1. A broker receives a $5,000 earnest money deposit from a buyer on Monday. According to California trust fund handling rules, by when must the broker deposit these funds into a trust account or the seller's account, if not held uncashed per instructions?
Practice of Real Estate and Disclosures
A.Within 10 business days of receipt
B.By the end of the same business day
C.Within 3 business days of receipt
D.Within 5 calendar days of receipt
Show answerAnswer
C. Within 3 business days of receipt
California law (Commissioner's Regulations) requires brokers to deposit trust funds into a neutral escrow depository or trust account no later than 3 business days following receipt, unless the funds are held uncashed pursuant to instructions.
2. An agent negotiating the sale of a client's property arranges to resell it immediately to a third party at a higher price, pocketing the difference without telling the seller. What legal doctrine addresses this violation?
Laws of Agency and Fiduciary Duties
A.The doctrine of caveat emptor
B.The doctrine of merger, which absorbs prior agreements into the deed
C.The doctrine of secret profits, requiring the agent to disgorge any undisclosed gain
D.The doctrine of laches, barring the seller's claim due to delay
Show answerAnswer
C. The doctrine of secret profits, requiring the agent to disgorge any undisclosed gain
An agent who secretly profits from a transaction at the principal's expense violates the fiduciary duty of full disclosure and loyalty. Under the secret profit doctrine, the principal can recover the undisclosed profit and may rescind the transaction.
3. A purchase agreement includes a clause stating 'time is of the essence' and requires the buyer to remove all contingencies by June 1. The buyer fails to remove contingencies until June 5, with no extension granted by the seller. What is the legal effect of this delay?
Contracts
A.The seller may treat the contract as breached and may be entitled to cancel
B.The contract automatically converts to a month-to-month agreement
C.The buyer's delay is excused because contingency removal dates are not enforceable
D.The delay is immaterial because California law allows a 5-day grace period
Show answerAnswer
A. The seller may treat the contract as breached and may be entitled to cancel
A 'time is of the essence' clause makes strict compliance with stated deadlines a material term of the contract. Missing the deadline without an agreed extension constitutes a breach, giving the seller the right to cancel or pursue remedies.
4. A person has openly farmed and fenced a strip of vacant land under a defective deed for 6 years, paying property taxes on it each year based on the assessed description in that deed. The true owner never objected. What is required for this person to acquire title by adverse possession in California?
Property Ownership and Land Use Controls
A.Continuous possession for 20 years regardless of tax payments
B.Open possession for 10 years without any tax payment requirement
C.Open, hostile, and continuous possession for 5 years, plus payment of taxes
D.Written permission from the true owner recorded for 5 years
Show answerAnswer
C. Open, hostile, and continuous possession for 5 years, plus payment of taxes
California requires adverse possession to be open, notorious, hostile, continuous, and exclusive for 5 years, AND the claimant must have paid all property taxes assessed against the property during that 5-year period.
5. A salesperson posts a property listing on her personal Instagram account. Under DRE advertising regulations, the post must include:
Practice of Real Estate and Disclosures
A.No broker identification, since social media is not regulated advertising
B.The responsible broker's identity as it appears in DRE license records
C.Only the salesperson's personal cell phone number
D.A disclaimer that the post is not an official advertisement
Show answerAnswer
B. The responsible broker's identity as it appears in DRE license records
California advertising regulations require that all advertising by a salesperson, including social media, disclose the identity of the responsible broker under whom the salesperson is licensed, to avoid misleading the public.
6. A homeowner remodels and slightly expands an existing single-family kitchen without significantly increasing the building's footprint. Under CEQA, this project would most likely be treated as:
Property Ownership and Land Use Controls
A.Subject to mandatory public referendum
B.Categorically exempt from CEQA review
C.Subject to a full Environmental Impact Report
D.Approvable only after a negative declaration is filed
Show answerAnswer
B. Categorically exempt from CEQA review
CEQA provides categorical exemptions for classes of projects that the state has determined do not have a significant effect on the environment, including minor alterations to existing private structures like small residential additions. Such projects do not require an EIR or negative declaration.
7. A property manager runs a classified ad stating: 'Charming 2BR apartment — perfect for a single professional, no children please.' Under fair housing law, this advertisement is:
Practice of Real Estate and Disclosures
A.Legal as long as the unit is a studio or one-bedroom
B.A violation only if a family with children actually applies and is rejected
C.A violation of fair housing law because it expresses a preference based on familial status
D.Legal, because it simply states the owner's rental preference
Show answerAnswer
C. A violation of fair housing law because it expresses a preference based on familial status
The Fair Housing Act and California FEHA prohibit advertisements that indicate a preference, limitation, or discrimination based on familial status. 'No children' language is discriminatory on its face regardless of whether an actual family applies.
