California Real Estate Salesperson — All Questions

An agent's fiduciary duties to a principal are often summarized by the acronym OLD CAR. The 'C' most directly stands for:

• a.Compensation
• b.Confidentiality✓
• c.Compliance
• d.Consideration

The fiduciary duties commonly memorized as OLD CAR are Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care. A real estate agent must keep the principal's confidences even after the transaction closes. These duties flow from the agency relationship established under California law.CA Civil Code

The California Transfer Disclosure Statement (TDS) is generally required in the sale of:

• a.One-to-four residential units✓
• b.All commercial buildings
• c.Vacant industrial land
• d.Newly constructed high-rises only

The TDS is mandated for transfers of residential property of one to four units, requiring the seller to disclose known material facts about the property's condition. Certain transfers, such as those between spouses or by court order, are exempt. The buyer receives a statutory right to cancel for a period after late delivery.CA Civil Code

California's agency disclosure law requires an agent in a residential one-to-four unit transaction to provide the 'Disclosure Regarding Real Estate Agency Relationships' and to confirm whom the agent represents. This confirmation must occur:

• a.Only at the close of escrow
• b.After the seller accepts the offer
• c.Only if the buyer requests it
• d.As soon as practicable, before the buyer signs the offer✓

The agency disclosure form must be provided and the agency relationship elected and confirmed before the principal signs the purchase agreement, as soon as practicable. This ensures buyers and sellers understand whether an agent represents the seller, the buyer, or both. Failure to disclose can expose the agent to discipline and liability.CA Civil Code

Which of the following is a protected class under the federal Fair Housing Act?

• a.Source of income
• b.Marital status
• c.Occupation
• d.Familial status✓

The federal Fair Housing Act protects race, color, religion, sex, national origin, disability, and familial status. Familial status protects households with children under 18 and pregnant persons. California's own fair housing laws add further protected categories such as marital status and source of income.Fair Housing Act

In California, real estate licenses are issued and regulated by the:

• a.Department of Real Estate✓
• b.Bureau of Consumer Financial Protection
• c.Federal Housing Administration
• d.National Association of Realtors

The California Department of Real Estate (DRE) licenses and regulates real estate salespersons and brokers under the Real Estate Law in the Business and Professions Code. The DRE is headed by the Real Estate Commissioner. The National Association of Realtors is a private trade association, not a licensing body.CA Business & Professions Code

The Unruh Civil Rights Act primarily prohibits discrimination by:

• a.Business establishments, including real estate licensees✓
• b.Only the federal government
• c.Private homeowners selling their own homes
• d.Lenders exclusively

The Unruh Civil Rights Act bars business establishments in California from discriminating against customers based on protected characteristics. Because real estate brokers operate businesses, they are covered. The Act broadly protects against arbitrary discrimination in the provision of goods and services.CA Civil Code

California's Rumford Fair Housing Act, also called the Holden Act's companion, chiefly prohibits discrimination in:

• a.Employment hiring only
• b.Automobile financing
• c.The sale and rental of housing✓
• d.Public school admissions

The Rumford Fair Housing Act prohibits discrimination in the sale, rental, and financing of housing based on protected characteristics. The related Holden Act specifically targets discriminatory mortgage lending, or redlining, by financial institutions. Together they strengthen California's fair housing protections beyond federal law.CA Government Code

When a single broker represents both the buyer and the seller in the same transaction, the arrangement is called:

• a.Single agency
• b.Dual agency✓
• c.Subagency
• d.Designated agency

Dual agency occurs when one broker represents both parties in the same transaction. In California it is legal only with the informed, written consent of both principals, and the agent owes limited fiduciary duties to each. The dual agent may not disclose one party's confidential price limits to the other.CA Civil Code

An agent who secretly buys the principal's property through a straw buyer to resell at a profit has most clearly breached the fiduciary duty of:

