California Real Estate Salesperson — All Questions

A California broker must generally retain copies of listings, deposit receipts, and other transaction documents for at least:

• a.Ten years
• b.Six months
• c.Three years✓
• d.One year

California requires brokers to keep transaction records, including listings and trust fund records, for at least three years, and the DRE may inspect them. Proper recordkeeping supports audits and dispute resolution. The retention period runs from the closing or listing date.CA Business & Professions Code

A 'blind ad' that violates California license law is one that:

• a.Names only the general neighborhood instead of the property's exact street address
• b.Fails to disclose that the advertiser is a real estate licensee✓
• c.States the property's asking price
• d.Includes a photo of the home

A blind ad conceals that a licensee is behind the advertisement, misleading the public into thinking it is a private-party sale. California requires licensees to identify themselves as agents or brokers in their advertising. Team and DBA names must also be properly disclosed.CA Business & Professions Code

An 'as-is' clause in a California residential purchase contract:

• a.Eliminates all of the seller's disclosure duties
• b.Automatically waives the buyer's right to inspect and to cancel during the contingency period
• c.Voids the required transfer disclosure statement
• d.Does not relieve the seller and agent of the duty to disclose known material defects✓

Selling 'as-is' means the buyer accepts the property's current condition, but it does not excuse the seller or agent from disclosing known material defects. Required disclosures like the TDS still apply. The buyer retains the right to inspect.CA Civil Code

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

The three traditional approaches an appraiser uses to estimate value are the sales comparison, cost, and:

• a.Assessment approach
• b.Income approach✓
• c.Commission approach
• d.Listing approach

The three classic approaches are sales comparison, cost, and income. Each suits different property types, and the appraiser reconciles them into a final opinion of value. The income approach is central for investment property.

The final step in which an appraiser weighs the results of the different approaches to reach a single value opinion is called:

• a.Capitalization
• b.Reconciliation✓
• c.Simple averaging
• d.Amortization

Reconciliation is the appraiser's analysis of the strengths and reliability of each approach to form one supported value conclusion; it is not a simple average. The appraiser gives most weight to the approach best suited to the property. The result is the final opinion of value.

In the sales comparison approach, when a comparable property is superior to the subject, the appraiser:

• a.Ignores the difference entirely
• b.Adjusts the subject property upward
• c.Subtracts value from the comparable's sale price✓
• d.Adds value to the comparable's sale price

Adjustments are always made to the comparables, never the subject. If a comparable is superior, its price is adjusted downward to reflect what it would have sold for if it were like the subject; if inferior, the price is adjusted upward. This isolates the value of individual differences.

A comparable sold for $500,000 but has an extra bathroom worth $10,000, and it lacks a $5,000 fireplace the subject has. The adjusted value indication for the subject is:

• a.$505,000
• b.$495,000✓
• c.$485,000
• d.$515,000

Adjust the comparable to the subject: subtract $10,000 because the comparable's extra bath makes it superior, then add $5,000 because it lacks the subject's fireplace, giving $500,000 minus $10,000 plus $5,000, which equals $495,000. Superior features in the comp are subtracted; missing features are added. Adjustments are always made to the comparable.

Comparable rentals show homes selling at a monthly gross rent multiplier of 150. If the subject rents for $2,500 per month, its indicated value is:

• a.$375,000✓
• b.$300,000
• c.$350,000
• d.$416,667

Value equals the monthly GRM times monthly rent: 150 times $2,500 equals $375,000. The GRM is derived from comparable sales, price divided by monthly rent, and applied to the subject's rent. It is a quick screening tool, not a substitute for full analysis.

A rental home sold for $450,000 and rents for $3,000 per month. Its monthly gross rent multiplier is:

• a.12.5
• b.15
• c.180
• d.150✓

The monthly GRM equals price divided by monthly rent: $450,000 divided by $3,000 equals 150. If annual rent were used instead, the multiplier would be 12.5. Consistency in using monthly or annual figures is essential.

An office building generates $90,000 net operating income and is priced at $1,000,000. The capitalization rate is:

• a.7.5%
• b.11%
• c.10%
• d.9%✓

Cap rate equals net operating income divided by value: $90,000 divided by $1,000,000 equals 0.09, or 9 percent. The cap rate expresses the property's unleveraged annual return. Higher cap rates generally mean higher perceived risk or a lower price.

