Exam Construction and Weighting +10California · Real Estate · English

Because there are differences in the level and amount of knowledge required of salespersons and brokers, the exams differ in emphasis and difficulty. DRE follows State Personnel Board guidelines and uses research studies to update test specifications periodically.

• ✓Broker and salesperson exams differ in emphasis and difficulty
• ✓DRE testing follows State Personnel Board and test authority guidelines
• ✓Exact subject weighting is published in the Instructions to License Applicants pamphlet

The Small Business Administration (SBA), a federal agency, assists small businesses through various financial and counseling programs. It has developed size standards governing loan eligibility based on the type of business.

• ✓The SBA is a federal agency that assists small businesses with financial and counseling programs
• ✓SBA eligibility size standards are based either on number of employees or annual gross sales depending on business type (manufacturing, wholesaling, retailing, service, construction, agriculture)

The Commissioner must ascertain by written examination that applicants are qualified. The examination requirement can never be waived. An examination application and fee are valid for a maximum of two years. There is no limit on the number of reexaminations. Passing entitles the examinee to apply for a four-year license.

• ✓The written examination requirement can never be waived under any circumstances
• ✓An examination application and fee are valid for a maximum of two years
• ✓There is no limit on the number of reexaminations an applicant may take

Salesperson exam applicants use form RE 400A; broker exam applicants use RE 400B. All applications must be on DRE-furnished forms. A license application must include the current license fee and proof of Legal Presence, and the applicant must comply with the fingerprint requirement.

• ✓Salesperson exam applicants use RE 400A; broker exam applicants use RE 400B
• ✓A license application requires the license fee, proof of Legal Presence, and fingerprints
• ✓Forms must be DRE-furnished, obtained online, at DRE offices, or from Sacramento

An applicant for any real estate license must submit one set of classifiable fingerprints acceptable to the DOJ, unless currently licensed by DRE or held a license that expired less than two years ago. Fingerprints go through DOJ's Live Scan Program using form RE 237. A $51.00 fee payable to DRE covers DOJ processing.

• ✓Must submit classifiable fingerprints unless currently licensed or license expired less than two years ago
• ✓Fingerprints are submitted through DOJ's Live Scan Program using form RE 237
• ✓A $51.00 fee payable to DRE is required for processing fingerprints through DOJ

Within 90 days after issuance, the Commissioner may suspend without a hearing the license of anyone who procured a license by fraud, misrepresentation, or deceit, or made any material misstatement of fact in the application (Section 10177.1).

• ✓Within 90 days after issuance, the Commissioner may suspend without a hearing
• ✓Grounds are fraud, misrepresentation, deceit, or material misstatement of fact in the application

All license applicants must submit proof of legal presence in the U.S. (birth certificate, resident alien card, etc.) one time with a Public Benefits Form (RE 205). Original broker and salesperson licenses are issued for four years and may be renewed every four years with continuing education.

• ✓Proof of legal presence must be submitted only one time with Public Benefits Form (RE 205)
• ✓Original broker and salesperson licenses are issued for a four-year period
• ✓A revoked, denied, or Family Code Section 17520-suspended license may not be renewed

Covers law, definition and nature of agency relationships, types of agencies and agents, creation of agency and agency agreements, responsibilities of agent to seller/buyer as principal, disclosure of agency, disclosure of acting as principal or other interest, termination of agency, and commission and fees.

• ✓Agency disclosure and disclosure of acting as principal are required topics
• ✓Creation and termination of agency relationships are tested
• ✓Agent responsibilities to principal include fiduciary duties

Covers general concepts, types of loans, sources of financing, dealing with lenders, government programs, mortgages/deeds of trust/notes, financing/credit laws, and loan brokerage.

• ✓Includes government loan programs such as FHA and VA
• ✓Includes financing and credit laws such as Truth-in-Lending
• ✓Includes mortgages, deeds of trust and promissory notes

Covers trust account management, fair housing laws, truth in advertising, record keeping, agency supervision, permitted activities of unlicensed sales assistants, DRE jurisdiction and disciplinary actions, licensing and continuing education, California Real Estate Recovery Fund, general ethics, technology, property management/landlord-tenant rights, commercial/income properties, specialty areas, Transfer Disclosure Statement, Natural Hazard Disclosure Statements, material facts, and need for inspection.