8. A seller conveys title to a buyer using a grant deed. Which covenant is automatically implied by law even though it is not written in the deed?
Transfer of Property
A.The grantor will defend the title against all claims forever
B.The grantor has clear and marketable title of record
C.The property is free of all liens and encumbrances
D.The grantor has not previously conveyed the same property to another person
Show answerAnswer
D. The grantor has not previously conveyed the same property to another person
California grant deeds carry two implied warranties: (1) the grantor has not already conveyed the property to someone else, and (2) the estate is free from encumbrances made by the grantor, except those disclosed. A full warranty of defending title forever is a feature of a warranty deed, not a grant deed.
9. Two cooperating brokers dispute which of them was the 'procuring cause' of a completed sale for commission-splitting purposes. Which best describes how this dispute is typically resolved in California?
Laws of Agency and Fiduciary Duties
A.The buyer decides which broker receives the commission
B.It is typically resolved through MLS or association arbitration, not by the DRE
C.The listing agreement automatically awards the full commission to the listing broker
D.The DRE issues a binding ruling on procuring cause
Show answerAnswer
B. It is typically resolved through MLS or association arbitration, not by the DRE
Procuring cause disputes between cooperating brokers are contractual matters typically resolved through arbitration procedures established by the Multiple Listing Service or local Realtor association, not through DRE licensing action, since the DRE does not adjudicate commission disputes between brokers.
10. Under Civil Code Section 2079, a listing agent's duty to conduct a 'reasonably competent and diligent visual inspection' of a residential property applies to which areas?
Practice of Real Estate and Disclosures
A.Only areas specifically requested by the buyer in writing
B.Only areas visible from the street
C.All areas of the property, including those not reasonably accessible such as the roof interior
D.Areas that are reasonably and normally accessible to the agent, excluding areas that are not reasonably accessible
Show answerAnswer
D. Areas that are reasonably and normally accessible to the agent, excluding areas that are not reasonably accessible
California Civil Code Section 2079 requires listing agents to conduct a visual inspection of areas that are reasonably and normally accessible, such as walking through rooms and visible spaces, but does not require entering inaccessible areas like attics, crawlspaces without access, or the roof.
11. A single woman purchases a condominium using only her own funds and takes title in her name alone, with no co-owners. This form of ownership is known as holding title in:
Property Ownership and Land Use Controls
A.Severalty
B.Community property
C.Tenancy in common
D.Joint tenancy
Show answerAnswer
A. Severalty
When one person owns property alone, without any co-owners, the ownership is described as 'in severalty,' meaning the title is severed from all others. The other options all involve two or more owners.
12. A housing complex wants to qualify for the 'housing for older persons' exemption from familial status discrimination claims under fair housing law. Which requirement must the complex satisfy?
Practice of Real Estate and Disclosures
A.Any complex may claim the exemption simply by advertising itself as 'adults only'
B.At least 80% of occupied units must have at least one occupant age 55 or older, and the complex must publish policies demonstrating intent to house older persons
C.At least 50% of units must house persons age 62 or older, with no additional documentation required
D.The complex must house only persons age 65 or older with absolutely no exceptions permitted
Show answerAnswer
B. At least 80% of occupied units must have at least one occupant age 55 or older, and the complex must publish policies demonstrating intent to house older persons
Under the Housing for Older Persons Act (HOPA), a '55 and older' community must have at least 80% of occupied units with at least one resident age 55 or older, and must publish and adhere to policies and procedures demonstrating an intent to operate as senior housing. Simply advertising as 'adults only' does not qualify for the exemption and would itself violate fair housing law.
13. A broker is representing both the buyer and seller in a sale of a single-family residence. According to California license law, when must the Agency Disclosure form be presented to the seller?
Practice of Real Estate and Disclosures
A.Before the seller signs the listing agreement
B.Only at the close of escrow
C.Only if the buyer requests it in writing
D.At the time the buyer's offer is accepted
Show answerAnswer
A. Before the seller signs the listing agreement
California Civil Code requires that an agency disclosure be provided to the seller before entering into a listing agreement, ensuring the seller understands the nature of the agency relationship from the outset.
14. An appraiser is calculating total accrued depreciation for a property using the cost approach. The reproduction cost new is $400,000. The appraiser identifies $40,000 in physical deterioration, $15,000 in functional obsolescence, and $10,000 in external obsolescence. What percentage of the reproduction cost new does the total accrued depreciation represent?
