California Real Estate Broker Exam — All Questions

For purposes of California's agency disclosure statute, Civil Code section 2079.13 defines the 'agent' in a real property transaction as:

• a.The broker under whose license the listing is executed or the offer to purchase is obtained✓
• b.The individual salesperson who personally negotiated the terms of the transaction
• c.The escrow holder that receives the deposit and the parties' joint written instructions
• d.The multiple listing service through which the property was advertised to cooperating brokers

Civil Code section 2079.13(a) defines the agent as the person acting under the agency provisions of the Civil Code in a real property transaction, including the licensed real estate broker under whose license a listing is executed or an offer to purchase is obtained. The same subdivision makes the broker responsible for the salespersons and broker associates who perform as the broker's agents, so the salesperson is not the statutory agent even though the salesperson does the work. The escrow holder is a neutral depository, not the party's agent in this sense. The multiple listing service is a private cooperative advertising and compensation platform.

Which pair of duties does the Disclosure Regarding Real Estate Agency Relationships form say a seller's agent owes to the BUYER as well as to the seller?

• a.Honest and fair dealing in good faith, and disclosure of known material facts✓
• b.Utmost loyalty and obedience, and a duty to obtain the highest price the market will support
• c.Confidentiality about the client's motivation, and a duty to account for all funds received
• d.A duty to verify the accuracy of every public record, and a duty to advise on tax consequences

The statutory form in Civil Code section 2079.16 lists three obligations a seller's agent owes to buyer and seller alike: diligent exercise of reasonable skill and care, a duty of honest and fair dealing and good faith, and a duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to or within the diligent attention and observation of the parties. Utmost care, integrity, honesty and loyalty are owed to the principal only. Confidentiality likewise runs to the client. And the form expressly tells the parties to consult a competent professional for legal or tax advice.

A salesperson licensed to Broker A writes an offer for a buyer on a property listed by Broker B. Under Civil Code section 2079.13, the buyer's principal-agent relationship is with:

• a.The salesperson personally, with Broker A liable only if the broker had actual knowledge
• b.Broker A, with the salesperson owing the buyer the same duty the broker owes✓
• c.Broker B, because the listing broker controls the terms on which the property is offered
• d.Both Broker A and Broker B jointly, because both are compensated out of the same transaction

Section 2079.13(a) makes the broker the agent and states that when a salesperson or broker associate owes a duty to any principal, or to a buyer or seller who is not a principal, that duty is equivalent to the duty owed by the broker for whom the salesperson functions. So the buyer's agency runs to Broker A, and the salesperson's conduct binds Broker A. The salesperson is not independently the principal's agent. Broker B represents the seller. And section 2079.19 states that the payment or sharing of compensation is not necessarily determinative of an agency relationship, so a shared commission does not make both brokers the buyer's agents.

A California broker is authorized to conduct a series of transactions for a client, such as managing an apartment portfolio over time. This is best characterized as:

• a.A special agency, because each rental transaction is separately negotiated and separately paid
• b.A general agency, because the authority extends to a continuing series of acts for the principal✓
• c.A universal agency, because the broker may bind the principal in any matter whatsoever
• d.An ostensible agency, because the tenants deal with the broker rather than with the owner

A general agency gives the agent authority to act for the principal in a continuing series of transactions within a defined scope, which is what property management involves. A special agency is limited to one specific act or transaction, which is the usual characterization of an ordinary listing. A universal agency authorizes the agent to do anything the principal could lawfully delegate, which is far broader than managing property and is rare outside a general power of attorney. An ostensible agency arises when a principal's conduct causes a third party reasonably to believe someone is the agent, which is about appearances rather than the scope of actual authority.

A California broker represents both the buyer and the seller in one transaction. Under Civil Code section 2079.16 this is:

• a.Legal in commercial transactions and prohibited in residential transactions of any size
• b.Legal, but only with the knowledge and consent of both the seller and the buyer✓
• c.Prohibited outright, because the broker cannot owe undivided loyalty to opposing parties
• d.Legal without disclosure so long as the broker's compensation comes from one side only

The statutory disclosure form states that a real estate agent can legally be the agent of both the seller and the buyer in a transaction, but only with the knowledge and consent of both. California does not draw a residential-commercial line for the legality of dual agency itself. It is not prohibited outright; instead it is regulated through disclosure, confirmation and the confidentiality limits of section 2079.21. And Business and Professions Code section 10176(d) makes acting for more than one party without the knowledge or consent of all a ground for discipline, so proceeding silently is exactly what the law forbids.