• a.Obedience
• b.Accounting
• c.Reasonable care
• d.Loyalty✓

The duty of loyalty requires the agent to place the principal's interests above the agent's own and to avoid undisclosed self-dealing. Secretly acquiring the principal's property for personal profit is a classic breach of loyalty. Such conduct can also lead to license discipline and rescission of the transaction.CA Civil Code

An agent tells a buyer, 'This is the best house on the block.' This statement is generally considered:

• a.A material fact requiring disclosure
• b.Illegal steering
• c.Non-actionable puffing✓
• d.Actionable misrepresentation

Puffing is a statement of opinion or exaggerated sales talk that a reasonable buyer would not treat as fact, so it is generally not actionable. Misrepresentation, by contrast, involves false statements of material fact. Agents should avoid stating opinions as verifiable facts to prevent liability.CA Civil Code

Directing prospective buyers toward or away from certain neighborhoods based on their race is the illegal practice of:

• a.Puffing
• b.Redlining
• c.Steering✓
• d.Blockbusting

Steering is guiding buyers toward or away from particular areas based on a protected characteristic such as race, limiting their housing choices. It violates the Fair Housing Act. Steering can be subtle, such as showing minority buyers homes only in certain neighborhoods.Fair Housing Act

Inducing homeowners to sell by warning that members of a protected class are moving into the neighborhood is the illegal practice of:

• a.Dual agency
• b.Redlining
• c.Steering
• d.Blockbusting✓

Blockbusting, also called panic selling, involves scaring owners into selling by suggesting that the entry of a protected group will lower values. It is prohibited under fair housing law. The practice exploits prejudice to generate listings and commissions.Fair Housing Act

A lender's refusal to make loans in certain geographic areas regardless of an applicant's qualifications is known as:

• a.Blockbusting
• b.Steering
• c.Redlining✓
• d.Novation

Redlining is the discriminatory denial of loans or insurance in specific neighborhoods, often based on the racial composition of the area. California's Holden Act specifically prohibits this practice by financial institutions. It illegally restricts access to credit and housing.CA Government Code

An agency relationship in real estate is most commonly created by:

• a.An express agreement such as a listing contract✓
• b.Estoppel only
• c.A recorded deed
• d.Adverse possession

Agency is usually created by an express agreement, such as a written listing or buyer-representation agreement, in which the principal authorizes the agent to act. It can also arise by implication, ratification, or estoppel. A written listing is required to enforce a claim for commission in California.CA Civil Code

A seller's agent who learns of a serious foundation defect must:

• a.Disclose the material fact to the buyer✓
• b.Ignore it because it favors the seller
• c.Keep it confidential for the seller
• d.Disclose it only to the seller

Even while representing the seller, an agent must disclose known material facts that affect the property's value or desirability to the buyer. Physical defects such as foundation problems are material and cannot be concealed. Concealing them can lead to liability and license discipline.CA Civil Code

A buyer's agent owes fiduciary duties primarily to the:

• a.Listing broker
• b.Seller
• c.Buyer✓
• d.Escrow company

A buyer's agent represents the buyer and owes that buyer the full fiduciary duties of loyalty, disclosure, confidentiality, and care. The agent must still deal honestly and fairly with the seller but does not owe the seller fiduciary loyalty. Agency confirmation forms make these relationships explicit.CA Civil Code

A fact that would affect a reasonable buyer's decision to purchase or the price they would pay is called a:

• a.Latent puff
• b.Fiduciary term
• c.Confidential fact
• d.Material fact✓

A material fact is any information that could influence a reasonable buyer's decision or the price offered. Agents and sellers must disclose known material facts affecting value or desirability. Failure to disclose material facts is a common basis for lawsuits and DRE discipline.CA Civil Code

Under California law, a death on the property that occurred more than three years before the offer generally:

• a.Voids the sale
• b.Need not be voluntarily disclosed based solely on the passage of time✓
• c.Must always be disclosed
• d.Requires a price reduction

