Your FREE California Real Estate Practice Test 2026 – 180+ Q&A

Correct answer: Eminent domain

Eminent domain is the government's power to take private property for a public use, such as widening a road, while paying the owner just compensation, here the fair market value of the strip. Police power lets government regulate how property is used without paying for it or acquiring title, escheat passes property to the state when an owner dies without a will or heirs, and a special assessment is a charge levied on nearby owners to pay for a local improvement, so it collects money from owners instead of paying them.

Correct answer: Condemnation

Condemnation is the court proceeding through which a public agency exercises eminent domain, establishing the public use and fixing the just compensation owed for the property taken. Partition divides co-owned property or forces its sale, quiet title is an action that settles competing claims to ownership, and unlawful detainer is the summary eviction action a landlord brings to recover possession from a tenant.

Correct answer: Metes and bounds

Metes and bounds describes land by bearings (such as North 45 degrees East), distances and monuments like an iron pin or an oak tree, tracing the boundary until it closes at the point of beginning, exactly as the surveyor's calls do here. Lot and block identifies numbered lots on a recorded subdivision map, the rectangular survey system locates land by townships, ranges and sections measured from a principal meridian and base line, and the state plane coordinate system fixes points by grid coordinates rather than by a chain of bearings and distances.

Correct answer: Return to the point of beginning

A metes and bounds description is complete only when its courses and distances run all the way around the tract and return to the point of beginning, enclosing the parcel; a description that never closes leaves the boundary open. The step 'refer to the lot number of a recorded subdivision map' belongs to the lot and block method, 'name the governing principal meridian used by the survey' belongs to the rectangular survey system, and 'state the acreage enclosed by the survey lines' is not required, because the calls themselves, not a stated acreage figure, define the boundary.

Correct answer: 36 sections of about 640 acres each

A township is six miles square, so it holds 36 sections, each one mile square, or about 640 acres. '36 sections of about 160 acres each' gives each section the size of a quarter section (about 160 acres), '16 sections of about 640 acres each' confuses the 36 sections in a township with the 16 townships in a 24-mile check, and '16 sections of about 160 acres each' makes both errors.

Correct answer: They are the reference lines that townships and ranges are counted from

Principal meridians run north-south and base lines run east-west; they are the reference lines that townships and ranges are counted from, so townships are counted north or south of a base line and ranges east or west of a principal meridian. 'they are the lines that divide each township into sections numbered from one to thirty-six' describes section lines within a township, 'they are the correction lines that adjust township boundaries for the curvature of the earth' describes the guide meridians and standard parallels, and 'they are the lines that mark block and lot boundaries on tract maps' describes the lot and block system on subdivision maps, not the survey's master reference lines.

Correct answer: The right to exclude others from the land

The right to exclude others from the land is one of the traditional sticks in the bundle, along with the rights of possession, control, enjoyment and disposition. Private ownership is always subject to government powers, so there is no such thing as 'the right to use the land free of zoning' under the police power, 'the right to hold the land free of property taxes' under the taxing power, or 'the right to stop the government from taking the land' when eminent domain is exercised with just compensation.

Correct answer: The bundle of rights, under which the sticks can be conveyed separately

The bundle of rights, under which the sticks can be conveyed separately, explains the lease: ownership is a set of separable rights (possession, use, enjoyment, exclusion and disposition), so the owner can transfer possession to a tenant while keeping title and the other rights. The doctrine of merger, under which the lease ends when the tenant acquires the fee, describes the opposite effect, a lesser estate disappearing into a greater one; the unity of possession, under which the co-owners can be in possession of the whole, describes co-ownership rather than a lease; and the covenant of quiet enjoyment, under which the landlord may not disturb the tenant during the lease, describes a promise made within a lease, not the reason an owner can split possession from ownership.

Correct answer: Accretion

Accretion is the gradual buildup of land as moving water deposits soil, called alluvion, along the bank, and the new land belongs to the riparian owner. Erosion is the gradual loss of land to moving water, reliction is land uncovered when water permanently recedes, and avulsion is a sudden loss or shift of land, as when a flood cuts a new channel.

Correct answer: The owner generally owns the land out to the center line of the stream bed

Along a non-navigable stream, a bordering owner generally owns the bed out to its center line (the thread of the stream); the owner across the water holds the other half. In California, 'the owner generally owns the land out to the low-water mark of the stream' states the rule for land along a navigable lake or stream without a tide, 'the owner generally owns the land out to the ordinary high-water mark of the stream' states the rule for land bordering tidewater, and 'the owner generally owns the land out to the opposite bank of the stream bed' would give one bordering owner the whole bed.

Correct answer: Police power

Building codes, setback rules and zoning are exercises of the police power, the government's authority to regulate private property to protect public health, safety and welfare without paying compensation. Eminent domain takes property for a public use and requires just compensation, escheat passes property to the state when an owner dies without a will or heirs, and taxation raises public revenue.

Correct answer: Police power regulates use without compensation, while eminent domain takes property with compensation

The contrast is that police power regulates use without compensation, while eminent domain takes property with compensation: zoning, building codes and health and safety rules limit how owners use land without any payment, while a taking of ownership for public use requires just compensation, and neither power depends on the owner's consent. 'police power regulates use with compensation, while eminent domain takes property without compensation' attaches compensation to the wrong power, 'police power takes property without compensation, while eminent domain regulates use with compensation' swaps which power regulates and which one takes, and 'police power takes property with compensation, while eminent domain regulates use without compensation' makes both mistakes.

Correct answer: Easement in gross

A right to run power lines that benefits a utility company itself, with no dominant parcel, is an easement in gross; commercial easements in gross like this one can be transferred. An easement appurtenant needs a dominant tenement that it benefits and runs with that land, while a profit in gross or a profit appurtenant is a right to take something from the land, such as timber or minerals, rather than a right to use it for lines.

Correct answer: Easement by necessity

When a parcel is landlocked with no legal access to a public road, a court may recognize an easement by necessity, usually across land that was once under the same ownership as the landlocked parcel. An easement by prescription requires years of open, continuous and hostile use (five years in California), which the facts do not describe; an easement by estoppel arises only when an owner's words or conduct lead a neighbor to rely on a right of access, which the facts do not show; and an easement by condemnation is acquired by a public entity through eminent domain rather than granted to a private owner for access.

Correct answer: Deed restrictions

Recorded covenants, conditions and restrictions imposed by a developer are deed restrictions: private limits on use that bind every owner in the development and are enforced by the association or the other owners. Zoning ordinances and building codes are public controls adopted by government under the police power, and recorded easements give someone a right to use the land, such as a right of way, rather than limiting how the owner may use it.

Correct answer: Whichever of the two is more restrictive

An owner must comply with both a valid deed restriction and the zoning ordinance, so in practice whichever of the two is more restrictive controls the owner's use. The owner cannot follow 'whichever of the two is less restrictive', because the stricter rule still binds; 'the zoning ordinance, because public law overrides a private restriction' is wrong because zoning does not cancel a valid deed restriction, so a use the ordinance allows can still be barred by the restriction; and 'the deed restriction, because a private agreement overrides public law' is wrong because a private agreement cannot authorize a use the zoning ordinance prohibits.

Correct answer: Fee simple determinable

At common law, a grant to the city 'so long as' the land is used as a park, with ownership reverting to the grantor if that use stops, creates a fee simple determinable, which ends automatically when the park use stops. California has abolished the fee simple determinable: under Civil Code 885.020 such a grant is treated as a fee simple subject to a condition subsequent, and the grantor's possibility of reverter becomes a power of termination that the grantor must exercise. A fee simple absolute is wrong because it carries no condition that could end the city's estate, and a life estate pur autre vie and a legal life estate are both measured by a human life, not by how the land is used.

Correct answer: A reversionary interest

When a life estate ends and the property comes back to the grantor, the future interest the grantor kept is a reversion, or a reversionary interest. A remainder interest belongs to a third party named to take after the life estate, a springing executory interest is a third party's future interest that cuts short the grantor's estate, and a leasehold interest is a tenant's present right of possession for a term, not a grantor's future interest.

Correct answer: Lot and block, referring to the recorded tract map

Once the developer records the subdivision (tract) map, each lot can be described by its lot and block numbers, so the efficient method is 'lot and block, referring to the recorded tract map'. 'metes and bounds, referring to the monuments' requires a full run of courses for every lot, 'rectangular survey, referring to the township and section' works down from townships and sections and is unwieldy for small urban lots, and 'state plane coordinates, referring to the northings and eastings' is precise but cumbersome for routine lot deeds.

Correct answer: As a tenant in common, while the siblings remain joint tenants

A forced judicial sale of one joint tenant's interest breaks the unities of time and title for that share, so the buyer holds it as a tenant in common, while the siblings remain joint tenants: the buyer owns one-fourth with no right of survivorship, and the three remaining siblings still share all four unities as to their three-fourths. 'as a joint tenant in the farm, while the siblings also share survivorship with the buyer' is wrong because the buyer cannot step into the joint tenancy, 'as a tenant in common, while the siblings also become tenants in common' is wrong because the sale severs only the debtor's share, and 'as a tenant in severalty, while the siblings stop being joint tenants of the farm' is wrong because the buyer acquires only that one-fourth interest, not the whole farm.

Correct answer: The mortgage acts as a lien, so the joint tenancy stays intact

In a lien-theory state, the mortgage acts as a lien, so the joint tenancy stays intact: a mortgage on one joint tenant's interest transfers no title, so it does not break the unities or sever the joint tenancy, and once the lien is released survivorship continues as before. 'the mortgage acts as a deed, not a lien, so the joint tenants lose the parcel to the lender' is wrong because one joint tenant can encumber only his own interest, never his brother's, and a lien-theory mortgage passes no title at all; 'the mortgage acts as a title transfer, not a lien, so the joint tenants lose survivorship' describes the title-theory view, under which the mortgage conveys that brother's title and severs the tenancy; and 'the mortgage acts as a nullity, so the joint tenancy stays free of any such lien claim' is wrong because a joint tenant may encumber his own interest without the other's consent.

Correct answer: A newly executed deed from the couple that conveys title to the daughter as co-owner

Tenancy by the entirety can exist only between two spouses, so adding the daughter takes a newly executed deed from the couple that conveys title to the daughter as co-owner: both spouses sign it, and it places title in a form such as joint tenancy or tenancy in common that allows three owners. 'a revocable transfer-on-death deed from the couple that passes title to the daughter at death' gives the daughter nothing until both spouses die, 'a quitclaim deed from the daughter that releases her title to the couple' runs the wrong way and would only pass whatever interest she has to her parents, and 'a deed of trust from the couple that pledges title to the daughter as beneficiary' merely secures a loan, making the daughter a lender rather than an owner.

