, shielded as one shield.

When a recurring expense is unpaid at closing, the seller's portion (days owned) is credited to the buyer since the buyer will later pay the entire bill.

• Unpaid item: seller owes buyer for seller's days of ownership
• Prepaid item: buyer owes seller for buyer's days of ownership
• Use 30-day month, 360-day year for standard proration

Memory trick: Unpaid bill? Seller pays their share to the buyer's pocket.

A borrower's right under the Truth in Lending Act to cancel certain refinance or home equity loans within 3 business days without penalty.

• Applies to refinances and home equity loans on primary residence
• Does not apply to purchase-money mortgages
• Lender must provide notice of the right to rescind

Memory trick: Three days to change your mind after refinancing your home.

A commercial lease structure where rent includes a base amount plus a percentage of the tenant's gross sales, often above a specified breakpoint.

• Common in retail and shopping center leases
• Percentage typically applies only to sales exceeding a breakpoint
• Total rent = base rent + (percentage × sales over breakpoint)

Memory trick: Base rent is the floor; percentage rent is the bonus above the ceiling threshold.

The fiduciary duty requiring an agent to perform their job with the competence and diligence expected of a reasonably skilled real estate professional.

• Includes proper research and due diligence
• Failure can lead to negligence claims
• Applies to referrals, pricing advice, and marketing

Memory trick: Care = Competent, Careful work

An offer is automatically terminated if either the offeror or offeree dies or becomes incapacitated before acceptance.

• Applies before acceptance only
• Once accepted, a contract survives death of a party
• Estates cannot accept offers made to a now-deceased person

Memory trick: Death before 'yes' means the offer dies too.

The rate of return on an investment property is calculated by dividing net operating income by the purchase price or value.

• ROI = income ÷ investment amount
• Also called capitalization rate for income property
• Higher NOI relative to price means higher return

Memory trick: Income over investment tells you the return

An encumbrance that occurs when a structure, such as a fence, wall, or roof overhang, unlawfully extends onto a neighboring property.

• Typically discovered through a boundary survey
• Can cloud title and must often be resolved before sale
• May lead to a prescriptive easement claim if left unaddressed long enough

Memory trick: A fence that crosses the line is trespassing in structure form.

An illegal lending practice of denying mortgages or insurance to residents of certain areas based on racial or ethnic composition rather than creditworthiness.

• Named for maps once used to outline high-risk minority areas
• Violates the Fair Housing Act and Equal Credit Opportunity Act
• Applies to lenders and insurers, not just real estate agents

Memory trick: Red line drawn around the neighborhood, not the numbers.

While agents owe fiduciary duties to principals, principals also owe agents duties such as compensation, cooperation, and reimbursement of expenses per the agreement.

• Compensation is typically set by the listing or buyer agreement
• Principal must cooperate and not hinder the agent's work
• Contrasts with OLDCAR duties owed by agent to principal

Memory trick: Agent gives OLDCAR, Principal gives pay

Authority that a third party reasonably believes an agent possesses because of the principal's words or conduct, even if no actual authority was granted.

• Based on principal's conduct, not agent's claims
• Can bind the principal to third parties who reasonably relied
• Different from actual express or implied authority

Memory trick: Apparent authority: it looks real because the principal let it look that way.

An agency relationship created by explicit oral or written agreement between principal and agent.

• Most common form of real estate agency
• Can be oral or written, though listing agreements are typically required to be in writing
• Terms of authority are clearly stated in the agreement

Memory trick: Express = Explicit words or writing.

A contract entered into by a party lacking full legal capacity (such as a minor) is voidable at that party's option, not automatically void.

• Capacity is one of the essential elements of a valid contract
• Minors and some mentally incapacitated persons have limited capacity
• Voidable contracts can be disaffirmed or ratified by the incapacitated party

Memory trick: Minors can 'mind-change' — voidable, not void.

A real estate ad that fails to disclose the identity of the licensed broker or brokerage, violating disclosure regulations.

• Violates license law advertising rules
• All ads must identify the brokerage
• Purpose is to protect consumers from unlicensed-seeming solicitations

Memory trick: Blind ad = ad 'hides' who the broker really is

An antitrust violation where use of one product/service is conditioned on the purchase of a separate, unrelated product/service.