California law provides that a death on real property occurring more than three years prior to an offer need not be disclosed based solely on that occurrence. However, an agent may not intentionally misrepresent the fact if directly and honestly asked. Deaths within three years are generally disclosable.CA Civil Code

A seller of residential property located in a state-designated flood or fire zone must provide the buyer a:

• a.Preliminary title report
• b.Mechanic's lien release
• c.Loan estimate
• d.Natural Hazard Disclosure Statement✓

The Natural Hazard Disclosure Statement informs buyers whether a property lies within designated hazard zones such as flood, fire, earthquake fault, or seismic areas. It is required in most residential one-to-four unit sales. This allows buyers to assess natural risks before completing the purchase.CA Civil Code

California's Megan's Law disclosure in a residential lease or purchase informs the party that:

• a.The property has lead paint
• b.Flood insurance is required
• c.A public database of registered sex offenders is available✓
• d.The seller has filed bankruptcy

Contracts for the sale or lease of one-to-four residential units must contain a statutory Megan's Law notice advising that information about registered sex offenders is available on a public website. The agent is not required to research or provide individual offender information. The notice simply directs parties to the public database.CA Civil Code

Federal law requires disclosure of known lead-based paint hazards for residential dwellings built before:

• a.1992
• b.1970
• c.1988
• d.1978✓

The federal Residential Lead-Based Paint Hazard Reduction Act requires sellers and landlords of housing built before 1978 to disclose known lead-based paint and provide an EPA pamphlet. Buyers generally receive a 10-day period to inspect for lead. The rule applies because lead paint was banned for residential use in 1978.CA Civil Code

To obtain a California real estate salesperson license, an applicant must, among other requirements, be at least:

• a.16 years old
• b.21 years old
• c.25 years old
• d.18 years old✓

An applicant for a California real estate salesperson license must be at least 18 years old, complete the required college-level courses, and pass the state exam. Applicants must also submit fingerprints for a background check. A salesperson must work under a licensed broker.CA Business & Professions Code

The primary legal distinction between a real estate salesperson and a broker in California is that a salesperson must:

• a.Be a member of a trade association
• b.Work under the supervision of a licensed broker✓
• c.Hold a college degree
• d.Carry errors and omissions insurance

A California salesperson may only conduct licensed real estate activity under the supervision and employment of a responsible broker. A broker may operate independently and supervise salespersons. Brokers face additional education and experience requirements to qualify for their license.CA Business & Professions Code

The California Real Estate Commissioner has the authority to:

• a.Issue building permits
• b.Suspend or revoke a real estate license✓
• c.Set property tax rates
• d.Approve local zoning

The Real Estate Commissioner enforces the Real Estate Law and may investigate complaints and suspend or revoke licenses for violations. The Commissioner also issues regulations and public reports. These powers protect the public from dishonest or incompetent licensees.CA Business & Professions Code

A broker who receives a buyer's earnest money deposit and, instead of depositing it, uses it for office expenses is guilty of:

• a.A permissible loan
• b.Lawful use of a commission advance
• c.Proper trust accounting
• d.Commingling and conversion of trust funds✓

Trust funds such as earnest money must be placed in a neutral escrow, a trust account, or delivered to the principal, and never mixed with the broker's own funds. Using client funds for personal or business expenses is commingling and conversion, a serious violation. The DRE strictly regulates trust fund handling.CA Business & Professions Code

Several competing brokerages agree to charge all clients the same commission rate. This agreement most likely violates:

• a.Antitrust law prohibiting price fixing✓
• b.Fair housing law
• c.RESPA disclosure rules
• d.The statute of frauds

Agreements among competitors to fix commission rates are illegal price fixing under antitrust law. Commission rates must be set independently and are always negotiable between broker and client. Violations can result in severe civil and criminal penalties.CA Business & Professions Code

The case of Easton v. Strassburger established that a listing agent has a duty to:

