California Real Estate Salesperson — All Questions

A financing contingency in a purchase agreement allows the buyer to:

• a.Occupy the home before closing rent-free
• b.Assume the seller's existing loan automatically
• c.Force the seller to lower the price
• d.Cancel and recover the deposit if they cannot obtain the specified loan✓

A financing contingency conditions the purchase on the buyer obtaining a stated loan, allowing cancellation with return of the deposit if financing fails within the contingency period. Contingencies must usually be removed in writing in California. Once removed, the buyer risks the deposit if they back out.

A liquidated damages clause in a California residential purchase contract generally limits the seller's damages on buyer default to:

• a.Double the total sales commission
• b.The full purchase price stated in the contract, reduced by whatever the seller obtains on resale
• c.Nothing, because such clauses are void
• d.The buyer's deposit, capped at 3% of the price for a dwelling of up to four units✓

A validly initialed liquidated damages clause lets the seller keep the buyer's deposit as the agreed measure of damages; for a one-to-four unit dwelling the buyer intends to occupy, the retained amount is capped at 3 percent of the price. Amounts above that are presumed unreasonable. Both parties must separately initial the clause.CA Civil Code

A buyer who sues to force a breaching seller to actually convey the unique property is seeking the remedy of:

• a.Liquidated damages
• b.Specific performance✓
• c.Rescission of the contract
• d.Novation of the parties

Specific performance compels a breaching party to complete the contract, and courts grant it for real estate because each parcel is considered unique. The buyer asks the court to order conveyance rather than accept money damages. It is an equitable remedy.CA Civil Code

The remedy that cancels a contract and returns both parties to their pre-contract positions is:

• a.Acceleration
• b.Assignment
• c.Rescission✓
• d.Ratification

Rescission unwinds a contract, restoring the parties to where they stood before, and may be based on fraud, mistake, or mutual agreement. Any consideration exchanged is generally returned. It differs from a suit for damages, which keeps the contract intact.CA Civil Code

Substituting a new party or a new contract for an existing one, with the original obligor released, is called:

• a.Subrogation
• b.Reconveyance
• c.Novation✓
• d.Assignment

Novation replaces a party or an obligation with a new one, releasing the original party from liability, and it requires the consent of all parties. In an assignment, by contrast, the original party often remains secondarily liable. Novation is common when a buyer formally assumes and replaces a seller's loan obligation.CA Civil Code

When a party transfers their rights under a contract to another but may remain secondarily liable, this is an:

• a.Reconveyance
• b.Novation
• c.Acceleration
• d.Assignment✓

An assignment transfers a party's contractual rights, and often duties, to another, but unlike novation it does not necessarily release the original party from liability. Many contracts permit assignment unless expressly prohibited. Personal-service and some financing contracts may restrict it.CA Civil Code

A 'time is of the essence' clause in a purchase contract means:

• a.Closing may occur anytime that year
• b.Either party may extend dates at will
• c.The contract has no real deadlines
• d.The stated deadlines are material and must be strictly met✓

A time-is-of-the-essence clause makes the contract's deadlines material, so failing to perform on time can be a breach. It signals that dates for contingencies, deposits, and closing must be honored. Courts enforce these timeframes strictly.CA Civil Code

The earnest money deposit a buyer submits with an offer primarily serves to:

• a.Cover the seller's moving expenses
• b.Replace the down payment entirely
• c.Pay the listing broker's commission directly
• d.Show the buyer's good faith and provide funds toward the purchase✓

Earnest money demonstrates the buyer's serious intent and is credited toward the down payment or closing costs at closing. It is typically held in a neutral escrow or trust account, not spent. If the buyer defaults, the seller may claim it under a liquidated damages clause.

Whether a built-in bookcase is a fixture that stays with the property is determined mainly by tests including method of attachment, adaptability, and:

• a.The original purchase price of the item
• b.The buyer's personal preference
• c.The intention of the party who installed it✓
• d.The color of the item

Courts judge fixtures by the method of annexation, adaptation to the property, and especially the intention of the person who installed the item, along with any agreement of the parties. A fixture is treated as part of the real property and normally transfers with it. Ambiguous items should be addressed in the contract.CA Civil Code

Items a commercial tenant installs to conduct business, which the tenant may remove before the lease ends, are:

• a.Trade fixtures✓
• b.Emblements
• c.Riparian rights
• d.Appurtenances

Trade fixtures are articles a business tenant attaches for their trade, and the tenant generally may remove them before the lease expires, repairing any damage. Unlike ordinary fixtures, they remain the tenant's personal property. Items left behind may become the landlord's by accession.CA Civil Code

California's Tenant Protection Act of 2019 generally imposes on many rental units both a cap on rent increases and:

• a.A total ban on any rent increases
• b.Relocation payments equal to three months' rent for every tenant who receives any notice
• c.Mandatory local rent control everywhere
• d.A just-cause requirement for evicting tenants after 12 months of occupancy✓