15. A developer wants to build a hospital in a zone that permits hospitals only with special governmental approval due to traffic and noise concerns. Which land use approval must the developer obtain?
Property Ownership and Land Use Controls
A.A zoning variance
B.A general plan amendment
C.A conditional use permit
D.A certificate of occupancy
Show answerAnswer
C. A conditional use permit
A conditional use permit (CUP) allows a use that is recognized as appropriate for a zone but only under specific conditions imposed by the local government to mitigate impacts like traffic or noise.
16. A salesperson working under a broker accepts a trust fund deposit from a buyer but fails to forward it to the broker within the time required by law. Who bears ultimate responsibility to the DRE for this violation?
Practice of Real Estate and Disclosures
A.The buyer, for choosing to work with an unsupervised salesperson
B.The escrow holder, since all funds should have been routed directly through escrow
C.The employing broker, who is responsible for supervising trust fund handling by licensees
D.The salesperson exclusively, since the broker had no direct knowledge of the transaction
Show answerAnswer
C. The employing broker, who is responsible for supervising trust fund handling by licensees
California law places ultimate responsibility for trust fund handling on the employing broker, who must supervise all licensees acting under their license, including proper and timely handling of trust funds received by salespersons.
17. Under the California Tenant Protection Act of 2019 (AB 1482), a landlord wants to raise the rent on a covered unit currently at $1,800 per month. The regional CPI increase is 3.5%. What is the maximum allowable new monthly rent?
Practice of Real Estate and Disclosures
A.$1,953
B.$1,890
C.$2,000
D.$1,980
Show answerAnswer
A. $1,953
AB 1482 caps annual rent increases at the lesser of 5% plus the local CPI, or 10% total. Here, 5% + 3.5% CPI = 8.5%. 8.5% of $1,800 = $153, so the maximum new rent is $1,800 + $153 = $1,953.
18. In a California deed of trust, which party holds bare legal title to the property solely for the purpose of reconveying it or conducting a foreclosure sale if the borrower defaults?
Financing
A.Beneficiary
B.Trustee
C.Mortgagee
D.Trustor
Show answerAnswer
B. Trustee
In a deed of trust, the trustor (borrower) conveys bare legal title to a neutral third party, the trustee, who holds it as security for the beneficiary (lender) and can reconvey it or sell it at foreclosure.
19. A Notice of Default is recorded against a borrower's property on March 1. Under California law, up until what point may the borrower reinstate the loan by curing the default and stopping the foreclosure sale?
Financing
A.Up until 5 business days before the scheduled trustee's sale
B.Any time before the Notice of Default is recorded
C.There is no right to reinstate once a Notice of Default is recorded
D.Up until the day the Notice of Sale is recorded
Show answerAnswer
A. Up until 5 business days before the scheduled trustee's sale
Under California Civil Code Section 2924c, a borrower has the right to reinstate the loan by curing the default, plus fees and costs, at any time up until 5 business days before the scheduled trustee's sale date.
20. A buyer and seller sign a purchase agreement that includes a liquidated damages clause limiting the seller's recovery, upon buyer default, to the buyer's deposit. If the deposit is $15,000 on a $600,000 purchase price, what is the liquidated damages amount as a percentage of the purchase price?
Contracts
A.5%
B.1.5%
C.3%
D.2.5%
Show answerAnswer
D. 2.5%
Divide the deposit by the purchase price: $15,000 ÷ $600,000 = 0.025, or 2.5%. California law caps liquidated damages on a residential purchase at 3% of the purchase price unless additional requirements are met, so this 2.5% clause is valid.
21. Under Civil Code Section 2079.17, when must the agency relationship(s) involved in a residential real property transaction be confirmed in writing?
Laws of Agency and Fiduciary Duties
A.Within three days after close of escrow
B.Only when dual agency exists
C.Only if requested by either party after close of escrow
D.In the contract to purchase and sell, or in a separate writing, before or coincident with the execution of that contract
Show answerAnswer
D. In the contract to purchase and sell, or in a separate writing, before or coincident with the execution of that contract
Civil Code Section 2079.17 requires that the agency relationship(s) be confirmed in writing in the contract itself or in a separate document, executed before or at the same time as the purchase contract, regardless of whether the transaction involves single or dual agency.
22. A broker's trust account records must be retained for inspection by the DRE for how many years after the closing of the transaction?
Practice of Real Estate and Disclosures
A.1 year
B.3 years
C.5 years
D.7 years
Show answerAnswer
B. 3 years
California law requires brokers to retain trust fund records, including transaction files, for a minimum of three years from the date of closing or the date of the listing if no transaction closes. This allows the DRE to audit trust account handling during that period.