• a.Represent both parties
• b.Guarantee the roof
• c.Conduct a reasonably competent visual inspection of accessible areas✓
• d.Order a professional appraisal

Easton v. Strassburger held that a broker owes buyers a duty to conduct a reasonably competent and diligent visual inspection of accessible areas and disclose material defects found. California later codified this duty for residential one-to-four unit sales. The duty does not extend to inaccessible or hidden areas.CA Civil Code

An agency relationship can be terminated by all of the following EXCEPT:

• a.Death of the principal
• b.A buyer viewing the property✓
• c.Mutual agreement of the parties
• d.Expiration of the listing term

Agency terminates by completion of the purpose, expiration of the term, mutual agreement, revocation, renunciation, or death or incapacity of a party. A buyer merely viewing a property does not end an existing agency relationship. Termination rules protect both principals and agents.CA Civil Code

An advertisement stating 'perfect for a mature Christian couple, no children' most likely violates fair housing law because it:

• a.Omits the square footage
• b.Fails to state the price
• c.Expresses a preference based on protected classes✓
• d.Does not name the broker

Fair housing law prohibits advertising that indicates a preference, limitation, or discrimination based on protected classes such as religion and familial status. Referencing religion and excluding children signals illegal discrimination. Advertising must describe the property, not the desired occupants' protected traits.Fair Housing Act

Under California and federal law, a landlord must generally allow a tenant with a disability to:

• a.Occupy without a lease
• b.Skip paying rent
• c.Break the lease at any time
• d.Make reasonable modifications and keep a service animal despite a no-pets policy✓

Fair housing law requires landlords to permit reasonable accommodations and modifications for tenants with disabilities, including allowing service or assistance animals despite a no-pets rule. The tenant may be responsible for the cost of certain modifications. These protections ensure equal access to housing.CA Civil Code

How often must a California real estate licensee renew the license and complete continuing education?

• a.Every four years, with 45 hours of approved continuing education✓
• b.Every five years, with 60 hours of continuing education plus a new criminal background check
• c.Every two years, after finishing 30 classroom hours of continuing education approved by the Realtor association
• d.Every year, by retaking the state licensing examination

California salesperson and broker licenses run four years and require 45 clock hours of DRE-approved continuing education each renewal cycle. First renewals include specified mandatory subjects. The license is renewed through the DRE, not a trade association.

To qualify for a California broker license, an applicant relying on sales experience must generally have worked as a licensed salesperson for at least:

• a.Two years within the prior five years✓
• b.Five years continuously
• c.Three years within the previous ten years under at least two different brokers
• d.One year, plus membership in a local real estate trade association

A broker applicant must show at least two years of full-time licensed salesperson experience within the last five years, or qualifying equivalent experience or a degree with a real estate major. Applicants must also complete eight statutory college-level courses. The requirement ensures brokers have practical experience before supervising others.

A California real estate salesperson may lawfully perform licensed activities only while:

• a.Working for any brokerage chosen
• b.Employed by and under a licensed broker✓
• c.Holding a corporate broker license issued in the salesperson's own name
• d.Registered as an independent contractor directly with the Department of Real Estate

A salesperson's license authorizes real estate activity only under the employment and supervision of a responsible licensed broker. The broker and salesperson must have a written agreement. A salesperson may not accept compensation directly from anyone but the employing broker.

Under the Real Estate Law, a broker must retain copies of listings, deposit receipts, and trust records for at least:

• a.Three years✓
• b.One year
• c.Seven years, matching the federal income tax record retention period
• d.Five years from the end of the current license renewal cycle

Brokers must keep transaction and trust fund records for three years, and the DRE may inspect or audit them. The retention period generally runs from the closing or listing date. Failure to maintain records is grounds for discipline.