• ✓Includes Transfer Disclosure Statement and Natural Hazard Disclosure Statements
• ✓Includes trust account management and fair housing law compliance
• ✓Includes DRE jurisdiction, disciplinary actions and the Recovery Fund

Covers general contract concepts, listing agreements, buyer/broker agreements, offers/purchase contracts, counteroffers/multiple counteroffers, leases, agreements, and promissory notes/securities.

• ✓Includes listing agreements and buyer/broker agreements
• ✓Includes offers, purchase contracts and counteroffers
• ✓Includes leases and promissory notes

Covers classes of property, property characteristics, encumbrances, types of ownership, descriptions of property, government rights in land, public controls, environmental hazards and regulations, private controls, water rights, and special categories of land.

• ✓Includes government rights in land such as eminent domain, police power, taxation and escheat
• ✓Includes both public controls (zoning) and private controls (deed restrictions)
• ✓Includes encumbrances, water rights and environmental hazards

Covers value and methods of estimating value including comparison, cost and income approaches to appraisal.

• ✓Candidates must know the methods of estimating value
• ✓Candidates must understand concepts of value in real estate

Covers title insurance, deeds, escrow, reports, tax aspects, and special processes involved in real property transfer.

• ✓Includes title insurance and various types of deeds
• ✓Includes escrow procedures and required reports
• ✓Includes tax aspects of real estate transactions

The terms REALTOR, REALTORS, and REALTOR-ASSOCIATE, and the REALTOR logo, are collective membership marks owned by NAR. Only through NAR membership is the right to use the term REALTOR granted. A REALTOR is a person engaged in the real estate business who is a local and state association member, and therefore a NAR member, subject to its rules and observing its standards of conduct.

• ✓REALTOR marks are collective membership marks owned by NAR
• ✓Only NAR membership grants the right to use the term REALTOR
• ✓A REALTOR must be a member of local, state, and national associations
• ✓Not all licensees are REALTORS; the term applies only to members

Pursuant to Section 10140.6 of the California Business and Professions Code, a real estate licensee must indicate in advertising that he/she is performing acts for which a license is required. Appropriate designations include agent, broker, REALTOR, and loan correspondent (or abbreviations such as bro., agt.). Only local associations affiliated with NAR may identify as Associations/Boards of REALTORS.

• ✓B&P Code Section 10140.6 requires advertising to indicate licensed status
• ✓Acceptable designations: agent, broker, REALTOR, loan correspondent (or bro., agt.)
• ✓Licensees using REALTOR must spell out the word per N.A.R. trademark guidelines
• ✓Only NAR-affiliated boards may call themselves Associations/Boards of REALTORS

Recording statutes encourage prompt recording and prohibit using the constructive notice doctrine to aid proven fraud; the laws protect only innocent parties. Purchase money mortgages/deeds of trust have priority over other liens created against the purchaser (Civil Code 2898). Not all liens rank by recording date—actual notice can defeat a later-dated-but-first-recorded lien.

• ✓Recording laws protect only innocent parties, not proven fraud
• ✓Purchase money mortgages have priority over all other liens against the purchaser (Civil Code 2898)
• ✓A lien recorded first loses priority if that party had actual notice of a prior lien before recording

California law treats mortgages and deeds of trust as functional equivalents. Historic distinctions (lien vs. legal title theory; use of a third-party trustee) were eliminated in 1986 by Civil Code Section 2920. All liens are encumbrances, but not all encumbrances are liens.

• ✓Mortgage and deed of trust are functional equivalents in California (Civil Code 2920)
• ✓All liens are encumbrances, but not all encumbrances are liens (e.g., an easement)
• ✓A deed of trust uses a third-party trustee; a classic mortgage does not

Mechanics' liens relate back to commencement of work as a whole. Tax and assessment liens are superior to any mortgage/deed of trust regardless of recording date. Persons with priority may waive it through a subordination agreement (e.g., a seller carryback subordinated to a construction loan).

• ✓Real property tax and assessment liens have priority over all other liens regardless of recording date (Rev. & Tax. Code 2192.1)
• ✓Mechanics' liens relate back to commencement of the work of improvement (Civil Code 3134)
• ✓Subordination agreements let a senior lienholder waive priority in favor of a junior lien; statutory disclosure requirements apply to loans of $25,000 or less (Civil Code 2953.1 et seq.)