Civil Code section 1624(a)(4) requires a writing for an agreement employing a broker to sell real estate for compensation. The practical consequence for a California broker is that:

• a.An oral listing becomes enforceable as soon as escrow opens on an accepted offer
• b.An oral listing is enforceable if two disinterested witnesses heard the seller make the promise
• c.An oral listing binds the seller once the broker has advertised the property to the public
• d.An oral listing generally cannot be enforced by the broker to collect the promised commission✓

The statute of frauds in Civil Code section 1624(a)(4) makes an agreement employing a broker to purchase or sell real estate for compensation invalid unless it, or a note or memorandum of it, is in writing and signed by the party to be charged. A broker who takes an oral listing therefore has no enforceable claim for the commission. Witnesses do not substitute for the signed writing the statute demands. Advertising is the broker's own performance and does not create the missing signature. And the opening of escrow is a step in the sale, not a cure for a commission agreement that was never reduced to writing.

Under Business and Professions Code section 10176(f), a California broker risks discipline for claiming a commission under an exclusive agreement that:

• a.Does not contain a definite, specified date of final and complete termination✓
• b.Provides for a commission rate higher than the local board's published schedule
• c.Allows the seller to cancel the listing at any time on written notice to the broker
• d.Names more than one cooperating broker as an authorized subagent of the seller

Section 10176(f) lists as a ground for discipline the claiming, demanding or receiving of a fee under any exclusive agreement authorizing the licensee to perform acts requiring a license where that agreement does not contain a definite, specified date of final and complete termination. There is no lawful board commission schedule to exceed; section 10147.5 requires the printed notice that compensation is not fixed by law and is negotiable. A cancellation right is a negotiated term, not a violation. And authorizing cooperating brokers is ordinary practice under a multiple listing arrangement.

Since Civil Code section 1670.50 took effect on 1 January 2025, a California buyer's agent must execute a written buyer-broker representation agreement with the buyer:

• a.At any time before the broker submits a claim for compensation to the listing broker
• b.Within three business days after the buyer's offer has been accepted by the seller
• c.Before the close of escrow, provided the buyer signs an acknowledgment at closing
• d.As soon as practicable, and no later than the execution of the buyer's offer to purchase✓

Civil Code section 1670.50(a), added by AB 2992, requires the buyer-broker representation agreement to be executed between the buyer's agent and the buyer as soon as practicable but no later than the execution of the buyer's offer to purchase real property. Commissioner's Regulation 2906.2 adds a rebuttable presumption that it is practicable to obtain the signed agreement before the agent shows the buyer a property in person or virtually. Waiting until after acceptance, until closing, or until a compensation claim is made all fall outside the statutory deadline, and an agreement made in violation of the section's limits is void and unenforceable.

Under Civil Code section 1670.50, a buyer-broker representation agreement with an individual buyer may not last longer than:

• a.Six months from the date the buyer first views a property with the agent in person
• b.Twelve months from the date the agreement was made, unless the parties agree otherwise
• c.Three months from the date the agreement was made, and it cannot renew automatically✓
• d.Ninety days from the close of escrow on the buyer's most recent completed purchase

Section 1670.50(d)(1) limits a buyer-broker representation agreement to three months from the date it was made, and paragraph (2) forbids automatic renewal and requires any renewal to be in writing, dated and signed by all parties, with the renewal itself limited to three months. Regulation 2906.1 defines the three months as 90 calendar days beginning the day after the last party signs. The three-month cap does not apply where the buyer is a corporation, limited liability company or partnership. An agreement that violates these limits is void and unenforceable under paragraph (3).

Which listing gives the seller the right to sell the property personally without owing a commission, while still obligating the seller to pay if any broker produces the buyer?