• Illegal when it unreasonably restrains trade or reduces consumer choice
• Common example: requiring use of an affiliated title/escrow company
• Differs from bundling voluntarily chosen by the consumer

Memory trick: Tied together against your will—that's a tying deal.

Facts about conditions near, but not on, a property (e.g., nearby contamination) can still be material if they reasonably affect value, desirability, or safety.

• Materiality isn't limited to on-site conditions
• Buyer's agents owe a duty to disclose known material facts to their client
• Public environmental databases can reveal nearby contamination

Memory trick: Contamination next door still matters — tell the buyer, don't let it slide.

The market where existing mortgage loans are bought and sold among lenders and investors, often pooled into mortgage-backed securities.

• Includes Fannie Mae, Freddie Mac, Ginnie Mae
• Provides liquidity so lenders can make more loans
• Different from the primary market where loans originate

Memory trick: Primary creates, Secondary recycles.

Violations of the Sherman Antitrust Act, such as price fixing or market allocation, can result in criminal prosecution, substantial fines, and civil suits allowing injured parties to recover treble damages.

• Price fixing and market allocation are per se illegal
• Criminal penalties can include fines and imprisonment
• Civil plaintiffs may recover three times actual damages plus legal fees

Memory trick: Fix prices, pay triple — and maybe do time.

A patent defect is visible/discoverable through reasonable inspection; a latent defect is hidden and not easily detected, often requiring specific seller disclosure.

• Patent = obvious upon inspection
• Latent = hidden, known only to seller/insiders
• Sellers have a stronger duty to disclose latent defects

Memory trick: Patent you can spot; latent stays hidden till it's not.

A single agent represents both buyer and seller in one transaction with full disclosure and informed consent from both parties.

• Requires written consent in most states
• Agent's loyalty duty is limited/neutral
• Different from designated agency (two separate agents)

Memory trick: One agent, two hats, full disclosure

An agency agreement automatically ends when its stated time period lapses without renewal.

• No action required by either party
• Common in listing agreements with a set term
• Contrasts with termination by mutual agreement or operation of law

Memory trick: Time's up means agency's done

A tenant who remains in possession after lease expiration; if the landlord accepts rent, this typically converts into a periodic tenancy based on the payment interval.

• Landlord's acceptance of rent is key to creating periodic tenancy
• Without landlord's consent, tenant is at sufferance (a trespasser essentially)
• Periodic tenancy usually mirrors rent payment period (e.g., month-to-month)
• Landlord can also choose to evict rather than accept rent

Memory trick: Accept the rent, accept a new (periodic) tenant

A legal principle requiring that contracts and conveyances involving real property be in writing and signed to be enforceable.

• Oral agreements to convey land cannot be enforced
• Applies to deeds, real estate contracts, and leases over a certain term
• Protects against fraudulent claims of ownership transfer

Memory trick: 'If it's not written, it's not real estate.'

State regulations require brokers to deposit client trust funds into a trust account within a specified short period, typically a few business days, absent written authorization otherwise.

• Deadlines are usually measured in business days (often 1-3)
• Failure to deposit timely is a violation even without harm to the client
• Written agreements can sometimes extend timing with proper disclosure

Memory trick: The clock starts ticking the moment the check lands in your hand.

A listing agreement where the broker's commission is whatever amount the property sells for above the seller's specified net price.

• Commission = Sale Price − Seller's Net Amount
• Considered risky and illegal or restricted in many states
• Broker has incentive to sell for as much as possible
• Percentage of sale price can vary each transaction

Memory trick: Net = 'Net proceeds first, broker keeps the rest'

The process of verifying that the trust account balance matches the sum of all individual client ledger balances.

• Balance higher than ledgers suggests commingling of outside funds
• Balance lower than ledgers suggests conversion or shortage
• Regular reconciliation is required to detect discrepancies

Memory trick: Too much money in the pot means something outside got poured in.

A mortgage provision allowing the lender to require full repayment of the loan balance if the property is sold or title is transferred.