Correct answer: A partition action

Any co-owner, including a tenant in common, may bring a partition action, asking the court to divide the property physically or, when that is impractical, to order a sale and split the proceeds by each owner's share (here 50, 30 and 20 percent). A quiet title action settles competing claims to ownership, an ejectment action removes someone wrongfully in possession, and an unlawful detainer action evicts a tenant; none of them can force co-owners to divide or sell.

Correct answer: The paying owner may seek contribution from the other owner for half the expenses

Tenants in common share necessary carrying costs such as property taxes and needed repairs in proportion to their interests, so the paying owner may seek contribution from the other owner for half the expenses, a claim often settled in an accounting when the property is sold. 'the paying owner gains extra ownership, and the other owner loses some' is wrong because advancing money does not change the owners' equal shares, 'the paying owner absorbs the costs, and the sale proceeds are split evenly with the other owner' is wrong because the payer is not left to absorb the other owner's half, and 'the paying owner can claim the other half by adverse possession' is wrong because paying taxes does not let one co-tenant take the other's interest without ousting the other owner.

Correct answer: That the co-owners be legally married to each other

Tenancy by the entirety adds a fifth unity, marriage, to the four unities of a joint tenancy, so what sets it apart is the requirement that the co-owners be legally married to each other. 'that the co-owners acquire title at the same time' (unity of time), 'that the co-owners each be legally entitled to possess the whole' (unity of possession) and 'that the co-owners take title under the same deed' (unity of title) are required of an ordinary joint tenancy too, so none of them distinguishes the two forms.

Correct answer: Covenant of further assurance

The covenant of further assurance is the grantor's promise to sign and deliver any additional documents reasonably needed to perfect the grantee's title, such as a correction deed fixing an error in the legal description. The covenant of seisin promises that the grantor owns the estate conveyed, the covenant of quiet enjoyment promises that the grantee's possession will not be disturbed by someone with superior title, and the covenant of the right to convey promises that the grantor has the legal power to transfer the property.

Correct answer: An undisclosed mechanic's lien was recorded before the conveyance

The covenant against encumbrances promises that the property is free of liens, easements and similar burdens except those disclosed, so it is breached when an undisclosed mechanic's lien was recorded before the conveyance, leaving the property burdened at the moment of transfer. 'a stranger's superior title was asserted after the conveyance' describes a breach of the covenants of quiet enjoyment and warranty, 'a request to correct the legal description was refused after the conveyance' describes a breach of the covenant of further assurance, and 'an outsider's ownership was recorded before the conveyance' describes a breach of the covenant of seisin.

Correct answer: Ask for extended coverage or endorsements that insure over those exceptions

A standard owner's policy excepts off-record matters such as the rights of parties in possession and what a survey would show, so the buyer should ask for extended coverage or endorsements that insure over those exceptions; the insurer may remove or insure over some of them, usually after an inspection or a current survey and for an added premium. 'ask for a lender's policy, which insures the buyer over those exceptions' is wrong because a lender's policy protects only the lender, 'rely on a preliminary report or title search listing those exceptions' is wrong because a preliminary report or title search merely lists the exceptions and insures nothing, and 'rely on the implied warranties in the seller's grant deed that cover those exceptions' is wrong because the implied warranties in a California grant deed cover only the grantor's own acts.

Correct answer: Subrogation

Subrogation lets an insurer that has paid a covered loss step into the insured's position and pursue the party responsible for the title defect to recover what it paid. Indemnification is the insurer's payment to the insured for the loss itself, not its later claim against a third party; reconveyance releases a deed of trust once the loan is paid; and novation replaces an old obligation or party with a new one by agreement, rather than letting an insurer pursue the party at fault.

Correct answer: No, because the deed was never delivered with present intent to pass title

No. Title passes only when the grantor delivers the deed with a present intent to convey, and locking the signed deed away while keeping the choice to hand it over later shows the grantor kept control, so there was no delivery before death. Signing and acknowledging a deed does not transfer title by itself, and being named as grantee in a deed that was never delivered gives the grantee nothing. Recording is not the missing step: it gives public notice and protects priority, and an unrecorded deed that has been delivered is still valid between the parties.

Correct answer: Signature of a competent grantor on the deed

A deed is valid only if it is signed by a competent grantor, meaning one with the legal capacity to convey, along with a writing, a granting clause, a capable grantee, an adequate description and delivery. The grantee does not have to sign; acceptance is usually shown by conduct. In California, acknowledgment before a notary is needed to record a deed, not to make it valid between the parties, and a deed needs no stated price or payment, since a gift deed conveys title just as well.

Correct answer: Probate

Probate is the court-supervised process that proves the will, settles the estate's debts and claims, and then distributes the property, so the nephew's title is cleared through probate. A quiet title action resolves competing claims to land, partition divides land among co-owners, and a conservatorship is a court-supervised arrangement for managing the affairs of a living person who cannot manage them; none of these validates a will.

Correct answer: Escheat

Escheat is the doctrine under which property passes to the state when no owner or heir can be found, which covers both unclaimed bank accounts and the land of a person who dies without a will and without heirs. Reversion returns property to a grantor or the grantor's heirs when a limited estate ends, forfeiture is a loss of property imposed as a penalty, and dedication is an owner's voluntary gift of land to public use.

Correct answer: It can shorten the statutory period or strengthen her claim under color of title

Occupying under color of title, a written instrument that appears to convey the land but is defective, can shorten the required period in some states or strengthen her position, for example by extending her possession to the whole parcel the instrument describes; California requires five years of possession and payment of the property taxes in every case. Recording a defective deed does not give her full title at once. Color of title also leaves the elements in place: her possession must still be hostile to the true owner, and she must still physically occupy the land.

Correct answer: Because federal land held for public use is immune from adverse possession

The claim fails because federal land held for public use, such as a wildlife refuge, is immune from adverse possession, no matter how long or how openly it is occupied, so no longer period would help. Recording a deed is not an element of adverse possession. Open occupation is one of the required elements, because it puts the owner on notice; it does not defeat the claim.

Correct answer: A sale between a willing buyer and seller, free of undue pressure, after reasonable exposure

Market value assumes a sale between a willing buyer and a willing seller, both informed and neither under undue pressure, after the property has had reasonable exposure on the open market. A quick sale in which a seller under time pressure takes low offers describes a forced or liquidation sale. What one particular investor would pay given personal goals, taxes and financing is investment value, and what the current owner paid plus later improvements is historical cost, which can be far from what the market would pay today.

Correct answer: Sales price

The $315,000 the buyer actually paid is the sales price, the amount exchanged in this one transaction, which can differ from value. Market value is the appraiser's opinion of what a typical buyer would pay, here the $300,000 appraisal. Replacement cost is what it would cost today to build a structure of equal utility, and insurable value is the amount an insurer will cover, so neither is the amount paid.

Correct answer: Contribution

Contribution holds that a component is worth what it adds to the value of the whole property, not what it cost, so a $55,000 basement that raises the price buyers will pay by about $20,000 contributes only $20,000. Anticipation ties value to expected future benefits, conformity says value is highest when a home is similar to its neighbors, and substitution says a buyer will pay no more than the cost of an equally desirable alternative.

Correct answer: Regression and conformity

Regression and conformity explain the result: conformity holds that value is greatest when a property is reasonably similar to the homes around it, and regression is the loss of value a superior property suffers when it is surrounded by lesser ones. Progression is the opposite effect, in which a modest home gains value from grander neighbors, and contribution measures what one component adds. Substitution and plottage concern the price of an equally desirable alternative and the extra value created by combining parcels, while anticipation and change concern expected future benefits and the constant shifts in market forces.

Correct answer: Increase the comparable's price by the value of the feature

In the sales comparison approach, adjustments are made to the comparables, never to the subject, so a comparable that is inferior in a feature is adjusted upward: the appraiser increases the comparable's price by the value of the feature to show what it would have sold for with it. Deducting the feature's value from the comparable's price is the treatment for a comparable that is superior to the subject. The subject's value is the conclusion the adjusted comparables produce, so the appraiser neither adds the feature's value to it nor reduces it.

Correct answer: Give it little or no weight since it was not an arm's-length sale

A sale between a parent and an adult child is not an arm's-length transaction, so the appraiser should give it little or no weight, or exclude it, because a family discount does not show what the open market would pay. Relying on it heavily is wrong, since knowing the home well does not turn a family price into a market price. Averaging it with the other three sales and making no adjustment would drag the indication down, and making an adjustment for the home's size and condition leaves the below-market terms of the sale uncorrected.

Correct answer: Present it as a price opinion from comparable sales and not an appraised value

A comparative market analysis is a price opinion drawn from comparable sales, so the salesperson should present it that way and make clear that it is not an appraised value. Signing it as a certified appraisal so that lenders can rely on it, or charging an extra appraisal fee and certifying that it meets USPAP appraisal standards, would misrepresent it as a formal appraisal. No analysis lets a licensee guarantee that the seller will receive at least the recommended price.

Correct answer: It shows recent sales of similar homes to support a reasonable price

A comparative market analysis shows recent sales of similar homes, which gives the buyer evidence to support a reasonable price when deciding what to offer. It sets no legal limit on what price sellers may ask buyers to pay, and it does not replace the appraisal the lender requires before making the loan. Because markets shift and prices are negotiated, it cannot guarantee that the buyer will not pay more than the market value.

Correct answer: Cost approach

The cost approach suits a new, special-purpose building such as a public library, because it adds the land value to the cost of building the improvements, less any depreciation, and needs neither sales nor rents. The sales comparison approach needs sales of similar properties, which do not exist here. The gross rent multiplier method and the direct capitalization method both convert rental income into value, and a public library produces no rental income.

Correct answer: Land is permanent, so it does not physically wear out like a building

Land is permanent, so it does not physically wear out like a building, and in the cost approach only the improvements are depreciated while the land is added at its current market value. Land is not assumed to rise with inflation, and inflation does not offset depreciation in this method. The replacement cost of a building covers only the structure, not the site, and land is valued at what it is worth today rather than carried at its original price.

Correct answer: $1,200,000

Net operating income is the effective gross income of $150,000 less the $54,000 of operating expenses, or $96,000, and dividing $96,000 by the 8% capitalization rate, written as 0.08, gives $1,200,000. Capitalizing the full $150,000 of effective gross income without deducting the expenses gives $1,875,000, and capitalizing the $54,000 of expenses instead of the income gives $675,000. Multiplying the $96,000 of net operating income by 8 instead of dividing it by 0.08 gives $768,000.

Correct answer: Vacancy and credit losses and operating expenses

Net operating income is potential gross income less vacancy and credit losses, which gives effective gross income, less the operating expenses of running the property. Annual mortgage payments of principal and interest are debt service, which depends on how the owner financed the property rather than on the property itself, so they are not deducted. Depreciation claimed for federal income tax purposes and the income tax the owner pays on the operating profits are the owner's personal tax matters and do not belong in the appraiser's operating statement.

Correct answer: $240,000

Multiplying the monthly rent of $1,500 by the monthly gross rent multiplier of 160 gives $240,000. Applying the monthly multiplier to the annual rent of $18,000 gives $2,880,000, which is twelve times too high. Misreading the multiplier as 16 gives $24,000 on the monthly rent and $288,000 on the annual rent.