When a senior deed of trust obligates the lender to make future advances (e.g., construction loan progress payments), those 'obligatory advances' have the same priority as the original loan regardless of intervening liens. 'Optional advances' date priority from the time made unless the lender had no notice of intervening liens. HELOC advances are generally optional (Civil Code 2884).

• ✓Obligatory advances keep the senior priority regardless of intervening liens (Civil Code 2884)
• ✓Optional advances take priority only from the time the advance is made, absent notice of intervening liens
• ✓HELOC advances are generally 'optional' advances

Mutual consent is evidenced by an offer and acceptance. An offer must be communicated to the offeree and manifest contractual intention. Parties are bound by apparent, outwardly manifested intentions, not secret intentions. Assent must be genuine and free; if clouded by fraud or mistake it may be voidable.

• ✓An offer must be communicated to the offeree and show contractual intent
• ✓Parties are bound by outwardly manifested intentions, not secret intentions
• ✓No true 'meeting of the minds' is required, only apparent intent

The offer must be definite and certain; the precise acts must be clearly ascertainable. Courts cannot make contracts for parties. An offer must be non-illusory, binding the offeror upon acceptance. Loan-contingency clauses should specify amount, interest rate, monthly installments, security, type (FHA/VA/conventional), buyer's best efforts, and seller cooperation.

• ✓Terms must be definite and certain to be enforceable
• ✓The offer must be non-illusory and bind the offeror upon acceptance
• ✓Loan contingency clauses must specify loan amount, interest rate, payments, and type

An offer terminates by: (1) lapse of time; (2) communication of notice of revocation before acceptance (unless an option was paid for); (3) failure of offeree to fulfill a condition or a qualified acceptance (counteroffer); (4) rejection by the offeree; and (5) death or insanity of offeror or offeree.

• ✓Offers terminate by lapse of time, revocation, failed condition/counteroffer, rejection, or death/insanity
• ✓A counteroffer terminates and cancels the original offer
• ✓Revocation is effective anytime before acceptance unless an option was paid for
• ✓A paid option obligates the offeror to keep the offer open

Acceptance must be by the offeree with knowledge of the offer, be absolute and unqualified, and be communicated. A material modification becomes a counteroffer. Silence is generally not acceptance. Acceptance in the manner specified controls; otherwise any reasonable mode is valid. A contract is made when acceptance is placed in the course of transmission, even if lost.

• ✓Acceptance must be absolute and unqualified; a material change is a counteroffer
• ✓Only the offeree with knowledge can accept
• ✓A contract forms when acceptance is deposited for transmission (mailbox rule)
• ✓Silence is generally not acceptance

Genuine assent may be defeated by fraud, mistake, menace, duress, or undue influence. If present, the contract may be voidable and the party may seek rescission, dollar damages, or reformation.

• ✓Obstacles to genuine assent: fraud, mistake, menace, duress, undue influence
• ✓Remedies include rescission, damages, or reformation

Actual fraud (Civil Code 1572) includes: suggesting a fact one doesn't believe true; positive assertion not warranted by information; suppression of truth; a promise made without intent to perform; or any other act intended to deceive. Constructive fraud is a breach of duty gaining advantage by misleading another, without fraudulent intent. Fraud in the inducement makes a contract voidable; fraud in the inception/execution makes it void.

• ✓Civil Code 1572 lists five acts constituting actual fraud
• ✓Fraud in the inducement makes a contract voidable; fraud in inception makes it void
• ✓A no-representations waiver clause is ignored when fraud in inducement exists
• ✓Negligent misrepresentation is a species of fraud

A contract must contain a property description or unique aspect so it can be exactly ascertained. Reference to a title company's policy number is acceptable. Oral evidence may identify a description but cannot supply a missing or too-uncertain description.

• ✓The contract must contain a sufficient description to identify the property
• ✓Oral evidence may identify but cannot supply a missing description
• ✓Street address is usually sufficient unless the seller owns adjoining lots or multiple buildings

Mistake of both parties as to identity of subject matter voids the contract. A substantial mistake as to a material fact may make a contract voidable. Mistake of fact is ignorance/forgetfulness of a material fact not caused by neglect of legal duty. Mistake of law arises from all parties misunderstanding the law.