• a.An exclusive agency listing✓
• b.An exclusive right to sell listing
• c.A net listing with an open term
• d.An option listing with a fixed price

Under an exclusive agency listing the seller appoints one broker as the exclusive agent but reserves the right to sell to a buyer the seller finds without paying a commission; if any broker produces the buyer, the listing broker is paid. An exclusive right to sell listing entitles the broker to a commission no matter who produces the buyer, including the seller. A net listing fixes the seller's net proceeds and lets the broker keep the excess, which California permits only with strict disclosure of the amount of the broker's profit. An option listing combines a listing with the broker's own right to buy and triggers the disclosure duty in section 10176(h).

A California listing broker learns that a prospective buyer would pay far more than the offer already on the table. The broker's duty to the seller requires the broker to:

• a.Disclose it only if the buyer who made the pending offer consents to the disclosure
• b.Withhold it until the pending offer is either accepted or rejected by the seller
• c.Communicate that material information to the seller, because it affects the seller's decision✓
• d.Present it to the escrow holder so the information reaches both parties at the same time

The agent's fiduciary duty of full disclosure requires the broker to give the principal every material fact bearing on the transaction, and information about what the market will pay is squarely within that duty. Delaying the news until the pending offer is resolved substitutes the broker's judgment for the seller's on a matter the seller is entitled to decide. The other buyer's consent is irrelevant, since the duty is owed to the seller, not to a prospective buyer. And routing information through escrow is not a substitute for reporting to the principal, because the escrow holder is a neutral depository rather than the seller's agent.

Under Business and Professions Code section 10176(g), a broker who takes an undisclosed profit on a client's transaction has committed:

• a.A civil matter only, outside the Commissioner's disciplinary jurisdiction
• b.A permissible markup, provided the client received the price stated in the listing
• c.A violation of the Subdivided Lands Law rather than of the Real Estate Law
• d.The taking of a secret profit, a ground for suspension or revocation of the license✓

Section 10176(g) makes it a ground for discipline for a licensee to claim or take any secret or undisclosed amount of compensation, commission or profit, or to fail to reveal the full amount of the licensee's compensation to the buyer or seller before or at the time the parties reach agreement. Getting the listed price does not cure the concealment, because the client is entitled to know what the agent is making. The Subdivided Lands Law governs the sale of subdivision interests and is a different statute. And section 10176 is precisely a grant of disciplinary jurisdiction, so the conduct is not a private matter alone.

Civil Code section 2079.2 measures a California broker's standard of care by:

• a.The degree of care an experienced structural engineer would exercise in the same circumstances
• b.The degree of care a reasonably prudent real estate licensee would exercise on the facts✓
• c.The standards published by the trade association to which the broker's office belongs
• d.The subjective good faith of the individual broker, judged by the broker's own experience

Section 2079.2 fixes the standard as the degree of care that a reasonably prudent real estate licensee would exercise, measured by the degree of knowledge through education, experience and examination required to obtain a California real estate license. That standard is objective and it is a licensee standard. A broker is not held to an engineer's expertise, which is why the statute contemplates recommending appropriate professionals. Trade association standards may bind members privately but do not set the statutory duty. And a purely subjective good-faith test would defeat the objective measure the statute adopts.

A broker holding a client's earnest money deposit owes the client which fiduciary duty most directly?

• a.The duty of obedience to the principal's lawful instructions about marketing
• b.The duty to account for all money and property received on the principal's behalf✓
• c.The duty of confidentiality about the principal's motivation for selling
• d.The duty of loyalty to prefer the principal's interest over the agent's own

The duty to account is the fiduciary obligation to keep and render an accurate accounting of all money and property entrusted to the agent, and it is the duty the trust fund rules in Business and Professions Code section 10145 and the Commissioner's Regulations put into operational form. Obedience concerns following lawful instructions about how the work is done. Confidentiality protects information the principal shares. Loyalty forbids self-dealing. All four are genuine fiduciary duties, but handling client money is the accounting duty, and a failure there is the most common route to trust fund discipline.