Correct answer: Small rentals have similar, predictable expenses, so rent tracks value

Small residential rentals tend to have similar, predictable expenses, so rent tracks value closely enough for a simple multiplier, while large commercial properties have expenses that vary widely and call for a full income capitalization analysis. Commercial properties are valued chiefly by capitalizing their income, not by the cost approach. A multiplier is applied to gross rent and deducts no operating costs at all, even for small rentals, and an annual gross income multiplier works on annual rent just as a monthly multiplier works on monthly rent.

Correct answer: Values rise, since income divided by a lower rate gives a higher value

Values rise: value equals net operating income divided by the capitalization rate, so the same income divided by a lower rate gives a higher value. A lower rate does not mean investors receive less income, because the income is unchanged and only the rate investors will accept has fallen. Values do not hold steady, because value responds to the rate as well as to the income, and multiplying income by the rate is the wrong formula, which is why it shows a lower value.

Correct answer: $1,200,000

Dividing the net operating income of $84,000 by the 7% capitalization rate, written as 0.07, gives $1,200,000. Multiplying the $84,000 by 7 instead of dividing it by 0.07 gives $588,000, dividing by 7 instead of 0.07 gives $12,000, and $1,000,000 is the value at an 8.4% rate, not the 7% investors require.

Correct answer: Legally permissible under current zoning rules

The first test of highest and best use is whether the use is legally permissible under current zoning rules and other legal limits such as building codes and deed restrictions, because a use the law forbids cannot be the highest and best use however profitable it might be. Financial feasibility and maximum productivity are later tests, applied only to uses that are legally permissible and physically possible. Highest and best use also need not be consistent with the existing use of the site, which for a vacant lot is no use at all.

Correct answer: The site as a vacant commercial lot, treating the house as worthless

When the land would be worth more vacant than the property is worth as improved, the highest and best use is the site as a vacant commercial lot, and the old house adds no value; it may even cost money to remove. Continued use as a single-family residence and conversion of the house into commercial offices both keep an improvement that holds the site below its potential. Whatever use the owner prefers, even where zoning allows it, does not decide highest and best use, which is the use that gives the property its greatest value.

Correct answer: Disclosure

In OLD CAR, the D stands for disclosure: the agent must tell the principal every material fact the agent learns that could affect the principal's decisions. The full list is obedience, loyalty, disclosure, confidentiality, accounting and reasonable care. Diligence is part of reasonable care, and discretion and documentation are not among the six duties, so none of them is the D.

Correct answer: Keep it confidential so buyers cannot use it to bargain the seller down

Loyalty requires the agent to put the seller's interests first, so the seller's urgency must be kept confidential; if buyers learned of it, they could use it to bargain the seller down. Sharing it with all interested buyers, posting it in the public listing remarks for buyers and their agents to see, or disclosing it once written offers are received would all hand buyers that leverage and breach the duty of loyalty.

Correct answer: Accounting

Accounting is the duty to safeguard all money and property entrusted to the agent and to account for it, which includes a full record of how the earnest money was received, held and disbursed. Loyalty means putting the principal's interests first and obedience means following the principal's lawful instructions, while fair dealing is the honesty and good faith a licensee owes to every party; none of them is the duty to account for entrusted funds.

Correct answer: Refuse it, because obedience covers lawful instructions, not illegal ones

The agent should refuse, because the duty of obedience covers the principal's lawful instructions, not illegal ones, and refusing to present offers because of the buyers' national origin would violate fair housing law. The seller bearing the blame would not excuse an agent who carried out an illegal instruction, and a written instruction protects no one; it only documents the violation. Obedience is also not limited to written instructions, so the form of the instruction is not the reason this one must be refused.

Correct answer: Dual agency

Dual agency is the arrangement in which one licensee represents both buyer and seller in the same transaction, and in California it requires the knowledge and consent of both parties, confirmed in writing, as here. Seller agency and buyer agency each represent only one side, and implied agency is an agency created by the parties' conduct rather than by agreement, so none of them describes one licensee representing both sides with written consent.

Correct answer: It keeps the broker from giving either party undivided loyalty

Dual agency is limiting because a broker who represents both sides cannot give either party undivided loyalty; anything that helps one side, such as revealing how high the buyer will go, would hurt the other. It does not require the broker to collect a double commission from one party, and it does not let the broker favor whichever party is paying a larger commission. A properly disclosed dual agency also does not let either party void the contract the broker negotiated.

Correct answer: It lets each salesperson advocate more fully for their client

Designated agency lets each salesperson advocate more fully for their client, because each one represents only one side, which avoids much of the loss of advocacy that comes with dual agency. It does not remove the need to give each party an agency disclosure, and the broker still has to supervise each salesperson and remains responsible for the transaction. No form of agency guarantees a higher sale price.

Correct answer: Net listing

In a net listing the seller names the amount they want to receive and the broker keeps anything above it, which pits the broker's pay against the seller's interest in the highest price; California allows it only if the broker reveals the full amount of the compensation before or when the purchase agreement is signed. An open listing pays only the broker who procures the buyer, an exclusive agency listing lets the owner sell without owing a commission, and an exclusive right-to-sell listing pays the broker no matter who finds the buyer.

Correct answer: A showing that produces no offer

A showing that produces no offer does not end a listing, because showing the property is the marketing the listing exists to provide. A listing is a personal service contract that ends early on the death of the seller or the broker, on destruction of the property, and by mutual agreement to cancel, as well as when its term expires.

Correct answer: The owner selling the home personally

An exclusive agency listing makes the listing broker the only broker entitled to a commission, but the owner selling the home personally owes that broker nothing. A cooperating broker who brings in the buyer works through the listing broker, so the owner still owes the listing broker, and if another broker the owner also hires makes the sale, the owner owes both, since only an open listing lets several brokers compete. The rule that no one but the broker may sell commission-free while the listing is in effect describes an exclusive right-to-sell listing, not an exclusive agency listing.

Correct answer: Under an exclusive right-to-sell listing, the broker is paid even if the owner sells

The difference is who can earn the commission: under an exclusive right-to-sell listing the broker is paid even if the owner sells the property, while an exclusive agency listing lets the owner sell without owing a commission. In California both kinds of listing must be in writing, and an exclusive listing must also state a definite termination date. Commission rates are negotiable under either kind, so the broker does not earn a higher rate under an exclusive agency listing, and hiring several brokers at the same time is the mark of an open listing.

Correct answer: The broker represents the buyer during the home purchase

A buyer agency agreement makes the broker the buyer's agent, so the broker represents the buyer during the home purchase and owes the buyer fiduciary duties while locating a property and negotiating its price. A broker who represents the seller while helping the buyer is acting as a seller's agent or subagent, not as a buyer's agent. The agreement creates the duties a broker owes the buyer rather than waiving them, and it does not make the seller's broker a subagent of the buyer.

Correct answer: The buyer pays the broker directly under the buyer agency agreement

The buyer agency agreement is a contract between the buyer and the broker, so when the seller will not pay a buyer-broker fee, the buyer pays the broker directly under that agreement. The broker need not waive the fee just because the seller will not pay it. The escrow holder pays only what the parties' escrow instructions authorize, so it cannot pay the broker fee out of the gross sale proceeds on its own, and a seller who never agreed to pay the buyer's broker cannot be made to pay simply because that broker procured the sale.

Correct answer: A good-faith deposit showing that the buyer seriously intends to perform the contract

Earnest money is a good-faith deposit the buyer puts up, usually with escrow or in the broker's trust account, to show a serious commitment to completing the purchase; it is normally credited to the buyer at closing. An impound (reserve) deposit is collected by a lender to pay property taxes and insurance, option consideration is paid to a seller to keep an offer open under an option, and a loan origination fee is the lender's charge for making the loan. None of these is a deposit backing the buyer's promise under a purchase contract.

Correct answer: The seller may claim the deposit to cover the actual damages the default caused

A buyer who defaults without a contingency to excuse performance is in breach, and the seller may look to the deposit to cover the damages that breach caused. Without a liquidated damages clause the seller must show actual damages instead of keeping a preset sum, but the missing clause does not by itself entitle the buyer to a refund. Rescission would unwind the contract and return both parties to where they began, which a non-breaching seller is not required to choose, and a listing broker has no right to take a buyer's deposit as a commission.

Correct answer: A condition that has to be met or waived before a duty to perform becomes binding

A contingency is a condition, such as loan approval or a satisfactory inspection, that must be met or waived before a party's duty to perform becomes binding. A promise that binds regardless of other events is a covenant, a sum agreed in advance as the measure of damages is a liquidated damages provision, and a clause that makes every deadline strict is a time-is-of-the-essence clause.

Correct answer: The buyer gets extra ways to cancel without penalty, making closing less certain

Each contingency is a condition the buyer can rely on to cancel without losing the deposit if it is not met, so an offer loaded with contingencies gives the buyer more exits and leaves the seller less sure the sale will close. An inspection contingency lets the buyer ask for repairs or cancel, but it does not bind the seller to make repairs; contingencies do not limit the seller's damages the way a liquidated damages clause does; and escrow opens on acceptance, with contingencies removed during the escrow period.

Correct answer: A liquidated damages clause

Fixing in advance what the seller recovers if the buyer defaults, here the earnest money as the seller's only remedy, is the job of a liquidated damages clause. In California residential sales it must be separately initialed by both parties and is presumed valid up to 3% of the price for a one-to-four unit home the buyer intends to occupy. A specific performance provision lets a party ask a court to compel the sale itself, an acceleration clause lets a lender demand the full loan balance on default, and an arbitration clause sends disputes to an arbitrator instead of a court; none of them sets the damages amount.

Correct answer: The clause fixes damages at the outset to spare the parties the cost of proving actual losses

A liquidated damages clause fixes the amount owed for a breach when the contract is signed, so the injured party is spared the cost and difficulty of proving actual losses and both sides know their exposure. In exchange, recovery is limited to that agreed sum even if real losses run higher. Compelling a buyer to complete the purchase is specific performance, a separate remedy, and the clause has no effect on the statute of frauds, which still requires a signed writing for a sale of real property.

Correct answer: Each parcel of land counts as unique, so money is an inadequate substitute for the property

Courts grant specific performance when money damages are an inadequate remedy, and the law regards every parcel of land as unique, so a buyer who is paid damages cannot simply buy an identical property elsewhere. Liquidated damages provisions are valid in California land sales when reasonable, the statute of frauds governs whether a land contract must be in writing and not how it is enforced, and title passes on delivery of a deed, not when the purchase contract is signed.

Correct answer: Specific performance

Asking a court to order the seller to deliver the deed and finish the sale is a request for specific performance, the equitable remedy that compels a party to do what the contract promised. Compensatory damages would pay the buyer money for the loss, rescission would cancel the contract and return both parties to where they started, and a quiet title action settles competing claims to property the plaintiff already says it owns; none of them forces the seller to convey.