24. A listing agreement states the agency relationship exists 'until the property is sold, or the listing period expires, whichever occurs first.' Escrow closes and title transfers to the buyer. What effect does this have on the listing broker's agency relationship with the seller?
Laws of Agency and Fiduciary Duties
A.The agency converts automatically into a property management agreement
B.The agency automatically terminates because its purpose has been fully accomplished
C.The agency continues indefinitely until formally terminated in writing
D.The agency continues until the broker is paid the full commission
Show answerAnswer
B. The agency automatically terminates because its purpose has been fully accomplished
An agency relationship terminates by operation of law once its purpose has been fully accomplished, such as the successful close of escrow on the sale of the property. No further written termination is needed because the agency's objective — completing the sale — has been achieved.
25. A broker holding client trust funds from a buyer's earnest money deposit fails to place the funds into a neutral escrow or trust account within the time required by law, instead holding the uncashed check in the office file for two weeks. Which fiduciary duty has the broker most directly violated?
Laws of Agency and Fiduciary Duties
A.The duty of full disclosure of material facts
B.The duty of confidentiality
C.The duty of loyalty
D.The duty to account for client funds
Show answerAnswer
D. The duty to account for client funds
California law requires that trust funds be deposited into a neutral escrow depository or the broker's trust account within three business days of receipt. Failing to timely deposit and properly track client funds constitutes a breach of the fiduciary duty to account, which requires careful handling and recordkeeping of all money and property belonging to clients.
An agent who makes an undisclosed profit at the principal's expense must disgorge that profit, as it violates the fiduciary duty of loyalty and full disclosure.
Applies when agent benefits secretly from a transaction
Principal can rescind the deal and recover the profit
A contract clause specifying that stated deadlines are material terms, requiring strict and timely performance; failure to meet them constitutes a material breach.
Makes deadlines legally binding and strictly enforced.
Missing such a deadline can allow the other party to cancel the contract.
Without this clause, courts may allow reasonable delays without automatic breach.
A method of acquiring title to another's land through open, hostile, continuous, exclusive possession for 5 years plus payment of all property taxes during that period.
5-year statutory period in California
Requires payment of property taxes each year (unique to CA)
Possession must be open, notorious, hostile, and exclusive
All real estate advertising by a salesperson, regardless of medium, must identify the responsible broker to avoid misleading consumers about licensure status.
Applies to print, digital, and social media ads
Salesperson cannot advertise as if independently in business
DRE Regulation 2770.1 governs advertising disclosure requirements
A class of projects identified by CEQA guidelines as having no significant effect on the environment, and therefore exempt from further environmental review.
Includes minor alterations to existing structures (Class 1)
No EIR or negative declaration required
Exemption doesn't apply if unusual circumstances create potential impact
A grant deed automatically implies that the grantor has not already conveyed the property to another and that it is free of grantor-created encumbrances not disclosed.
Grant deed is the most commonly used deed in California
Implied warranties exist even without express language
Does not guarantee against encumbrances created by prior owners
Under Civil Code 2079, a listing agent must conduct a reasonably competent and diligent visual inspection of reasonably accessible areas of a property and disclose material facts discovered.
Applies to residential 1-4 unit properties
Covers areas reasonably and normally accessible, not areas requiring special access
Agent must disclose material defects discovered during inspection
HOPA allows senior housing communities to be exempt from familial status discrimination claims if they meet specific occupancy percentage and policy requirements.
55+ communities: 80% of units must have one occupant 55 or older, plus published policies
62+ communities: 100% of units must be occupied by persons 62 or older
Simply calling a property 'adults only' does not meet the exemption and violates fair housing law
In California, agency relationships must be disclosed to a seller before the listing agreement is signed and to a buyer before signing the purchase agreement, per Civil Code 2079.14.
Applies to 1-4 unit residential transactions
Seller must receive disclosure before signing listing agreement
Buyer must receive disclosure before signing offer if not already given
The sum of all forms of depreciation (physical, functional, and external) subtracted from reproduction/replacement cost new to reach depreciated value.
California limits liquidated damages in residential purchase contracts to a maximum of 3% of the purchase price unless the buyer separately initials a higher amount meeting specific statutory conditions.
Cap applies to residential property of one to four units intended for buyer occupancy
Amount above 3% requires separate proof of actual damages
California law requires written confirmation of the agency relationship(s) in the purchase contract or a separate writing, executed at or before the contract's signing.
Applies to all residential transactions, not just dual agency.
Confirmation must be in or accompanying the purchase contract.
Distinct from the earlier listing-side agency disclosure requirement under 2079.14.
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