The Tenant Protection Act (AB 1482) caps annual rent increases, generally 5 percent plus inflation up to 10 percent, and requires just cause to evict tenants of 12 months or more for covered units. Certain newer construction and single-family homes with proper notice are exempt. It set a statewide baseline atop any stricter local rules.CA Civil Code

California's Costa-Hawkins Rental Housing Act limits local rent control by:

• a.Capping security deposits at one month
• b.Exempting most single-family homes and new construction and allowing vacancy decontrol✓
• c.Banning all forms of local rent control in cities that had no ordinance in place before 1995
• d.Requiring rent control in every city

Costa-Hawkins prevents cities from applying rent control to most single-family homes and condominiums and to units built after February 1995, and it permits vacancy decontrol, resetting rent to market when a tenant leaves. It sets outer limits on local ordinances. AB 1482 later added a statewide cap that operates differently.CA Civil Code

Under fair housing law, a qualified senior (55-and-older) housing community may lawfully:

• a.Refuse tenants based on their race
• b.Exclude applicants who have disabilities
• c.Limit occupancy by age, an exception to the familial-status protection✓
• d.Deny housing to applicants on the basis of their religion, ancestry, or national origin

Qualified senior housing communities may restrict residency by age under a specific exemption to the familial-status protection, provided they meet statutory requirements such as the 55-or-older occupancy standard. This does not permit discrimination on other protected bases like race or disability. The exemption is narrow and must be documented.Fair Housing Act

If an agent knowingly overstates a home's square footage in the MLS and the buyer relies on it, the agent may be liable for:

• a.A harmless good-faith estimate
• b.Negligent or intentional misrepresentation✓
• c.No liability of any kind
• d.Lawful and permissible puffing

Stating a specific, verifiable fact like square footage that is false and relied upon can be actionable misrepresentation, unlike vague opinion or puffing. Agents should cite the source of measurements or advise buyers to verify independently. Careless or knowing misstatements can lead to damages and discipline.CA Civil Code

In California, real estate commission rates are:

• a.Fully negotiable between the broker and the client✓
• b.Fixed by the local MLS board
• c.Mandated at 6 percent by statute
• d.Set by the Department of Real Estate

Commission rates are always negotiable between broker and client; no law or board may set or fix them, and agreements among competitors to do so violate antitrust law. The rate and any cooperating split are matters of private contract. Sellers should understand the fee is not standardized.CA Business & Professions Code

A licensee who buys a listed property for their own account must:

• a.Avoid using a neutral escrow
• b.Conceal their license status to negotiate a lower price
• c.Disclose in writing that they are a licensed agent acting as a principal✓
• d.Act as a dual agent for the seller and themselves

When a licensee purchases property for their own account, they must disclose their licensed status and that they are acting as a principal, because their knowledge and interest could affect the seller. Concealing the agent's role is dishonest dealing. Full disclosure protects the other party and the licensee.CA Business & Professions Code

A listing agent who receives multiple written offers on a property generally must:

• a.Present all offers to the seller unless instructed otherwise in writing✓
• b.Present only the offers produced by the listing agent's own buyer clients, to protect the fee
• c.Present only the single highest offer
• d.Reject low offers without telling the seller

The agent's duty to the seller requires presenting all bona fide written offers promptly so the seller can decide, unless the seller has directed otherwise in writing. Withholding offers can breach fiduciary duty and fair housing rules. The seller, not the agent, chooses which offer to accept.CA Civil Code

During the agent's required visual inspection, a water stain on a ceiling is a 'red flag' meaning the agent should:

• a.Disclose the observation and recommend further investigation of a possible leak✓
• b.Ignore it as merely cosmetic
• c.Assure the buyer that the stain is definitely old and that the roof was repaired years ago
• d.Repaint over it before showings

A red flag is a visible sign suggesting a possible defect; the agent must disclose what was observed and advise the buyer to investigate further, not diagnose or conceal it. A ceiling stain may indicate a roof or plumbing leak. Agents are not expected to inspect inaccessible areas.CA Civil Code

A real estate salesperson may work as an independent contractor for tax purposes, but for license-law supervision the broker:

• a.Remains responsible for supervising the salesperson's licensed activities✓
• b.Must instead reclassify the salesperson as a W-2 employee before any licensed activity
• c.Has no duty to supervise at all
• d.May disregard their trust-fund handling

Even when a salesperson is treated as an independent contractor for taxes, the broker must actively supervise their licensed activities and can be disciplined for failing to do so. The two frameworks, tax status and license-law supervision, operate separately. A written agreement should define the relationship.CA Business & Professions Code

A written buyer-representation agreement primarily:

• a.Guarantees the buyer's loan approval
• b.Establishes the broker as the buyer's agent and sets how the broker is compensated✓
• c.Waives the buyer's right to inspect
• d.Transfers equitable title in any property the buyer later purchases through that broker

A buyer-representation agreement creates an agency relationship in which the broker represents the buyer and defines the term, duties, and compensation. It clarifies whether the buyer or seller ultimately pays the buyer-broker's fee. Like listings, it should be in writing with a definite term.CA Civil Code