Correct answer: To prevent fraudulent claims based on alleged oral agreements for the sale of land

The statute of frauds (in California, Civil Code section 1624) requires a contract to sell real property, or an interest in it, to be in a writing signed by the party to be charged, so that no one can gain or lose land through false testimony about a spoken deal. Giving constructive notice of a transfer is the job of recording, excluding earlier oral terms that contradict a final written contract is the parol evidence rule, and the deadline to sue for breach is set by the statute of limitations.

Correct answer: A month-to-month lease of a small apartment

California's statute of frauds (Civil Code section 1624) requires a signed writing for a lease longer than one year, for the sale of real property or an interest in it, and for an agreement employing a broker to buy or sell real estate for a commission. A month-to-month tenancy can be created orally because it runs for less than a year at a time. The two-year lease, the listing agreement, and the option to buy, which is an interest in the property, all need a signed writing to be enforceable.

Correct answer: To keep the offer to sell the property open and irrevocable for the option period

The optionor is the owner who grants the option. In return for the option consideration, the optionor must keep the offer to sell open and may not revoke it during the option period, while the optionee is free to buy or to let the option lapse. A first chance to match a later offer describes a right of first refusal, option money is ordinarily not refunded when the optionee declines to buy, and it is the optionee, not the optionor, who decides whether to purchase.

Correct answer: A purchase contract binds both parties, while an option lets the optionee choose whether to buy

A purchase contract is bilateral: the buyer promises to buy and the seller promises to sell, so both are bound. An option binds only the optionor, who must hold the offer open, while the optionee may buy or walk away. Both are contracts for an interest in land, so both must be in a signed writing; an option needs consideration to be binding; a purchase contract cannot be ended at will; and an option never obligates the optionee to buy.

Correct answer: The Civil Rights Act of 1968, which contains the Fair Housing Act

Title VIII of the Civil Rights Act of 1968, the Fair Housing Act, was the first federal law to bar discrimination in housing on the basis of race, color, religion, and national origin; disability and familial status followed in 1988. The Civil Rights Act of 1964 reached programs receiving federal money (Title VI) and employment, not private housing sales and rentals; the Housing and Community Development Act of 1974 amended the Fair Housing Act to add sex; and the Equal Credit Opportunity Act of 1974 governs lending decisions.

Correct answer: Disability and familial status

The Fair Housing Amendments Act of 1988 added two protected classes at once: disability (handicap) and familial status, which covers households with children under 18 and pregnant women. Sex had been added earlier, by the Housing and Community Development Act of 1974, and national origin was protected from the start in 1968, so any pairing that includes either of them is wrong. Sexual orientation and gender identity are protected under California's Fair Employment and Housing Act, but neither was added by the 1988 amendments.

Correct answer: Steering

The agent steered the buyer: the buyer asked for one subdivision and was shown only another area because of ethnic background, a protected characteristic, which limits housing choice on a prohibited basis. Blockbusting pressures owners to sell by stirring fear that a protected group is moving in, redlining is a lender's or insurer's refusal to serve an area, and disparate impact describes a neutral policy that falls harder on a protected group without any intent to discriminate, whereas this agent acted deliberately.

Correct answer: It depresses property values through fear, exploiting both departing owners and incoming buyers

Blockbusting, also called panic peddling, means telling owners that members of a protected class are moving in so they will sell quickly and cheaply; the licensee profits on the low purchase and again when the homes are resold, often at inflated prices, to incoming buyers. Cutting whole areas off from loans and insurance is redlining, channeling buyers toward areas by race is steering, and a neutral rule that harms a protected group without any intent to discriminate describes disparate impact.

Correct answer: Redlining

Refusing to insure every property in an area because of the national origin of the people who live there is redlining, which covers insurers as well as lenders that draw a line around a neighborhood and decline to serve it. Steering channels buyers toward or away from areas, blockbusting pressures owners to sell by stirring fear that a protected group is moving in, and puffing is vague sales exaggeration.

Correct answer: Federal antitrust law, which bars market allocation agreements among rival brokers

Competing brokerages that agree to split up an area so that each solicits listings only in its own zone are allocating markets, a per se violation of federal antitrust law (the Sherman Act) and of California's Cartwright Act. Fair housing law addresses discrimination such as steering, the Real Estate Settlement Procedures Act bars kickbacks and unearned referral fees among settlement service providers, and the Unruh Civil Rights Act bars business establishments from discriminating against customers; none of them addresses rival firms dividing territory.

Correct answer: Commingling and misusing client trust funds

Money in a trust account belongs to clients and may be used only for their transactions. Paying the brokerage's software bill from that account mixes client money with the firm's own obligations and puts it to the broker's use, which is commingling and misuse of trust funds. California lets a broker keep a small amount of personal money (up to $200) in the trust account only to cover bank service charges, not operating expenses; a false promise or misrepresentation concerns statements made to induce a deal, and splitting fees with an unlicensed person is a separate violation.

Correct answer: The consumer sold a home through that brokerage recently, creating an established business relationship

An established business relationship is a recognized exception to the National Do Not Call Registry: a firm may call a consumer for up to 18 months after the consumer's last purchase or transaction with it, or for 3 months after an inquiry, so a client who recently sold through the brokerage may be called. Calling a for-sale-by-owner seller to solicit a listing is still telemarketing, cell phone numbers can be placed on the registry, and calling within the permitted hours of 8 a.m. to 9 p.m. is a separate requirement that does not override a registration.

Correct answer: Advertising rules requiring the responsible broker's identity to be shown on the sign

A salesperson can act only through the employing broker, and advertising rules require the supervising broker or brokerage to be identified, so a sign showing only the agent's name and phone number misleads the public about who is responsible. The agency disclosure form is given to the parties during the transaction, not posted on signs; the equal housing opportunity logo is recommended but not required on every sign; and trust-account rules govern how client money is held.

Correct answer: It reflects the law letting disabled tenants make reasonable modifications, generally at their own expense

Under the Fair Housing Act a landlord must permit a tenant with a disability to make reasonable physical modifications, such as grab bars or a wider doorway, at the tenant's own expense, and in a rental the landlord may, where it is reasonable, condition permission on restoring the interior at move-out, though it ordinarily may not require a widened doorway to be narrowed again (24 CFR 100.203(c), Example 2). A private landlord is not required to pay for the modifications, the exemption for small owner-occupied buildings (the Mrs. Murphy exemption) is not what makes these terms lawful, and offering the tenant these terms is not steering.

Correct answer: Ideal for young Christian couples without children

Naming a preferred religion and signaling that families with children are unwelcome states a preference based on religion and familial status, both protected classes, which the Fair Housing Act forbids in advertising. Describing the property itself is lawful: HUD guidance treats terms such as master suite and family room as descriptions of rooms, notes that amenities such as a chapel or kosher meals do not by themselves state a religious preference, and allows ads to describe accessibility features and nearby landmarks such as a park or a senior center.

Correct answer: Calls may be made to the registered number for limited periods tied to recent past dealings

An established business relationship lets a firm call a consumer whose number is on the National Do Not Call Registry for a limited time: 18 months after the consumer's last purchase or transaction, or 3 months after an inquiry or application. The exception ends sooner if the consumer asks the firm not to call, and it has a time limit in any case. It does not waive the rule that prerecorded telemarketing calls need the consumer's prior written consent, and the 8 a.m. to 9 p.m. calling hours apply to every telemarketing call.

Correct answer: Price fixing in violation of antitrust law

When competing brokerages agree to charge a uniform commission rate, they are fixing prices, a per se violation of the Sherman Act and of California's Cartwright Act; each firm must set its rates on its own, which is why commissions are negotiable. A group boycott is an agreement among competitors to refuse to deal with someone, market allocation divides customers or territories, and predatory pricing is one firm cutting prices below cost to drive rivals out, which is the opposite of agreeing to raise them; none of those describes an agreement on the rate itself.

Correct answer: Recording the deposits and disbursements for each client in a separate reconciled trust ledger

California requires a broker to place trust funds in a trust account, keep a record of all trust funds plus a separate record for each beneficiary or transaction showing every deposit and disbursement, and reconcile those records each month, with client money kept apart from the broker's own. An interest-bearing account must be held by the broker as trustee for the client, not in the broker's own name; a broker may keep no more than $200 of personal money in the trust account, for bank charges, so a cushion for shortfalls is commingling; and posting client deposits to the firm's general ledger with operating income treats them as the firm's money.

Correct answer: Disability

Refusing to rent because the applicant uses a wheelchair is discrimination based on disability (the act's original term was handicap), which the Fair Housing Act has prohibited since the 1988 amendments; assuming a disabled tenant will be too much trouble is no defense. Familial status concerns households with children under 18, national origin concerns a person's ancestry or birthplace, and religion concerns faith, none of which is the basis for this refusal.

Correct answer: Blockbusting

Urging owners to sell now because people of a different background are moving in and values will fall is blockbusting, also called panic peddling: the licensee profits from fear about a protected group entering the neighborhood. Steering directs buyers toward or away from areas, redlining is a refusal by lenders or insurers to serve an area, and reverse redlining targets a protected group's neighborhoods with high-cost or predatory loans; none of them is a pitch to owners to sell out of fear.

Correct answer: Discriminatory ads under the fair housing laws and a breach of truthful-advertising rules

Saying an area is free of certain undesirable groups states a preference based on protected characteristics, which is discriminatory advertising under the Fair Housing Act and California's Fair Employment and Housing Act, and the coded, unsupported claims about the neighborhood also breach the rule that real estate advertising be truthful and not misleading. The post does not steer a particular buyer or call for an agency disclosure, it does not solicit owners to sell or involve telephone calls, and it is not harmless puffing; the Megan's Law database notice belongs in the purchase contract, not in advertising.

Correct answer: No, since the federal rule covers target housing built before 1978

The federal lead-based paint disclosure rule, adopted under the Residential Lead-Based Paint Hazard Reduction Act of 1992, applies only to target housing, meaning housing built before 1978, the year residential lead paint was banned. A house built in 1981 is not target housing, so no federal disclosure form or EPA pamphlet is required for this lease. The 1992 date is when the law was passed, not the construction cutoff; the presence of young children does not bring newer housing under the rule; and for pre-1978 housing the rule covers leases as well as sales.

Correct answer: The EPA lead hazard information pamphlet delivered to the buyer before the contract is binding

For housing built before 1978, federal rules require the seller, with the agents responsible for seeing that it is done, to give the buyer the EPA lead hazard information pamphlet, disclose any known lead-based paint and hazards with available records, offer a ten-day opportunity to test, and include a lead warning statement in the contract. The rule does not require the seller to commission an inspection or remove lead paint, so an inspection report and an abatement certificate are not required documents, and California's Natural Hazard Disclosure Statement covers flood, fire and seismic zones, not lead.