The California Consumer Recovery Account exists to:

• a.Guarantee a minimum commission to brokers whose clients cancel escrow
• b.Fund the Department of Real Estate's advertising and public outreach campaigns
• c.Pay certain victims of licensee fraud who cannot collect a judgment✓
• d.Reimburse licensees for their continuing education tuition and examination fees

The Consumer Recovery Account compensates members of the public who obtain a final judgment against a licensee for fraud or conversion of trust funds but cannot collect. Payouts are capped per transaction and per licensee, and the licensee's license is suspended until repayment. It is funded from a portion of license fees.

Before a real estate license is issued, every California applicant must submit:

• a.Fingerprints for a criminal background check✓
• b.A notarized statement of the applicant's net worth and financial condition
• c.Proof of errors and omissions insurance covering at least one million dollars
• d.Three broker letters of recommendation

All license applicants must submit fingerprints, usually through Live Scan, so the DRE can obtain a criminal history report. A record of certain crimes or prior discipline can bar licensure. This screening helps protect the public.

A licensee's advertising and solicitation materials that are the first point of contact with the public must include the:

• a.Broker's home address
• b.Name and license number of every other salesperson in the office
• c.License identification number✓
• d.Total dollar volume of transactions the licensee closed last year

California requires a licensee's license number on first-point-of-contact solicitation materials such as business cards and advertisements, so consumers can verify the license. So-called blind ads that hide the licensee's status are prohibited. Team advertising must also identify the responsible broker.

A 'blind advertisement' that violates California law is one that:

• a.Lists a property without stating the exact asking price and square footage
• b.Advertises the same property in more than one newspaper on the same day
• c.Fails to reveal that the advertiser is a licensed agent or broker✓
• d.Omits the property's natural hazard zone information from the listing text

A blind ad conceals that the person placing it is a real estate licensee, making it look like a for-sale-by-owner. California prohibits blind ads; advertising must disclose the licensee's status and license number. The rule prevents deception of the public.

A broker who collects an advance fee to market a client's property must, before using the materials:

• a.Obtain written approval from the local association of Realtors' ethics panel
• b.Submit the advance fee agreement and materials to the DRE✓
• c.Deposit the entire advance fee into the broker's general business operating account
• d.Record the advance fee agreement with the county recorder where the office is located

Advance fee arrangements, such as those to advertise property or a business opportunity, must be submitted to the DRE before use, and the funds are trust funds. This guards against advance-fee fraud. The broker must also account to the principal for the funds.

A restricted real estate license issued by the Commissioner is typically:

• a.Issued to out-of-state applicants who have not yet passed the California exam
• b.Granted with conditions after a disciplinary action✓
• c.A broker license limited to commercial and industrial property transactions
• d.A temporary license valid only during the ninety-day escrow of a single sale

A restricted license may be issued to a person whose license was revoked, suspended, or denied, allowing limited practice under conditions such as bonding or reporting. It can be suspended without a hearing if conditions are violated. It reflects the Commissioner's discretion to protect the public while permitting supervised activity.

Which activity, performed for others for compensation, requires a California real estate broker license?

• a.Appraising a single-family residence for a federally related mortgage loan
• b.Selling a manufactured home that is registered with the Department of Motor Vehicles
• c.Negotiating the sale of real property✓
• d.Working as a resident manager

Acts such as selling, soliciting, or negotiating the sale, lease, or exchange of real property for others for compensation require a license under Business and Professions Code section 10131. Resident apartment managers and appraisers are separately exempt or licensed. Knowing the licensed acts defines the scope of practice.

A broker who operates under a name other than the broker's own must:

• a.Register the name as a federal trademark before beginning any advertising
• b.File the trade name only with the Secretary of State's corporate division
• c.Obtain DRE approval to use the fictitious business name✓
• d.Use the name for at least one year before applying for a license endorsement

A broker using a fictitious business name must have it approved by the DRE and typically file a fictitious business name statement with the county. Salespersons may advertise under the broker's approved name. This lets the public trace advertising back to a responsible licensee.