A seller instructs the listing broker not to show the property to buyers of a particular national origin. The broker must:

• a.Follow the instruction and note the seller's reason in the transaction file for the record
• b.Follow the instruction, because the duty of obedience is owed to the principal without exception
• c.Refuse the instruction, because the duty of obedience covers lawful ones only✓
• d.Withdraw from the listing without explanation and take no other step in the matter

The fiduciary duty of obedience covers lawful instructions only. An instruction to screen buyers by national origin would require the broker to violate the Fair Employment and Housing Act and the Unruh Civil Rights Act, and following it exposes the broker to discipline under Business and Professions Code section 10177 as well as civil liability. Documenting the reason in the file does not make compliance lawful; it creates evidence of a knowing violation. Simply walking away silently is also inadequate, because the broker should tell the seller the instruction cannot be followed and, if the seller persists, terminate the relationship.

Under Business and Professions Code section 10176(h), a broker who holds an option to purchase in a listing agreement must, before or when exercising the option:

• a.Give the client fifteen days' advance notice of the intent to exercise the option
• b.Deposit the option consideration with a neutral escrow selected by the client
• c.Obtain an independent appraisal from a state-certified residential appraiser
• d.Reveal in writing the full amount of the profit and obtain written consent✓

Section 10176(h) allows a licensee to hold an option to purchase inside an agreement authorizing the licensee to sell, buy or exchange for compensation only if, before or coincident with electing to exercise the option, the licensee reveals in writing to the buyer or seller the full amount of the licensee's profit and obtains that party's written consent approving the amount. The statute demands disclosure and consent about profit, not an escrow deposit. It requires no independent appraisal. And it sets no fixed advance notice period; the trigger is the election to exercise.

Under Civil Code section 2079.14 as amended by AB 2992, the seller's agent must provide the statutory agency disclosure form to the seller:

• a.Before entering into the listing agreement with the seller✓
• b.Within three days after the listing agreement has been signed
• c.At the time the first written offer is presented to the seller
• d.Before the seller signs the escrow instructions at closing

Section 2079.14(a)(1) requires the seller's agent to provide the disclosure form to the seller before entering into the listing agreement, so the seller understands the representation choice before committing to it. Delivery after signing defeats that purpose. Presentation of the first offer is far too late, since by then the agency has already been formed and the seller has relied on it. And escrow instructions are signed after the contract exists, which is later still. Section 2079.14(b) also requires the agent to obtain a signed acknowledgment of receipt.

A California buyer writes an offer without the agent's help and hands it to the buyer's agent. If the agency disclosure form has not yet been given, section 2079.14 requires the buyer's agent to present it:

• a.No later than five calendar days before the scheduled close of escrow
• b.No later than three business days after the seller accepts the offer to purchase
• c.No later than the next business day after receiving the offer from the buyer✓
• d.No later than the date the buyer's loan application is submitted to the lender

Section 2079.14(a)(2) requires the buyer's agent to provide the disclosure form as soon as practicable before execution of a buyer-broker representation agreement and execution of the buyer's offer, and adds that if the offer to purchase was not prepared by the buyer's agent, the agent must present the form to the buyer not later than the next business day after receiving the offer from the buyer. The other periods belong to different statutes: three and five day windows appear in the Transfer Disclosure Statement termination right, and loan application timing drives the mortgage loan disclosure statement in Business and Professions Code section 10240.

Civil Code section 2079.17 requires the agency relationship to be confirmed:

• a.In the multiple listing service data sheet published to cooperating brokers
• b.By the escrow holder in the closing statement delivered to both parties after recording
• c.Orally at the time the offer is presented, with a note of the disclosure in the broker's file
• d.In the contract to purchase and sell, or in a separate writing signed by the parties✓

Section 2079.17 requires the buyer's agent and the seller's agent each to disclose as soon as practicable whether they act for one party or as a dual agent, and requires that relationship to be confirmed in the contract to purchase and sell real property, or in a separate writing executed or acknowledged by the parties, prior to or coincident with execution of the contract. The statute prints the exact confirmation format, including the license numbers of the brokerage firm and the individual licensee. A closing statement comes far too late, an oral confirmation is not what the statute allows, and a listing service data sheet is not a document the parties sign.