Correct answer: It is knowing nondisclosure, which can make the seller liable under the lead disclosure law

Sellers of pre-1978 housing must disclose any known lead-based paint or lead hazards in the housing being sold, not just in the living areas, and pass along available records. Signing a form that denies knowledge of paint the seller knows is there is a knowing violation, which can bring civil penalties and liability for three times the buyer's damages. The buyer's ten-day opportunity to test does not replace the seller's duty to disclose what is already known, and selling as is does not waive the federal disclosure requirement.

Correct answer: The agent has to reveal the hidden leak to the buyer whatever the seller has instructed

A licensee owes the buyer honesty and fair dealing and must disclose known material facts that affect the value or desirability of the property; a seller's instruction to hide a defect does not override that duty, and following it would expose the agent to liability for fraud or concealment. Loyalty and confidentiality to the seller never extend to concealing a known defect, the seller's Transfer Disclosure Statement does not relieve the agent of the agent's own duty, and California's visual-inspection rule sets the minimum the agent must check, not a limit on disclosing what the agent actually knows.

Correct answer: Amend the disclosure before the closing, promptly warning the buyer about the failed furnace

A seller's duty to disclose known material facts continues until closing, so a defect the seller learns of after delivering the disclosure should be reported, typically by an amended written disclosure, which in California gives the buyer a short window to cancel. A disclosure that was accurate when signed does not cover a later failure the seller now knows about, a home warranty does not substitute for telling the buyer, and the final walk-through is the buyer's check on condition, not a way for the seller to give notice.

Correct answer: A latent defect the seller was obliged to disclose

A latent defect is hidden and would not be found by an ordinary inspection; when the seller knows of it, as with termite damage the seller patched over, the seller must disclose it, and in California it belongs on the Transfer Disclosure Statement. A patent defect is one a buyer could see on a normal walkthrough, a title defect is a problem in the chain of ownership or the public record, and a construction defect is a builder's error in a new home; none describes concealed damage from a past infestation.

Correct answer: A badly sagging front porch that has wide cracks plainly visible from the street

A patent defect is open and apparent, so a buyer could find it with an ordinary look at the property; a porch with wide cracks and a sag visible from the street is plainly of that kind. Pipes sealed behind finished walls, a fuel tank buried under the yard, and mold in a crawlspace sealed since construction are all hidden from an ordinary inspection, which makes them latent defects.

Correct answer: Refer the buyer to the official state registry online to look up offenders nearby

California makes information on registered sex offenders available through the Department of Justice's Megan's Law website, and every residential sale or lease contract must include a notice telling the buyer about that database; giving the notice satisfies the seller's and the agents' duty, so the sound practice is to point the buyer to the official site. Discussing the registry does not violate fair housing law, the seller has no duty to research or list offenders, and an agent who searches and promises the results are complete takes on liability for information the agent cannot guarantee.

Correct answer: It makes information about registered sex offenders available to the public

The correct statement is that it makes information about registered sex offenders available to the public, and California residential sale and lease contracts must include a notice telling buyers and tenants how to reach that database. The statement that it requires sellers to disclose whether a home lies in a natural hazard zone describes the Natural Hazard Disclosure Statement. The statement that it lets community facilities districts levy special taxes to fund local services describes the Mello-Roos Community Facilities Act. The statement that it limits the duty to disclose deaths that occurred more than three years earlier describes a separate Civil Code rule on deaths that occurred on the property.

Correct answer: The natural decay of uranium in the ground beneath the foundation

Radon is a radioactive gas produced by the natural decay of uranium in the ground beneath the foundation, and it seeps in through cracks, joints and other openings in the slab or crawl space. The incomplete combustion of fuel in a poorly vented gas furnace produces carbon monoxide, the gradual release of formaldehyde from particleboard in cabinets is an off-gassing problem, and the slow escape of sewer gas through a dry drain trap in the basement causes odors, but none of these is a source of radon.

Correct answer: The radon is high enough to make a mitigation system advisable

A reading above the EPA action level of 4 pCi/L means the radon is high enough to make a mitigation system advisable, usually a vent pipe and fan that draw soil gas from beneath the slab. No law makes it true that the seller is legally required to remove the radon before escrow closes; who pays for mitigation is negotiated. Nor is it true that the radon violates state health codes, so the sale is void, because no code bars selling a home with high radon. The idea that the radon result from a short test is unreliable and can be ignored is also wrong: for a home sale, the EPA recommends fixing the home when short-term testing shows radon at or above the action level.

Correct answer: When it is disturbed so that its fibers reach the lungs

Asbestos does the most harm when it is disturbed so that its fibers reach the lungs: disturbance makes the fibers airborne, and once inhaled they can cause asbestosis, lung cancer and mesothelioma. The risk is far lower when it is handled so that its fibers touch the skin, because asbestos harms mainly through breathing, and lower when it is swallowed so that its fibers pass into the digestive tract, since swallowed fibers carry much less risk than inhaled ones. Harm does not come when it is heated so that its fibers give off toxic fumes into the air, because asbestos does not burn or give off gas.

Correct answer: Older structures built before it was largely phased out of use

Asbestos was common in insulation, floor tiles, roofing and textured ceilings, so it turns up most often in older structures built before it was largely phased out of use. Newer homes sealed tightly to meet energy efficiency standards were built after it had fallen out of common use, although they can trap other indoor pollutants. Structures near former gas stations with underground storage tanks face soil and groundwater contamination rather than asbestos, and homes located over soil and rock that contain natural uranium face a radon risk.

Correct answer: Leaks of petroleum or hazardous substances into soil and groundwater

Federal underground storage tank rules require leak detection, corrosion protection, spill and overfill controls and cleanup of releases, because the danger they target is leaks of petroleum or hazardous substances into soil and groundwater. Runoff of storm water or sediment from construction sites to streams is controlled through storm water permits under the Clean Water Act, emissions of soot and other pollutants from industrial smokestacks fall under the Clean Air Act, and disposal of hazardous waste at abandoned dumps that need federal cleanup is the subject of the Superfund law.

Correct answer: To find contamination before the sale and limit costly cleanup liability

An environmental site assessment is ordered to find contamination before the sale and limit costly cleanup liability, because the owner of a contaminated site can be held responsible for remediation even when an earlier owner caused the leak. It is not the tool used to verify the boundary lines and reveal any encroachments by adjacent owners, which is the job of a survey; to document the age and condition of the roof and the mechanical systems, which is a property condition inspection; or to secure a title policy and protect the buyer against undisclosed liens, which is handled by the title insurer.

Correct answer: A permit, because environmental law restricts changes to the wetland

An area that meets the definition of a wetland is regulated, so filling or dredging it generally requires a permit, because environmental law restricts changes to the wetland; under the federal Clean Water Act the usual approval is a Section 404 permit from the Army Corps of Engineers. A variance, because the wetland lies within a required property setback, is a zoning exception and does not authorize fill. A lot line adjustment, because the fill shifts the wetland property boundary, misreads the problem, since placing fill does not move a legal property line. A conservation easement, because state law requires the wetland to be preserved, is also wrong: no rule makes an owner grant one before working in a wetland, and the law controls wetland changes through permits rather than banning them outright.

Correct answer: An acceleration clause

An acceleration clause lets the lender, after a default such as missed payments, declare the whole unpaid balance due at once, which is what makes foreclosure for the full debt possible. A subordination clause lets a later loan take priority over this one; a power of sale clause lets the trustee sell the property without a court action after a default, but it does not by itself make the balance due; and an escalation clause allows the interest rate to be raised.

Correct answer: A due-on-sale clause

A due-on-sale clause, also called an alienation clause, is the acceleration provision that lets the lender call the entire balance due when the property is sold or transferred without its consent, so it usually prevents a buyer from taking over the loan. A lock-in clause bars paying the loan off early, an assumption clause does the opposite by allowing a qualified buyer to take over the loan, and an escalation clause lets the lender raise the interest rate.

Correct answer: Proration

Proration divides recurring costs such as property taxes, interest, insurance and association dues between buyer and seller as of the closing date, so each pays only for the days of ownership. Escrow is the neutral arrangement through which the closing is handled, reconveyance releases the lien of a paid-off deed of trust, and amortization spreads the repayment of a loan over its term.

Correct answer: As a debit to the seller and a credit to the buyer

Because the seller owned the property for part of the tax period but the buyer will pay the whole bill later, the seller's share is entered as a debit to the seller and a credit to the buyer. Entering it as a debit to the buyer and a credit to the seller reverses the flow and would make the buyer pay the seller's share twice. Entering it as a debit to both the buyer and the seller, or as a credit to both the buyer and the seller, would not move the seller's share to the buyer at all; a proration shifts money from one party to the other.

Correct answer: The annual percentage rate

The annual percentage rate, required by Regulation Z under the Truth in Lending Act, states the yearly cost of credit, meaning the interest plus certain fees such as points and origination charges, as one percentage, which is why it is the figure used to compare loans. The total interest percentage shows the total interest paid over the full term as a percentage of the loan amount and leaves out fees, while the finance charge and the prepaid finance charge are dollar amounts rather than yearly rates.

Correct answer: The Truth in Lending Act

The Truth in Lending Act, through Regulation Z, governs consumer-credit advertising: a stated rate must be given as an annual percentage rate, and a triggering term such as a payment amount, a number of payments or a down payment requires the ad to state the other key credit terms as well. The Truth in Savings Act sets similar advertising rules for deposit accounts, not loans; the Fair Housing Act bars discriminatory housing advertising but sets no credit-term disclosures; and the Fair Credit Reporting Act governs credit reports and how they may be used.

Correct answer: The Loan Estimate

The Loan Estimate must be delivered or mailed within three business days after the lender receives the application, setting out the projected loan terms, payments and closing costs so the borrower can compare offers. The Closing Disclosure is given at least three business days before consummation, the Good Faith Estimate is the older form it replaced for most loans in October 2015, and the closing statement is the final settlement accounting prepared at closing.

Correct answer: To ensure lenders do not hold excessive borrower funds in escrow

The Real Estate Settlement Procedures Act limits the escrow cushion to one-sixth of the estimated annual disbursements, about two months of payments, to ensure lenders do not hold excessive borrower funds in escrow. The limit runs against any purpose to ensure lenders hold a reserve large enough to absorb a tax increase; it caps the reserve instead. A rule to ensure lenders pay interest on impound account balances is a separate California requirement for certain home loans, and a rule to ensure lenders pay no kickbacks for settlement service referrals is the anti-kickback section of the act, not the escrow limit.

Correct answer: Consummation must wait for a new review period of three business days

When the annual percentage rate becomes inaccurate beyond tolerance after the initial Closing Disclosure, the lender must provide a corrected Closing Disclosure and consummation must wait for a new review period of three business days; the same applies when the loan product changes or a prepayment penalty is added. The rule that consummation may proceed once a corrected disclosure is handed over applies only to smaller changes. The idea that consummation may proceed, but the lender owes a refund of the increase confuses this rule with the cure for fees that exceed their tolerance limits. The idea that consummation must wait until a revised loan estimate is delivered is wrong because a revised Loan Estimate may not be issued after the Closing Disclosure has been provided.