• ✓Mutual mistake as to subject matter identity means no contract
• ✓Substantial mistake of material fact may make a contract voidable
• ✓Simply failing to read an agreement is gross negligence precluding relief

Duress involves unlawful confinement or depriving free will (including economic duress). Menace is a threat to commit duress or violent injury. Undue influence is unfair advantage taken by someone in confidence or authority, often in confidential relationships (trustee/beneficiary, broker/principal, attorney/client, etc.).

• ✓Duress, menace, and undue influence deprive the victim of free will and make a contract voidable
• ✓Undue influence commonly occurs in confidential relationships such as broker and principal
• ✓Menace is a threat to commit duress or unlawful violent injury

When properly executed, delivered, and accepted, a deed transfers title from the grantor to the grantee. Transfer may be voluntary or involuntary by act of law such as a foreclosure sale. Seven essentials must be met for a valid deed, and the habendum clause ('to have and to hold'), witnesses, and seal are NOT required.

• ✓A deed must be in writing with parties properly described
• ✓Parties must be competent to convey and capable of receiving the grant
• ✓Property must be described to distinguish it from other parcels
• ✓There must be a granting clause with operative words of conveyance
• ✓The deed must be signed by the grantor and be delivered and accepted
• ✓Habendum clause, witnesses, seal, and a date are NOT required for validity

A deed is usually executed for consideration, but consideration is not essential to a valid transfer and need not be mentioned in the deed. However, lack of consideration may affect the grantee's rights against third parties because recording statutes protect bona fide purchasers. A transfer without consideration by an insolvent grantor is fraudulent as to creditors and may be set aside.

• ✓Consideration is not essential to a valid deed transfer
• ✓A transfer without consideration by an insolvent grantor is fraudulent as to creditors
• ✓Recording statutes are intended to protect bona fide purchasers

In a real estate sale escrow, the principals include the buyer, the seller, and if applicable the lender(s) making the purchase money loan. Principals are those who execute and perform the escrow instructions and make the conditional deliveries. Lenders are principals because they provide written instructions plus instruments of encumbrance and loan documents. Not all parties involved are principals. Non-principals (to whom no fiduciary duty is owed) include chain-of-title claimants, persons placing payment demands, and persons submitting reports/inspections; to these the escrow holder acts as a custodian with a duty of good faith and standard of care.

• ✓Principals include the buyer, seller, and applicable lender(s) making the purchase money loan
• ✓Principals are those who execute and perform the escrow instructions and make conditional deliveries
• ✓To non-principals the escrow holder acts as custodian owing only good faith and applicable standard of care, not fiduciary duty

A lease of one year or less may be created verbally, but all leases should be written. California's Statute of Frauds requires a lease in writing if it has a term longer than one year, OR a term less than one year that expires more than one year after the agreement is reached. Example: a 10-month lease beginning 3 months from agreement (13-month relationship) must be written.

• ✓Leases longer than one year must be in writing
• ✓A lease under one year that expires more than one year after agreement must be written
• ✓A lease of one year or less may be created verbally

Unwritten leases longer than one year, or that expire more than one year after agreement, are unenforceable. If a tenant enters possession under an unenforceable lease, the tenant becomes a tenant at will.

• ✓Unwritten long-term leases violating Statute of Frauds are unenforceable
• ✓A tenant entering under an unenforceable lease becomes a tenant at will

An agency relationship can be created by agreement (actual agency), by ratification, by estoppel, or by conduct of the parties (ostensible/implied agency). Brokers as special agents are typically created by express agreement.

• ✓Actual agency is created by express agreement (Civil Code § 2299)
• ✓The duty to understand the agency being constructed is placed primarily on the broker
• ✓Agency can also arise by ratification, estoppel, or conduct (ostensible/implied)

An agency agreement must be in writing for an agent to enforce a commission claim on a breach of contract theory. This applies to listings and other agency agreements. Even loan brokers should have written agreements.

• ✓Civil Code § 1624(d) and Phillippe v. Shapell Industries: signed written agreement required for commission recovery
• ✓All extensions and modifications must also be in writing to be enforceable
• ✓Without a written compensation agreement, the broker generally cannot recover regardless of services rendered

A broker may only employ or compensate licensed brokers or salespersons licensed under that broker. A salesperson can only be paid by the broker under whom licensed. Payment to unlicensed persons for licensed acts is unlawful, but rebates to a principal are allowed with disclosure.