Under Civil Code section 2079.21, which item is 'confidential information' that a dual agent may not reveal without express permission?

• a.That the property lies inside a mapped earthquake fault zone
• b.That the roof has an active leak the seller repaired temporarily
• c.That the seller would accept a price lower than the listing price✓
• d.That a prior escrow fell through when the buyer's loan was denied

Section 2079.21(c) defines confidential information as facts relating to the client's financial position, motivations, bargaining position or other personal information that may impact price, and it names the seller's willingness to accept less than the listing price and the buyer's willingness to pay more than the price offered as the examples. An active roof leak and a mapped fault zone are material facts about the property, which the agent has an affirmative duty to disclose rather than protect. A failed prior escrow may also be material to a buyer's evaluation, and section 2079.21(d) preserves all other disclosure duties.

Under Civil Code section 2079.19, the fact that the seller pays the buyer's agent's compensation means that:

• a.The buyer's agent automatically becomes a dual agent requiring both parties' consent
• b.The buyer's agent automatically becomes a subagent of the seller in the transaction
• c.The source of compensation is not necessarily determinative of the agency relationship✓
• d.The buyer's agent must refund the compensation and collect only from the buyer

Section 2079.19 states that the payment of compensation, or the obligation to pay it, is not necessarily determinative of a particular agency relationship, and that an agreement to share a commission is likewise not determinative. The statutory disclosure form makes the same point, telling buyers that an agent acting only for the buyer is not the seller's agent even if by agreement the agent is paid in whole or in part by the seller. Compensation therefore does not create subagency or dual agency on its own, and there is no rule requiring the buyer's agent to refuse or refund seller-sourced compensation.

A broker gives the buyer the agency disclosure form but never obtains a signed acknowledgment of receipt. Under Civil Code section 2079.14 the broker has:

• a.Failed to complete a step the statute expressly requires of the agent providing the form✓
• b.Complied fully, because the statute requires only delivery and not any acknowledgment
• c.Complied, provided the broker made a written note of the delivery in the transaction file
• d.Complied, because the acknowledgment obligation falls on the escrow holder at closing

Section 2079.14(b) states that the agent providing the disclosure form shall obtain a signed acknowledgment of receipt from the buyer or seller, subject only to the narrow substitute procedure in section 2079.15 for a party who refuses to sign. Delivery alone is therefore not enough. A file note is good practice but it is not the signed acknowledgment the statute names. And the obligation is placed on the agent providing the form, not on the escrow holder, whose role begins after the agency relationships are already disclosed and confirmed.

Under Business and Professions Code section 10177(o), a licensee acting as agent for a buyer must disclose to that buyer:

• a.The commission split the licensee has negotiated with the cooperating brokerage firm
• b.The identity of every other buyer who has toured the property in the past thirty days
• c.The nature and extent of the licensee's direct or indirect ownership interest✓
• d.The name of the lender the licensee expects the buyer will ultimately choose

Section 10177(o) makes it a ground for discipline to fail to disclose to a buyer, in a transaction where the licensee is the buyer's agent, the nature and extent of the licensee's direct or indirect ownership interest in the property, and it expressly extends the duty to interests held by a person related to the licensee by blood or marriage, by an entity in which the licensee has an ownership interest, or by any other person with whom the licensee has a special relationship. The identities of other visitors, the internal commission split and the buyer's future lender are not the subject of this section.

A California licensee buying property for the licensee's own account from a member of the public must:

• a.Obtain the Commissioner's written approval before submitting a written offer
• b.Withdraw the license to inactive status for the duration of the negotiation
• c.Disclose in writing that the licensee is acting as a principal✓
• d.Route the transaction through another brokerage so that no disclosure is needed

California requires a licensee dealing as a principal to disclose that status, and the point of the rule is that the public should know when the person across the table holds a license and is acting for their own account rather than as an agent. Concealing it invites discipline under section 10176(i) or section 10177(j) as fraud or dishonest dealing. Placing a license on inactive status does not erase the licensee's knowledge or the duty of honest dealing. The Commissioner does not pre-approve individual offers. And routing the deal through a colleague conceals rather than cures the interest.