Correct answer: As credits to the buyer

Items that reduce what the buyer must bring to closing, such as the new loan proceeds and the earnest money deposit already paid, are entered as credits to the buyer, while the price and the buyer's costs are debits. Listing them as debits to the buyer would raise the cash needed instead of lowering it. Neither entry belongs on the seller's side: the items do not appear as credits to the seller, since the seller is credited with the sales price, and they do not appear as debits to the seller, which are charges such as the commission and the payoff of the seller's loan.

Correct answer: Private mortgage insurance

Private mortgage insurance protects the lender on a conventional loan made with less than 20 percent down, and under the federal Homeowners Protection Act the borrower can ask to cancel it once the balance reaches 80 percent of the original value, with automatic termination at 78 percent. Credit life insurance pays off a debt if the borrower dies, homeowners hazard insurance covers damage to the property, and earthquake insurance is optional coverage; none of them ends when the borrower reaches a set level of equity.

Correct answer: It can generally be canceled on a conventional loan as equity grows, while government loan insurance sometimes lasts the full term

The accurate distinction is that it can generally be canceled on a conventional loan as equity grows, while government loan insurance sometimes lasts the full term: under the Homeowners Protection Act a borrower can ask to cancel private mortgage insurance at 80 percent of the original value, but FHA premiums on most loans made with less than 10 percent down run for the life of the loan. Saying it usually lasts for the life of a conventional loan, while government loan insurance ends once enough equity builds reverses the two. Saying it is usually paid for by the lender to protect the borrower, while government loan insurance is paid for by the borrower to protect the lender gets the roles backward, because the borrower normally pays for private mortgage insurance and the lender is the party protected. Saying it mainly protects the borrower against job loss, while government loan insurance protects the lender if the borrower defaults confuses it with payment protection coverage; both kinds of mortgage insurance protect the lender.

Correct answer: It is paid down until it reaches zero at the end of the term

On a fully amortized loan each level payment covers the interest due and retires some principal, so the balance is paid down until it reaches zero at the end of the term. If it is reduced until a balloon payment remains at the end of the term, the loan is only partially amortized; if it is left unchanged until the borrower repays it at the end of the term, it is an interest-only or straight loan; and if it is increased by unpaid interest at each payment until the end of the term, the loan has negative amortization.

Correct answer: 150 feet

Half an acre is 43,560 / 2 = 21,780 square feet, and width is area divided by depth: 21,780 / 145 = 150.2, or about 150 feet. Dividing the full acre by the depth, 43,560 / 145, gives about 300 feet; about 209 feet is the side of a square one-acre lot, which ignores the stated depth; and about 590 feet is the distance around the tract, 2 x (150 + 145), not its width.

Correct answer: 196,020 square feet

First total the acreage, 0.75 + 1.25 + 2.5 = 4.5 acres, then convert: 4.5 x 43,560 = 196,020 square feet. Leaving out the 0.75-acre parcel gives 3.75 acres, or 163,350 square feet; leaving out the 1.25-acre parcel gives 3.25 acres, or 141,570 square feet; and converting only the 4 whole acres while dropping the half acre gives 174,240 square feet.

Correct answer: $435,000

Add the floor areas first, 1,800 + 1,200 = 3,000 square feet, then apply the unit cost: 3,000 x $145 = $435,000. Pricing only the main floor, 1,800 x $145, gives $261,000; assuming the second story matches the main floor, 3,600 x $145, gives $522,000; and subtracting the floors instead of adding them, 600 x $145, gives $87,000.

Correct answer: $15,600

The total commission is $480,000 x 0.05 = $24,000. The listing broker keeps 35%, so the cooperating broker receives the other 65%: $24,000 x 0.65 = $15,600. Taking 35% instead gives $8,400, which is the listing broker's share. Reading the 35% as 3.5% of the price produces $16,800, which treats a share of the commission as a share of the price, and $24,000 is the whole commission before it is split.

Correct answer: $10,200

The salesperson's $7,140 is 70% of the total, so divide by 0.70: $7,140 / 0.70 = $10,200. Adding 30% to the share, $7,140 x 1.30, gives $9,282, and adding 70%, $7,140 x 1.70, gives $12,138; both apply a percentage to the share instead of dividing it out. Dividing by the brokerage's 30% instead of the salesperson's 70% uses the wrong base and gives $23,800.

Correct answer: $319,149

After a 6% commission the seller keeps 94% of the price, so divide the desired net by 0.94: $300,000 / 0.94 = $319,148.94, or about $319,149. Adding 6% to the net, $300,000 x 1.06 = $318,000, takes the commission on the net instead of on the price, and at that price the seller would net only $298,920. Treating 6% as 0.006 gives $300,000 / 0.994, or about $301,811. Taking 6% off the net instead, $300,000 x 0.94 = $282,000, moves the price the wrong way.

Correct answer: 88%

The loan is the price minus the down payment, $375,000 - $45,000 = $330,000, and the loan-to-value ratio is the loan divided by the value: $330,000 / $375,000 = 0.88, or 88%. Dividing the down payment by the price gives 12%, which is the down payment percentage, not the ratio of loan to value; dividing the down payment by the loan gives about 14%; and 90% would mean a down payment of only $37,500, or 10% of the price.

Correct answer: $335,000

Divide the loan by the loan-to-value ratio: $268,000 / 0.80 = $335,000. Adding 20% to the loan, $268,000 x 1.20, gives $321,600, which takes 20% of the loan rather than of the value. Finding the value and then adding the $67,000 down payment on top of it counts the down payment twice and gives $402,000. Multiplying the loan by 0.80 instead of dividing by it gives $214,400.

Correct answer: $5,760

A mill is one-thousandth of a dollar, so 18 mills is $0.018 per dollar of assessed value: $320,000 x 0.018 = $5,760. Treating 18 mills as 0.18 gives $57,600, ten times too much; dividing the assessed value by 18 instead of applying the rate gives about $17,778; and applying California's 1% base property tax rate instead of the stated 18 mills gives $3,200.

Correct answer: 15 mills

Divide the revenue needed by the total assessed value: $9,000,000 / $600,000,000 = 0.015. One mill is 0.001, so 0.015 equals 15 mills. Stopping at the decimal and calling it 0.015 mills skips the conversion; multiplying by 100 instead of 1,000 gives 1.5 mills, which is really the rate as a percentage; and dividing the assessed value by the revenue inverts the ratio and gives about 67 mills.

Correct answer: $704

Divide the price into $500 units, $640,000 / 500 = 1,280, then multiply by the rate: 1,280 x $0.55 = $704. Stopping at the count of units gives $1,280, which is a number of $500 units rather than a tax. Applying the $0.55 to each $1,000 instead of each $500 gives 640 x $0.55 = $352. Applying it to each $100 instead of each $500 gives 6,400 x $0.55 = $3,520.

Correct answer: $575,000

Each $1,000 of price carries $2.00 of tax, so the number of $1,000 units is $1,150 / $2.00 = 575, and 575 x $1,000 = $575,000. Applying the $2.00 to each $100 instead of each $1,000 gives $57,500, applying it to each $500 gives $287,500, and treating the $1,150 as 1% of the price gives $115,000.

Correct answer: $1,440

The daily tax is $4,380 / 365 = $12, and the seller owned the property for 120 days, so the seller's share is 120 x $12 = $1,440; because the bill is unpaid, that amount is debited to the seller and credited to the buyer. Charging the buyer's 245 days instead, 245 x $12, gives $2,940; using a 360-day year or a four-month fraction of the bill gives about $1,460; and charging half the annual bill, as if one installment were due, gives $2,190.

Correct answer: The Department of Real Estate

The Department of Real Estate (DRE), headed by the Real Estate Commissioner, issues, renews and disciplines salesperson and broker licenses. The Bureau of Real Estate Appraisers licenses and certifies appraisers, not agents. The California Association of Realtors is a private trade association, not a licensing agency, and the Bureau of Consumer Financial Protection, known as the CFPB, is a federal agency that writes consumer-finance rules; neither one issues real estate licenses.

Correct answer: Three: Real Estate Principles, Real Estate Practice and one approved elective

The rule is "Three: Real Estate Principles, Real Estate Practice and one approved elective", and each course must run at least 45 hours. "Two: Real Estate Principles and Real Estate Practice, with no other course" leaves out the third course, which may be Legal Aspects of Real Estate, Real Estate Finance, Real Estate Appraisal or another approved subject. "One: Real Estate Principles, with the other two courses due within eighteen months" describes the conditional license that California abolished in 2007. "Eight: Real Estate Practice, Legal Aspects, Finance, Appraisal and four more courses" is the broker requirement, not the salesperson requirement.

Correct answer: 45 clock hours

Each statutory pre-license course must run at least 45 clock hours, the equivalent of a three-semester-unit college course. 135 clock hours is the total of all three required courses, not the length of each one. 18 clock hours is the minimum share of consumer protection courses in the continuing education needed to renew, and 60 clock hours is more than the 45-hour minimum that each course must meet.

Correct answer: 18 years old

California issues a salesperson license only to an applicant who is at least 18 years old. 21 years old is carried over from other legal age limits, such as the drinking age, and 16 years old is the age for a provisional driver's license; neither applies to real estate licensing. 24 years old is not an age limit anywhere in California real estate licensing.

Correct answer: 150 questions

The salesperson exam has 150 questions, all multiple choice. 200 questions is the length of the broker exam. 105 questions is the number of correct answers needed to pass the salesperson exam, not the size of the test, and 135 questions borrows the 135 hours of required pre-license study.

Correct answer: 70%, or at least 105 of the 150 questions

The salesperson pass mark is "70%, or at least 105 of the 150 questions". "75%, or at least 113 of the 150 questions" applies the broker exam's 75% standard to the 150-question salesperson exam (0.75 x 150 = 112.5, so 113). Neither "72%, or at least 108 of the 150 questions" nor "66%, or at least 99 of the 150 questions" is the standard for either California real estate exam.

Correct answer: 4 years

A California salesperson or broker license is issued for 4 years and is renewed by completing 45 hours of continuing education. 2 years is the renewal cycle for many other California licenses, such as appraiser and contractor licenses. 3 years is how long a broker must keep transaction and trust records, and 10 years is far longer than any term the DRE grants.

Correct answer: 45 clock hours of DRE-approved continuing education

A salesperson must complete 45 clock hours of DRE-approved continuing education in each four-year license period, including set courses in ethics, agency, trust fund handling, fair housing, risk management and implicit bias, plus management and supervision from the second renewal. "18 clock hours of DRE-approved continuing education" is only the minimum share that must come from consumer protection courses, and "20 clock hours of DRE-approved continuing education" is about what the required topic courses add up to. "135 clock hours of DRE-approved continuing education" is the total of the three pre-license courses, not the renewal requirement.