An investor requires a 10% capitalization rate on a property with $75,000 of net operating income. The most they should pay is:

• a.$750,000✓
• b.$825,000
• c.$700,000
• d.$675,000

Value equals NOI divided by cap rate: $75,000 divided by 0.10 equals $750,000. A higher required cap rate lowers the price the investor will pay for the same income. This is the core of the income capitalization approach.

Net operating income is calculated as effective gross income minus:

• a.The property's purchase price
• b.Only the annual property taxes
• c.Operating expenses plus the mortgage payment
• d.Operating expenses, but not mortgage debt service✓

NOI equals effective gross income less operating expenses such as taxes, insurance, management, and maintenance, but it excludes mortgage debt service and income taxes. Debt service is a financing cost, not an operating expense. NOI reflects the property's income before financing.

Effective gross income equals potential gross income minus:

• a.The annual mortgage payment
• b.Accrued depreciation on the building
• c.All operating expenses for the year
• d.Vacancy and collection losses, plus any other income✓

Effective gross income adjusts potential gross rental income for vacancy and collection losses and adds miscellaneous income like laundry or parking. Operating expenses are subtracted later to reach NOI. This staged calculation drives the income approach.

In the cost approach, indicated value equals land value plus:

• a.The outstanding mortgage balance
• b.The property's annual gross rent multiplied by the neighborhood's gross rent multiplier
• c.The current cost to build the improvements minus accrued depreciation✓
• d.The original purchase price of the home

The cost approach adds land value to the depreciated cost of the improvements, that is, reproduction or replacement cost new less accrued depreciation. It works best for new or special-purpose buildings. Land is valued separately, usually by sales comparison.

Land is worth $150,000, the improvements cost $400,000 new, and accrued depreciation is $50,000. The cost approach value is:

• a.$600,000
• b.$550,000
• c.$450,000
• d.$500,000✓

Value equals land plus depreciated improvement cost: $150,000 plus the quantity $400,000 minus $50,000, which equals $500,000. Depreciation is subtracted only from the improvements, never the land. Land is assumed not to depreciate.

Using straight-line (economic age-life) depreciation, a building costing $360,000 with a 40-year economic life depreciates each year by:

• a.$9,000✓
• b.$14,400
• c.$3,600
• d.$12,000

Straight-line annual depreciation equals cost divided by economic life: $360,000 divided by 40 equals $9,000 per year. After a set number of years, total depreciation is the annual amount times the number of years. Only improvements depreciate, not land.

A building costing $500,000 has a 50-year economic life. Using straight-line depreciation, its accrued depreciation after 10 years is:

• a.$100,000✓
• b.$150,000
• c.$50,000
• d.$10,000

Annual depreciation is $500,000 divided by 50, which is $10,000, so after 10 years accrued depreciation is $10,000 times 10, or $100,000. The remaining improvement value would be $400,000. Land value is handled separately.

The three categories of accrued depreciation analyzed in the cost approach are physical deterioration, functional obsolescence, and:

• a.External (economic) obsolescence✓
• b.Income capitalization
• c.Market appreciation
• d.Loan amortization

The three forms of depreciation are physical deterioration, functional obsolescence, and external or economic obsolescence. Physical and functional problems arise within the property, while external ones come from outside forces. Each is estimated and deducted in the cost approach.

Depreciation is considered 'curable' when:

• a.The defect arises from conditions in the surrounding neighborhood rather than the building
• b.The underlying land has lost value
• c.The item can never be repaired at all
• d.The cost to fix the item is less than or equal to the value it adds✓

Depreciation is curable when repairing the item adds at least as much value as it costs, making the fix economically justified. If repair costs exceed the value gained, the item is incurable. External obsolescence is generally incurable because the owner cannot control outside factors.

A formal appraisal used for most federally related mortgage loans must be performed by:

• a.The property's listing broker
• b.Any active real estate salesperson
• c.A state-licensed or certified appraiser✓
• d.The lender's own loan officer

Federally related transactions generally require a licensed or certified appraiser, whose work follows the Uniform Standards of Professional Appraisal Practice. A licensee's comparative market analysis is not a substitute for this appraisal. Appraiser licensing in California is overseen by the Bureau of Real Estate Appraisers.