Business and Professions Code section 10177.6 requires a licensee who both acts as agent in a sale and arranges the financing for it to disclose those roles in writing:

• a.At the first anniversary of the loan, to the borrower and the loan servicer
• b.Within 10 days, to the buyer only, and to the lender if the lender requests it
• c.Before the close of escrow, to whichever party is paying the licensee's compensation
• d.Within 24 hours, to all parties to the sale and to any related loan transaction✓

Section 10177.6 provides that when an agent undertakes to arrange financing in connection with a sale, lease or exchange, or when a person arranging that financing undertakes to act as an agent, the agent or person shall within 24 hours make a written disclosure of those roles to all parties to the sale, lease or exchange and to any related loan transaction. The window is 24 hours, not ten days, and the audience is all parties rather than one of them. Waiting for closing or for a loan anniversary is far outside the statutory period.

Which event does NOT terminate a California listing agreement by operation of law?

• a.The death or incapacity of the seller who signed the listing agreement
• b.The listing broker's decision to reduce the advertising budget for the property✓
• c.The destruction of the improvements that were the subject of the listing
• d.The expiration of the definite termination date stated in the agreement

An agency terminates by expiration of its stated term, mutual agreement, revocation by the principal, renunciation by the agent, full performance of its purpose, destruction of the subject matter, or the death, incapacity or bankruptcy of either party. Cutting the advertising budget is a business decision about how the broker performs and could support a claim that the broker breached the duty of diligence, but it does not end the agency. Death or incapacity of the principal ends the personal relationship, destruction of the improvements destroys the subject matter, and the termination date is the parties' own limit.

A seller revokes an exclusive right to sell listing in bad faith one week before it expires, then sells to a buyer the broker had introduced. Under California law the seller:

• a.Has committed a misdemeanor under the Real Estate Law and may be fined by the Commissioner
• b.Has ended both the agency and any obligation, because a principal may always revoke
• c.May have ended the agency but can still be liable to the broker in damages for the breach✓
• d.Must reinstate the listing for an additional term equal to the time remaining when it was revoked

A principal generally retains the power to revoke an agency even when there is no right to do so, but exercising a power without the right is a breach of contract, and the broker's remedy is damages, commonly the commission the broker would have earned. So the agency ends while the liability remains. The Real Estate Law's criminal provisions reach licensees and unlicensed practice, not a seller who breaks a listing. And no California statute forces a seller to reinstate a revoked listing; the courts award money rather than order the relationship to continue.

An exclusive listing states no termination date. Under California law the practical effect for the broker is that:

• a.The Commissioner will set a reasonable termination date on the broker's written application
• b.The listing automatically converts into an open listing enforceable against all brokers
• c.The listing runs for one year by statute and then renews for successive one-year terms
• d.The broker risks discipline under section 10176(f) if a fee is claimed under the agreement✓

Business and Professions Code section 10176(f) makes claiming, demanding or receiving a fee under an exclusive agreement lacking a definite, specified date of final and complete termination a ground for suspension or revocation, so the missing date creates disciplinary exposure the moment the broker seeks payment. California provides no statutory conversion of a defective exclusive listing into an open listing. There is no statutory one-year default term with automatic renewals. And the Commissioner does not supply missing contract terms on application; the remedy is to write the agreement correctly.

Business and Professions Code section 10136 provides that a broker suing for a commission in a California court must allege and prove that the broker:

• a.Was a member in good standing of a local real estate trade association
• b.Was duly licensed at the time the alleged cause of action arose✓
• c.Had filed a copy of the listing agreement with the Department of Real Estate
• d.Had obtained the Commissioner's written consent to commence the litigation

Section 10136 bars a person acting as a broker or salesperson from bringing or maintaining an action in California courts for compensation without alleging and proving that the person was a duly licensed real estate broker or salesperson at the time the alleged cause of action arose. Licensure at the relevant time is therefore an element of the claim, not merely a defense. Trade association membership is voluntary and legally irrelevant. Listings are not filed with the Department. And no statute requires the Commissioner to authorize a broker's civil suit.