Correct answer: Within three business days after receipt

Under the Commissioner's Regulations, a broker with no contrary instructions must place the deposit with a neutral escrow depository, give it to the principal or put it in the trust account within three business days after receipt. "Within three business days after acceptance" applies only when the buyer has told the broker in writing to hold the check uncashed until the offer is accepted, which this question rules out. "Within five business days after receipt" and "Within five business days after acceptance" do not match the California rule under either timing.

Correct answer: Mixing clients' trust funds with the broker's own money

Commingling means mixing clients' trust funds with the broker's own money, such as depositing client money into the broker's general business account. Spending clients' trust funds on the broker's own expenses is conversion, a more serious violation than commingling. Keeping several clients' trust funds together in the broker's trust account is allowed when the account is properly kept with a separate record for each client. Waiting too long to deposit clients' trust funds into the broker's trust account breaks the three-business-day deposit rule, but it is not commingling.

Correct answer: Three years from closing, or from listing if the sale never closed

Business and Professions Code Section 10148 sets the rule: three years from closing, or from listing if the sale never closed, with the records open to DRE audit and inspection. "Four years from closing, or from listing if the sale never closed" matches the length of a license term, not the record rule. "Five years from closing, or from listing if the sale never closed" matches how long a lender must keep a Closing Disclosure under federal rules, and "Seven years from closing, or from listing if the sale never closed" is a common rule of thumb for tax records, not the DRE requirement.

Correct answer: Residential property with one to four dwelling units

Civil Code Section 1102 requires the seller to deliver a Transfer Disclosure Statement (TDS) on transfers of residential property with one to four dwelling units, describing the condition of the property and known defects. Residential property with five or more dwelling units falls outside the TDS rule, although the seller must still disclose known material facts. Neither "Vacant property zoned for one to four dwelling units" nor "Vacant property zoned for five or more dwelling units" calls for a TDS, because the form describes an existing dwelling.

Correct answer: A foreclosure sale of the property

Civil Code Section 1102.2 exempts a foreclosure sale of the property from the TDS, along with court-ordered and fiduciary transfers such as probate and bankruptcy sales. A sale arranged by the owner without a broker still needs a TDS, because the duty belongs to the seller whether or not an agent is involved. A sale of the home in its as-is condition needs one too; an as-is clause does not excuse the seller from disclosing known defects. A sale by an owner who has never lived in the home, such as an investor selling a rental house, is not exempt either.

Correct answer: A special flood hazard area, a very high fire hazard severity zone or an earthquake fault zone

Under Civil Code Section 1103, the Natural Hazard Disclosure Statement tells the buyer whether the property lies within a special flood hazard area, a very high fire hazard severity zone or an earthquake fault zone, among six mapped hazards; the other three are a dam inundation area, a state fire responsibility (wildland) area and a seismic hazard zone. A lead-based paint hazard, an asbestos hazard or a mold hazard inside the home is handled by other environmental disclosures, not the NHD. A Mello-Roos community facilities district, a special assessment district for street improvements or an industrial use zone is disclosed through separate notices, such as the Notice of Special Tax. A historic preservation district, a coastal zone or a volcanic hazard zone mixes land-use designations with a hazard that is not among the six the statement covers.

Correct answer: A statutory notice that registered sex offender information is available from a Department of Justice website

Civil Code Section 2079.10a requires every residential sale and lease contract to include a statutory notice that registered sex offender information is available from a Department of Justice website (meganslaw.ca.gov). A statutory notice that registered sex offender information is available from local police or a sheriff's office describes the older notice used before the database went online. A written list, prepared by the listing agent, naming each registered sex offender living near the property goes beyond the law, which gives the agent no duty to research or compile offender information, and a written statement, signed by the seller, of whether any registered sex offender lives near the property is not required either.

Correct answer: Housing built before 1978

The federal rule, which California transactions follow, covers housing built before 1978, the year lead-based paint was banned for residential use; sellers and landlords must disclose known lead hazards and give the EPA pamphlet. Housing built before 1992 confuses the rule with the 1992 federal law that created it. Housing built before 1986 is the cutoff for the federal ban on lead pipes and solder in drinking water systems, and housing built before 1981 is the cutoff federal workplace rules use to presume asbestos in older buildings.

Correct answer: A special tax that a community facilities district levies to pay for infrastructure or services

Under the Mello-Roos Community Facilities Act of 1982, a Mello-Roos charge is a special tax that a community facilities district levies to pay for infrastructure or services, collected on top of the regular property tax, and the seller must give the buyer a Notice of Special Tax. A special assessment that an improvement district levies to pay for street or sewer work is a separate charge, often a 1915 Act bond, that must also be disclosed but is not a Mello-Roos tax. A supplemental assessment that the county assessor bills after a change of ownership or new construction is a one-time bill that brings the tax up to the new assessed value. A documentary transfer tax that the county collects when the property is sold or otherwise transferred is a one-time tax on the transfer, not a yearly levy.

Correct answer: As soon as practicable, on the statutory Disclosure Regarding Real Estate Agency Relationship form

Civil Code Section 2079.14 requires the agent to give the disclosure as soon as practicable, on the statutory Disclosure Regarding Real Estate Agency Relationship form, before the buyer or seller signs the listing or the offer, and the relationship is then confirmed in the contract. "At close of escrow, on the statutory Disclosure Regarding Real Estate Agency Relationship form" is far too late, because the parties need the disclosure before they commit. "As soon as practicable, on the Transfer Disclosure Statement regarding the property's physical condition" uses the wrong form: the TDS reports the condition of the property, not agency. "At close of escrow, on the Transfer Disclosure Statement regarding the property's physical condition" has both errors.

Correct answer: That the seller would take less than the list price, or that the buyer would pay more than the offer

A dual agent owes fiduciary duties to both sides, so without express permission the agent may not disclose that the seller would take less than the list price, or that the buyer would pay more than the offer. The agent must still disclose that the seller knows the roof leaks, or that the property lies within a mapped earthquake fault zone, because known material facts go to both parties. The agent must also disclose that the agent represents the buyer, or that the agent also represents the seller, since the dual agency itself has to be disclosed and agreed to. Disclosing that the buyer will owe a yearly Mello-Roos special tax, or that the property has lead-based paint is required by statute, not forbidden.

Correct answer: Agents must make a reasonably competent and diligent visual inspection of accessible areas of one-to-four-unit homes and disclose material facts to the buyer

Under Civil Code Section 2079, agents must make a reasonably competent and diligent visual inspection of accessible areas of one-to-four-unit homes and disclose material facts to the buyer, limited to what can be seen in reasonably accessible areas. "Agents must make a reasonably thorough and diligent visual inspection of inaccessible areas of one-to-four-unit homes and disclose hidden defects to the buyer" overstates the duty, which does not reach areas that are not reasonably accessible. "Agents must back up the visual inspection with a search of building permit and zoning records for every property they sell and disclose any violations to the buyer" is not part of the duty either; the statute does not require agents to research permit or zoning records. "Agents must verify the square footage and lot size of every home during a visual inspection and disclose the measured figures to the buyer" is also not required, although an agent must not misstate any figure the agent does give.

Correct answer: Traits such as sexual orientation, marital status, medical condition and source of income, among others

California law goes beyond the federal list: the Unruh Civil Rights Act covers traits such as sexual orientation, marital status and medical condition, and the companion Fair Employment and Housing Act adds source of income in housing, which together give "Traits such as sexual orientation, marital status, medical condition and source of income, among others". "Traits such as race, color, religion, sex, national origin and a physical or mental disability, among others" lists classes the federal Fair Housing Act already protects, so none of them is an addition. "Traits such as a record of late rent payments and repeated noise complaints, among others" and "Traits such as smoking and pet ownership, among others" name traits that no fair housing law protects, so a landlord may screen applicants on them.

Correct answer: The Fair Employment and Housing Act

The Fair Employment and Housing Act (FEHA) bans housing discrimination on many grounds, including source of income, and the Civil Rights Department, formerly the Department of Fair Employment and Housing, investigates and prosecutes complaints under it. The California Housing Financial Discrimination Act, known as the Holden Act, bars redlining by lenders but is not enforced by that department. The California Housing Accountability Act limits how cities can deny or delay housing projects and is enforced by state housing officials and the courts. The Housing and Community Development Act is a federal law best known for community development grants, and the department does not enforce it either.

Correct answer: 10% a year

The California Constitution (Article XV) caps interest on a loan for personal, family or household purposes at 10% a year unless the lender is exempt. 7% a year is the legal rate that applies when a contract sets no rate at all. 5% a year confuses the cap with the rule for loans made for other purposes, which allows the higher of 10% or 5% above the Federal Reserve discount rate. 12% a year was the ceiling under the old 1918 usury law, not the current limit.

Correct answer: A loan secured by real property and made or arranged by a licensed real estate broker

Under the California Constitution and Civil Code Section 1916.1, a loan secured by real property and made or arranged by a licensed real estate broker is exempt from the usury limits, so the parties may agree on a higher rate. A loan secured by real property and made by a private lender or investor with no real estate broker gets no exemption, because the lender is a non-exempt private party. An unsecured loan made by a landlord to a tenant for personal use and an unsecured loan made by a company to an employee for personal use are ordinary private loans that stay subject to the 10% cap for personal-purpose loans.

Correct answer: The state Department of Veterans Affairs, which finances homes for eligible veterans

CalVet is run by the state Department of Veterans Affairs, which finances homes for eligible veterans; the department buys the home and resells it to the veteran under a contract of sale. "The U.S. Department of Veterans Affairs, which backs loans for eligible veterans" describes the federal VA, which guarantees part of a loan made by a private lender, a separate federal benefit. "The state Department of Housing and Community Development, which funds homes for first-time buyers" and "The U.S. Department of Housing and Urban Development, which insures loans for first-time buyers" describe agencies that run housing programs for other groups, not CalVet.

Correct answer: The department buys the home and sells it to the veteran on a contract of sale, keeping legal title until it is paid off

CalVet uses a contract of sale (a land contract): the department buys the home and sells it to the veteran on a contract of sale, keeping legal title until it is paid off, and then deeds the home to the veteran. "The veteran holds title to the home by grant deed and gives the department a deed of trust, just as with a conventional loan" describes a conventional loan, not CalVet. "The veteran holds title to the home as a life tenant and the department holds the remainder of the estate" describes a life estate with a remainder, which CalVet does not use, and "The department buys the home and leases it to the veteran for a term of years, keeping legal title until the veteran buys it" describes a lease, not a sale.

Correct answer: 1% of the assessed base year value

Proposition 13 (1978) caps the general property tax rate at 1% of the assessed base year value, plus any rate needed for voter-approved debt. 1.25% of the assessed base year value is close to what many owners actually pay once voter-approved bonds are added, but the extra is not part of the general levy. 2% of the assessed base year value confuses the rate with the 2% yearly limit on increases in assessed value, and 3% of the assessed base year value is close to the average rate before Proposition 13 took effect.