The uniform ethical and performance standards that appraisers must follow are known as:

• a.USPAP, the Uniform Standards of Professional Appraisal Practice✓
• b.The Unruh Civil Rights Act, as administered by the Bureau of Real Estate Appraisers
• c.Regulation Z of TILA
• d.RESPA settlement rules

USPAP sets the recognized ethics and performance standards for appraisers, promoting consistency and public trust. Appraisers in federally related transactions must comply. It is developed by the Appraisal Standards Board.

In California, real estate appraisers are licensed and regulated by the:

• a.Appraisal Institute
• b.Bureau of Real Estate Appraisers✓
• c.Department of Real Estate
• d.Franchise Tax Board

California appraisers are licensed by the Bureau of Real Estate Appraisers, separate from the DRE that licenses salespersons and brokers. Appraisers must meet education, experience, and exam requirements and follow USPAP. The Appraisal Institute is a private professional organization, not a licensing agency.

The distinction among value, price, and cost is that value is:

• a.Always exactly equal to the price paid
• b.The figure the county assessor enters on the tax roll each year under Proposition 13
• c.The present worth of a property's future benefits to a typical buyer✓
• d.Always exactly equal to construction cost

Value is the present worth of future benefits and can differ from the price actually paid or the cost to construct. A buyer might overpay, with price above value, or a building might cost more than it adds. Appraisers seek market value, not merely price or cost.

The four characteristics that create value, often remembered as DUST, are demand, utility, scarcity, and:

• a.Taxation
• b.Tenancy
• c.Transferability✓
• d.Topography

Value requires demand, utility, scarcity, and transferability, abbreviated DUST; if any is missing, value is impaired. For example, a useful, scarce property with no legal way to transfer it lacks market value. All four must be present for market value to exist.

The principle of contribution holds that the value of an improvement is measured by:

• a.The county's assessed value
• b.How much it adds to the property's overall value, not its cost✓
• c.Its original construction cost
• d.The owner's emotional attachment to the improvement plus its replacement cost new

Contribution states that a component's value equals the amount it adds to the whole, which may be more or less than what it cost. A $50,000 pool might add only $20,000 of value. Investors use this principle to decide whether improvements pay off.

When additional improvements stop adding proportional value to a property, an owner has reached the point of:

• a.Plottage
• b.Increasing returns
• c.Progression
• d.Diminishing returns✓

The law of diminishing returns applies when added investment no longer produces a proportional increase in value; beyond this point extra improvements do not pay for themselves. Before that point, increasing returns apply. This guides how much to spend improving a property.

A neighborhood passing through growth, stability, decline, and revitalization illustrates the appraisal principle of:

• a.Anticipation
• b.Substitution
• c.Conformity
• d.Change✓

The principle of change recognizes that markets and neighborhoods are dynamic, moving through phases of growth, stability, decline, and renewal. Appraisers consider where a neighborhood stands in this cycle. Value reflects present conditions and expected trends.

If demand for homes rises sharply while supply stays fixed, prices will generally:

• a.Become fixed by law
• b.Fall
• c.Stay exactly the same
• d.Rise✓

Under supply and demand, increased demand against a limited supply pushes prices upward. Conversely, oversupply relative to demand pushes prices down. Real estate's fixed location and slow construction can intensify these swings.

A Mello-Roos assessment that may appear on a California property tax bill is used to:

• a.Insure the property against fire loss through the state's FAIR Plan insurance pool
• b.Cover the seller's mortgage balance
• c.Finance community infrastructure and services in a special district✓
• d.Pay the real estate sales commission

Mello-Roos special taxes fund infrastructure and public services such as schools, roads, and sewers within a Community Facilities District, often in newer developments. The obligation must be disclosed to buyers. It is separate from the base property tax under Proposition 13.CA Government Code

Under Proposition 13, a California property's assessed value generally cannot increase by more than what percent per year, absent a change of ownership or new construction?

• a.2%✓
• b.5%
• c.10%
• d.1%

Proposition 13 limits annual increases in a property's assessed value to a maximum of 2 percent unless there is a change of ownership or new construction, which triggers reassessment to current market value. The base tax rate is capped at 1 percent of assessed value. This keeps property taxes relatively predictable.CA Revenue and Taxation Code