Under Business and Professions Code section 10137, a California salesperson may accept compensation for licensed activity from:

• a.The seller directly, if the listing agreement names the salesperson personally
• b.Either the listing broker or the cooperating broker, whichever holds the deposit
• c.The broker under whom the salesperson is licensed at the time✓
• d.The escrow holder, provided the escrow instructions authorize the disbursement

Section 10137 provides that no real estate salesperson shall accept compensation for activity requiring a real estate license from any person other than the broker under whom the salesperson is at the time licensed, and it forbids a broker from compensating an unlicensed person for licensed acts. Payment from a cooperating broker bypasses the salesperson's own responsible broker and violates the section, even though brokers may share commissions with each other. Direct payment by the seller and direct disbursement by escrow to the salesperson do the same thing. Licensees may agree to share compensation, but any payment must pass through the responsible broker.

Business and Professions Code section 10147.5 requires a printed statement in at least 10-point boldface, immediately before the compensation provision, telling the parties that:

• a.The compensation must be paid from escrow before any lien holder is paid
• b.The compensation has been reviewed and approved by the Real Estate Commissioner
• c.The compensation is deductible by the seller against the gain realized on the sale
• d.The amount or rate of compensation is not fixed by law and may be negotiable✓

Section 10147.5 requires a form agreement that establishes or alters a right to compensation for the sale or purchase of residential property of not more than four units, or of a mobilehome, to carry the notice that the amount or rate of real estate commissions is not fixed by law, that they are set by each broker individually, and that they may be negotiable between the parties, in at least 10-point boldface type immediately preceding the compensation provision. Amendments effective 1 January 2026 extended the buyer-side version of the notice. The Commissioner approves no commission, and the section says nothing about tax treatment or payment priority.

Civil Code section 2079 imposes on the listing broker and cooperating brokers a duty toward a prospective buyer of one-to-four residential units to:

• a.Verify the accuracy of every representation the seller makes on the disclosure form
• b.Obtain a structural pest control report and deliver it before the offer is written
• c.Warrant that the property is free of defects for two years after the close of escrow
• d.Conduct a reasonably competent and diligent visual inspection and disclose what it reveals✓

Section 2079 requires a broker or salesperson to conduct a reasonably competent and diligent visual inspection of residential property of one to four dwelling units, or a manufactured home, and to disclose to the prospective buyer all facts materially affecting value or desirability that the investigation would reveal. That is an inspection and disclosure duty, not a duty to procure a pest report, which is a negotiated term. The statute creates no warranty of condition. And it does not make the agent the guarantor of the seller's statements, though an agent who knows a statement is false cannot pass it along.

Under Civil Code section 2079.3, the visual inspection a California broker must perform does NOT extend to:

• a.Areas normally inaccessible, off-site areas, and public records or permits✓
• b.The interior living areas of the dwelling that the seller has made available for showing
• c.Visible water staining on a ceiling in a bedroom that the buyer toured with the agent
• d.An obviously sagging deck attached to the rear of the house and visible from the yard

Section 2079.3 limits the statutory inspection: it does not include areas reasonably and normally inaccessible to that type of inspection, an affirmative inspection of off-site areas, or an examination of public records or permits concerning title or use, and in a condominium, planned development or stock cooperative it extends no further than the unit offered for sale. Accessible interior areas, visible water staining and a visibly sagging deck are all within a reasonably competent visual inspection, and a broker who sees such conditions must disclose them.

Civil Code section 2079.4 provides that an action for breach of the broker's statutory inspection duty must be commenced no later than:

• a.Four years from the date the buyer discovers the undisclosed condition on the property
• b.Two years from the date of possession, meaning recordation, close of escrow or occupancy✓
• c.Ten years from substantial completion of the improvements, matching the construction defect period
• d.One year from the date the broker's license is renewed following the transaction

Section 2079.4 states that in no event shall the time for commencing a legal action for breach of the duty imposed by the article exceed two years from the date of possession, which the section defines as the date of recordation, the date of close of escrow or the date of occupancy, whichever occurs first. It is an outside limit measured from possession, not a discovery rule running four years. The ten-year period belongs to the latent construction defect statute of repose. And license renewal has no bearing on when a buyer's claim expires.