Correct answer: By no more than 2% a year

Proposition 13 lets the assessed base year value grow by no more than 2% a year, or by the change in the consumer price index if that is lower, until the property changes hands or new construction is completed. "By no more than the full rise in market value each year" would let assessed value keep pace with the market, which is exactly what the 2% cap prevents. "By no more than 1% a year" confuses the growth limit with the 1% general tax rate. "By no more than 5% plus inflation each year" borrows the formula from the state rent cap on residential rent increases, which has nothing to do with assessed value.

Correct answer: When the property changes ownership or has new construction completed

Proposition 13 resets the base year value to current market value only when the property changes ownership or has new construction completed. "When the owner takes out a new loan on the property or adds a spouse to the title" triggers neither: a refinance changes the lender, not the owner, and transfers between spouses are excluded from reassessment. "When the county carries out its yearly review of property sales or market values" does not reset the base year value, which rises by no more than 2% a year between those events. "When the owner makes repairs or has routine maintenance done on the property" is upkeep, which does not count as new construction.

Correct answer: $50,000

After an aggrieved person obtains an unsatisfied final judgment against a licensee for fraud or conversion of trust funds, the Consumer Recovery Account pays actual losses up to $50,000 per transaction. $250,000 is the separate cap on total payments tied to any one licensee. $20,000 was the per-transaction limit under older law, and $100,000 was the cap on total payments per licensee under that older law.

Correct answer: $250,000

Payments from the Consumer Recovery Account tied to any one licensee are capped at $250,000 in total, while each transaction is capped at $50,000. $100,000 and $20,000 were the total and per-transaction caps under older law.

Correct answer: The license is suspended automatically until the licensee repays the amount and interest owed

When the Consumer Recovery Account pays a claim based on a licensee's conduct, the license is suspended automatically until the licensee repays the amount and interest owed; the licensee cannot be reinstated until the full amount is paid back. "The license is revoked and the licensee may not petition for reinstatement until one year has passed" describes revocation after a disciplinary hearing, which is a separate process. "The license is restricted so that the licensee may work only under a broker's close supervision" describes a restricted license, and "The license is left active, but the DRE issues a public reprimand to the licensee" describes a lesser form of discipline; neither is the automatic result of a payment from the account.

Correct answer: To suspend, revoke, deny or restrict a license after a hearing, and to issue desist and refrain orders

The Commissioner enforces the Real Estate Law and the Commissioner's Regulations, and the powers are to suspend, revoke, deny or restrict a license after a hearing, and to issue desist and refrain orders. "To send a licensee to jail or prison after a violation, and to impose criminal fines without going to court" belongs to the criminal courts, which alone can impose jail terms or criminal fines. "To award money damages to injured clients, and to order the licensee to pay those damages to them directly" is for the civil courts; the Consumer Recovery Account pays only after a court judgment. "To set the commission rates that brokers may charge, and to fine any broker who charges more than that" is beyond the Commissioner's power, because commissions are set by agreement between broker and client.

Correct answer: Only from the responsible broker that employs them

Business and Professions Code Section 10137 lets a salesperson take compensation for licensed work only from the responsible broker that employs them. "Only from the buyer or the seller, if both agree to it in writing" is unlawful even with the parties' consent; the money must pass through the broker. "Only from the escrow company that closes the transaction" is also improper, because escrow pays the broker, who then pays the salesperson. "Only from the lender or title company, as a fee for sending them business" describes an illegal kickback under the federal Real Estate Settlement Procedures Act.

Correct answer: The broker may hold the uncashed check if the buyer instructs in writing and the seller is told before or when the offer is presented

Under the Commissioner's Regulations, the broker may hold the uncashed check if the buyer instructs in writing and the seller is told before or when the offer is presented; once the offer is accepted, the check must be deposited within three business days. "The broker may hold the uncashed check if the seller instructs in writing and the buyer is told before or when the offer is presented" reverses the parties: the buyer makes the offer and gives the instruction, and the seller is the one who must be told. "The broker may hold the uncashed check if the buyer instructs in writing and the seller is told after the offer is accepted" tells the seller too late, because the seller must know before deciding whether to accept. "The broker may hold the uncashed check if the seller instructs in writing and the buyer is told after the offer is accepted" makes both mistakes.

Correct answer: An agreement to sell real estate and a listing that lets the broker earn a commission

California's Statute of Frauds (Civil Code Section 1624) requires a signed writing for an agreement to sell real estate and a listing that lets the broker earn a commission, so an oral listing cannot support a claim for a commission. "An agreement to rent property monthly and a handshake that lets the brokers split a commission" can be oral, because only leases longer than one year need a writing and brokers may agree with each other orally to share a fee. "An oral month-to-month agreement for renting a house to a tenant" is a tenancy of less than one year, which may be oral, and "An agreement to pay an outside stager who prepares a home for showings" is a service contract that can be performed within a year.

Correct answer: The title company issues a preliminary report, then a title insurance policy at closing

In California, the title company issues a preliminary report, then a title insurance policy at closing: the preliminary report shows the vesting, liens, encumbrances and exceptions before closing, and the policy insures the buyer or lender afterward. "The escrow officer issues an abstract of title, then a title insurance policy at closing" misstates the role of escrow, which holds funds and documents but does not search or insure title. "The county recorder issues a certificate of title, then a title insurance policy at closing" is wrong because the recorder only records documents. "The buyer's attorney issues a title opinion, then a title insurance policy at closing" describes the attorney-closing custom of some other states.

Correct answer: A deed of trust, which lets the trustee sell the property after a default

A deed of trust, which lets the trustee sell the property after a default, is the usual California security instrument: the borrower (trustor) gives the lender (beneficiary) a deed of trust naming a neutral trustee, whose power of sale allows a non-judicial trustee's sale after a default. 'a mortgage, which lets the lender foreclose by means of a lawsuit after a default' describes a two-party mortgage, which California lenders rarely use. 'a contract of sale, which lets the seller keep legal title until the price is paid' describes an installment sales contract, a seller-financing arrangement rather than the standard loan security. 'a promissory note, which lets the seller carry back a part of the price' describes a seller carryback note, which is evidence of a debt rather than the instrument that pledges the property as security.

Correct answer: A notice of default, recorded to open the period for reinstatement

A California trustee's sale begins with a notice of default, recorded to open the period for reinstatement: once the trustee (or the beneficiary or its agent) records it, the borrower has a set period to cure the default and reinstate the loan. 'a notice of sale, promptly recorded by the trustee when default occurs' is wrong because a notice of sale may be given only after at least three months have passed since the notice of default was recorded. 'a notice of pendency of action, recorded when the lender files suit after default' describes a lis pendens, which belongs to a judicial foreclosure lawsuit rather than a power-of-sale foreclosure. 'a request for notice of default, recorded to alert the lender' describes a document that an interested party, such as a junior lender, records so it will be sent copies of any later default notice; it does not start a foreclosure.

Correct answer: To tell the buyer whether the property is in a mapped hazard zone

The Natural Hazard Disclosure statement (Civil Code 1103) exists to tell the buyer whether the property is in a mapped hazard zone: whether it lies in a special flood hazard area, a dam inundation area, a very high fire hazard severity zone, a wildland fire area, an earthquake fault zone or a seismic hazard zone shown on official state or local maps. It reports mapped risk only and guarantees nothing about future events. The purpose 'to tell the buyer about known defects and environmental hazards in the home' belongs to the Transfer Disclosure Statement, 'to tell the buyer whether the property is in a Mello-Roos special tax district' belongs to the separate Mello-Roos notice of special tax, and 'to tell the buyer about known lead paint hazards in the home' belongs to the federal lead-based paint disclosure for homes built before 1978.

Correct answer: Whether the property has noncompliant toilets or showerheads

California requires single-family homes built on or before January 1, 1994 to have water-conserving plumbing fixtures (Civil Code 1101.4), and the seller must disclose that requirement and whether the property has noncompliant toilets or showerheads (Civil Code 1102.155). 'whether the water heater on the property is braced or strapped' is a separate seismic-safety statement about water heater bracing, 'whether the property has working smoke and CO detectors' is a separate fire-safety compliance item, and 'whether the property is served by a private well and a septic system' is a general condition item on the Transfer Disclosure Statement; none of them is the water-conserving fixture disclosure.

Correct answer: Two years of full-time licensed experience within the last five years

A California broker applicant generally needs two years of full-time licensed experience within the last five years, meaning full-time licensed salesperson experience (or equivalent experience) within the five years before applying; a four-year degree with a major or minor in real estate can substitute for it, and eight statutory broker courses are also required. 'three years of full-time licensed experience within the last five years' overstates the time needed, 'two years of full-time licensed experience within the last four years' shrinks the five-year window, and 'three years of full-time licensed experience within the last four years' makes both mistakes.

Correct answer: Immediately, with the responsible broker also notifying the DRE of the change

California expects a change of employing broker to be reported immediately, with the responsible broker also notifying the DRE of the change: the licensee must keep the license record current, and the responsible broker must report to the DRE when a salesperson joins or leaves the brokerage. 'within ninety days, with the salesperson alone notifying the DRE of the change' allows far more time and leaves the broker out, 'monthly, with the new broker alone notifying the DRE of the change' treats the report as a periodic filing by the new broker alone, and 'at the next renewal, with the salesperson also notifying the DRE of the change' would leave the license record wrong until the four-year renewal.

Correct answer: The employing broker, who is accountable for the trust fund records

Trust funds and transaction records belong to the brokerage, so the person responsible is the employing broker, who is accountable for the trust fund records: the responsible broker supervises the salesperson, remains accountable for the trust funds and must keep the records (generally for three years) after the salesperson leaves. 'the departing salesperson, who is accountable to the broker for the trust records' is wrong because a salesperson acts only under the broker's license and keeps no separate set of records, 'the escrow holder, who is accountable to the broker for the trust fund deposits' is wrong because an escrow holder is a neutral third party that keeps its own escrow file, and 'the new broker, who is accountable for the trust fund records once they transfer' is wrong because a new broker takes on no responsibility for the old brokerage's transactions.

Correct answer: It is allowed up to $200 for bank charges; beyond that it is commingling

Commissioner's Regulation 2835 lets a broker keep up to $200 of the broker's own money in the trust account to cover bank service charges, so the rule is 'it is allowed up to $200 for bank charges; beyond that it is commingling'; putting in more mixes broker funds with client funds. 'it is allowed for up to 25 days; beyond that it is commingling' borrows the 25-day limit that applies to commissions the broker has earned and must withdraw, not to personal deposits. 'it is allowed if the affected clients consent in writing; otherwise it is conversion' and 'it is allowed if the DRE approves in writing; otherwise it is conversion' are wrong because neither client consent nor DRE approval permits commingling, and conversion means misappropriating trust funds, which is a different violation.