• ✓B&P Code § 10137: unlawful to compensate unlicensed persons for acts requiring a license
• ✓A broker may pay a commission to an out-of-state broker
• ✓Commission rebate to a buyer must be disclosed to the seller who paid the commission (B&P §§ 10138, 10139, 10139.5)

A valid listing agreement must contain specific essential terms. Owner-occupied residential property listings must state commissions are negotiable and not set by law in ten-point bold print.

• ✓Essential terms: names of parties, identity of property, terms/conditions of sale/lease/loan, commission amount, expiration date, and signatures
• ✓Owner-occupied residential listings must contain a ten-point bold statement that commissions are negotiable
• ✓A commission-negotiable statement is advisable in all licensed compensation transactions

The four main listing types are open, exclusive agency, exclusive right to sell, and net listing. Multiple listing is not a listing agreement but a dissemination mechanism. Exclusive listings must contain a definite termination date.

• ✓Open listing: owner may revoke, sell personally, or list with others; sale by owner defeats commission
• ✓Exclusive agency: owner may sell personally and defeat commission, but no other broker
• ✓Exclusive right to sell: broker earns commission regardless of who sells during the listing period
• ✓Exclusive listings must contain a definite termination date (B&P § 10176(f))
• ✓Net listing: broker's commission is any sum received over the seller's net price

A broker without a written commission agreement may recover under a tort theory of intentional interference with prospective economic advantage, as in Buckaloo v. Johnson, where the seller and buyer conspired to avoid paying the procuring-cause broker.

• ✓Buckaloo v. Johnson (1975): tort theory of interference with economic advantage can support a commission claim
• ✓The tort claim survives even when the oral commission agreement fails under the Statute of Frauds
• ✓Brokers are still advised to obtain written compensation agreements

A broker must sometimes show he/she was the 'procuring cause' — a cause originating a continuous series of events resulting in accomplishment of the agency purpose. Important with cooperating brokers or open listings.

• ✓Procuring cause = cause setting in motion an unbroken series of events resulting in the sale (Pass v. Industrial Asphalt)
• ✓A broker who introduces parties who then make their own agreement is probably still the procuring cause
• ✓Proof of procuring cause can be practically difficult to establish

In sheltered loan transactions arranged by brokers under Article 7 of the B&P Code, exclusive authority to solicit lenders to procure a loan is limited to 45 days.

• ✓B&P Code § 10243: exclusive authority to solicit lenders limited to 45 days
• ✓Applies to Article 7 loans commencing with B&P § 10240

The MLS distributes listing information to participants. Submitting a listing may be admissible in court on a misrepresentation claim. A cooperating broker becomes the seller's subagent unless the agency is bifurcated in writing limiting the broker to buyer's agent.

• ✓MLS profile information may be admissible as a misrepresentation in court
• ✓Cooperating broker becomes subagent of the seller unless bifurcated in writing (Civil Code §§ 2079, 2349, 2350, 2351)
• ✓Modern MLS rules result in a unilateral offer of compensation, not automatic subagency

Consideration is not essential to create an agency; a gratuitous agent is held to agency standards. A gratuitous agent needs no license, but a license is required whenever there is an expectation of compensation.

• ✓A gratuitous agent is still held to fiduciary standards but needs no license
• ✓A license is required when there is any expectation of compensation (B&P § 10131 et seq.)
• ✓Compensation is viewed broadly, including joint venture benefits or shared overhead (Stickel v. Harris)

A unilateral agreement (e.g., open listing) has a promise inducing performance where the other party may act or not. A bilateral agreement (e.g., exclusive right to sell) involves an exchange of promises.

• ✓Open listing is unilateral: broker has no obligation to perform
• ✓Exclusive right to sell is bilateral: broker has express or implied obligation to use diligence and best efforts
• ✓Written agreement is essential for enforceable compensation (Civil Code § 1624(a)(3); Phillippe)

Brokers act as mortgage brokers when soliciting/negotiating loans secured by real property. They are agents and fiduciaries of the borrower and/or lender. Acting for both principals makes them dual agents. Agency relationships must be disclosed and consented to in writing.

• ✓Mortgage brokers must generally be agents and fiduciaries of at least one principal (not mere facilitators)
• ✓Mortgage brokers must place the economic interests of the borrower ahead of their own
• ✓Agency relationships must be disclosed and consented to in writing before acting (B&P § 10176(d))
• ✓Residential mortgage loans = consumer credit secured by 1-4 residential units (Civil Code § 2923.1(b)(4))