• Also called an acceleration clause upon sale
• Prevents unauthorized loan assumption
• Common in most conventional mortgages

Memory trick: Sell the house, the whole loan comes due at once.

The basic requirements that must be present for a contract to be legally enforceable: offer and acceptance, consideration, legal capacity, and legal purpose.

• Mutual assent = offer + acceptance
• Consideration must be something of value
• Parties must have legal capacity (age, mental competence)
• Purpose of the contract must be legal

Memory trick: OCLC: Offer, Consideration, Legal capacity, legal purpose - remember your local library card

Something of legal value—money, promise, or performance—given by each party in exchange for the other's promise, essential to forming a valid contract.

• Can be money, a promise, or performance of an act
• Must have legal value, not necessarily equal value
• Contracts without consideration are generally unenforceable

Memory trick: No value exchanged, no valid deal.

Buildings constructed before the 1980s frequently used asbestos-containing materials (insulation, tiles, etc.) that are hazardous when disturbed, especially during renovation.

• Asbestos is generally safe if undisturbed (encapsulated)
• Renovation/demolition activities require an asbestos assessment
• EPA and OSHA regulate asbestos handling and disposal

Memory trick: Disturb the dust from decades past, and asbestos fibers fly fast.

A chronological summary of all recorded documents and legal proceedings affecting ownership of a specific parcel of land.

• Traces chain of title back to original grant
• Used to identify clouds or gaps in ownership
• Basis for a certificate of title or title insurance decision

Memory trick: 'Abstract = A History Book of the property's past owners.'

A mechanic's lien's priority date relates back to when labor or materials were first supplied to the project, not the date the lien is recorded.

• Can outrank mortgages recorded after work began but before lien filing
• Protects contractors and suppliers who improve real property
• Filing deadlines and rules vary by state but relation-back is a common principle

Memory trick: 'First hammer swing wins the priority race.'

Puffery is subjective, exaggerated opinion-based language used in advertising that a reasonable person would not interpret as a literal factual claim, distinguishing it from actionable misrepresentation.

• Opinion-based, not fact-based statements
• Not considered fraud or misrepresentation
• Contrasts with false statements about material facts like square footage or defects

Memory trick: Opinions can sparkle, but facts must be true.

The Comprehensive Environmental Response, Compensation, and Liability Act imposes strict, joint, and several liability on responsible parties for hazardous contamination, regardless of fault.

• Applies to current owners, past owners/operators, and others
• 'Innocent landowner' defense requires due diligence (environmental site assessment)
• Also called Superfund law

Memory trick: Superfund spreads the blame — everyone in the chain can share it.

A principal can always unilaterally revoke an agent's authority, ending the agency relationship immediately, but doing so without legal cause may expose the principal to breach of contract liability.

• Power to revoke always exists, even if wrongful
• Agency ends regardless of contractual breach
• Wrongful revocation may result in damages owed to agent

Memory trick: Power to end ≠ freedom from liability

Real estate licensees and sellers have an affirmative duty to disclose known material facts, including concealed latent defects, to protect buyers and avoid liability.

• Concealment of known defects can constitute fraud
• Duty applies to both sellers and their agents
• Disclosure should occur proactively, not only when asked

Memory trick: Known and hidden? Tell them — don't let silence be misleading.

A legal principle requiring certain contracts, including leases longer than one year, to be in writing to be enforceable.

• Leases of one year or less can typically be oral
• Leases over one year generally must be written
• Applies broadly to real estate contracts, not just leases
• Protects against fraudulent claims of oral agreements

Memory trick: 'Over a year? Put it on paper!'

An official document issued by a local government confirming a building complies with codes and is safe for occupancy.

• Issued after final inspection
• Required before legal occupancy or use
• Different from a building permit, which is obtained before construction

Memory trick: No CO, no move-in.

A listing agreement in which the broker earns a commission regardless of who sells the property during the listing period, including the seller.

• Most common and broker-favorable listing type
• Broker is paid even if seller finds their own buyer
• Differs from exclusive-agency, which excludes seller-found buyers

Memory trick: Exclusive right = broker's always right (to get paid).