A California corporation engaging in real estate brokerage must have at least one:

• a.Officer who is a licensed broker (the designated officer)✓
• b.Shareholder who passed the salesperson examination within the past year
• c.Employee who holds an active mortgage loan originator endorsement
• d.Board member who is a licensed appraiser certified by the state

A corporation acting as a real estate broker must designate a licensed broker officer responsible for its real estate activities and supervision. The corporation holds a broker license through this designated officer. That person is accountable for the licensed conduct of the firm.

The eight statutory college-level courses required for a California broker license are intended to:

• a.Substitute entirely for passing the state broker licensing examination
• b.Satisfy the continuing education requirement for the first two renewal cycles
• c.Replace the two years of practical experience the applicant would otherwise need
• d.Provide advanced education beyond the salesperson level✓

Broker applicants must complete eight statutory college-level courses covering subjects such as real estate practice, finance, appraisal, and legal aspects. These are in addition to, not a substitute for, experience and the state exam. The coursework prepares brokers for independent practice and supervision.

Grounds for discipline under Business and Professions Code section 10176 or 10177 include:

• a.Declining to join the local multiple listing service operated by Realtors
• b.Charging a commission higher than the local market average for the area
• c.Refusing to represent both the buyer and the seller in the same transaction
• d.Making a material misrepresentation to a client✓

The Real Estate Law authorizes discipline for dishonest dealing, misrepresentation, fraud, commingling, and other enumerated violations. Commission rates are negotiable, and refusing dual agency is not a violation. Sections 10176 and 10177 list many grounds for discipline.

If a licensee is convicted of a crime substantially related to the duties of a licensee, the DRE may:

• a.Raise the CE requirement
• b.Suspend or revoke the license✓
• c.Do nothing, because criminal matters are outside the DRE's authority
• d.Transfer the license to the licensee's employing broker for safekeeping

A conviction for a crime substantially related to the qualifications, functions, or duties of a licensee is grounds for suspension or revocation. The DRE weighs the nature of the crime and evidence of rehabilitation. This protects consumers from dishonest practitioners.

A broker must reconcile the trust account record of all beneficiary balances against the control record:

• a.Every four years
• b.Once every quarter, unless the account holds more than one million dollars
• c.At least once a month✓
• d.Only when a client specifically requests a written accounting

California brokers must reconcile trust fund records at least monthly, comparing the total of all beneficiary balances to the control record and bank balance. This detects shortages or errors early. The DRE examines these reconciliations during audits.

A broker may keep a limited amount of the broker's own funds in a trust account only to:

• a.Hold a cushion equal to ten percent of the largest deposit expected
• b.Earn interest for the broker on the average monthly account balance
• c.Provide a reserve to advance commissions to salespersons early
• d.Cover bank service charges, up to $200✓

A broker may keep up to $200 of personal funds in a trust account solely to pay service charges; more is unlawful commingling. Client funds and broker funds must otherwise be strictly separated. Exceeding the limit is a disciplinable offense.

Commingling occurs when a broker:

• a.Deposits a client's earnest money into a neutral escrow depository
• b.Delivers the buyer's deposit directly to the seller as instructed in writing
• c.Mixes client trust funds with the broker's own funds✓
• d.Keeps separate ledger cards for each beneficiary of the trust account

Commingling is improperly mixing client trust funds with the broker's personal or business funds, and it is prohibited even if no client loses money. Conversion, a further step, is using those funds for the broker's own purposes. Both are serious violations.

Interest earned on a client's trust funds held by a broker generally belongs to:

• a.The escrow company that processes the closing of the transaction
• b.The client, unless otherwise lawfully agreed✓
• c.The broker, as compensation for administering the trust account
• d.The Department of Real Estate's Consumer Recovery Account by default

Interest on trust funds belongs to the client or beneficiary of the funds, not the broker, unless the parties lawfully agree otherwise. A broker may not profit from client money. Special rules govern interest-bearing trust accounts set up for a principal's benefit.