California real estate exam study guide

The DRE's 150 questions weight practice and disclosures most, at about 25%. Learn the California terms, then the transfer tax and Proposition 13 math.

79 California vocabulary flashcards

0 of 79 known

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DRE: The California Department of Real Estate, run by the Real Estate Commissioner. It gives the exam and issues licenses.
Responsible broker: The broker who supervises a salesperson and notifies the DRE when one joins or leaves.
Broker-salesperson agreement: A dated, signed written agreement covering supervision, duties and pay. Every broker needs one with each salesperson.
Agency disclosure: Given as soon as practicable, then confirmed in the purchase contract or a separate writing signed with it.
Dual agency: Allowed in California, but only with the knowledge and consent of both parties.
Trust funds: Money held for others. It goes to the principal, a neutral escrow or the trust account within three business days.
Broker money in trust: Up to $200 of the broker's own money to cover bank charges. Anything more is commingling.
Secret profit: Any undisclosed compensation or profit an agent takes. Grounds for discipline.
Visual inspection duty: A broker must make a competent, diligent visual inspection of accessible areas of a home of 1 to 4 units and disclose what it shows.
Two-year limit: A buyer has two years from possession to sue a broker over the visual inspection duty.
TDS: The Transfer Disclosure Statement, for homes of 1 to 4 units, given as soon as practicable before title transfers.
NHD: The Natural Hazard Disclosure Statement: flood, fire, earthquake fault and other mapped hazard zones.
Mello-Roos: A special tax lien for a community facilities district. The seller must disclose it.
Documentary transfer tax: The county tax on a sale: $0.55 for each $500 of price or part of $500 in most counties.
Proposition 13: Caps the general property tax at 1% of assessed value and lets the base value rise at most 2% a year until a sale.
Community property: California presumes property a married couple acquires during marriage is owned by both.
Consumer Recovery Account: Pays victims of a licensee's fraud: up to $50,000 a transaction and $250,000 a licensee. Payment suspends the license.
Fictitious business name: A licensee may use a trade name only if the license shows it.
First point of contact: Business cards, flyers and ads must show the license number and the responsible broker.
License term: Four years, with 45 hours of continuing education to renew.
Implicit bias training: Two hours, part of the 45 hours for a first renewal. Fair housing adds three hours with a roleplay.
Three courses: Real Estate Principles, Real Estate Practice and one elective before the exam. Practice must cover implicit bias and fair housing.
Security deposit cap: Generally one month's rent, on top of the first month. Some small landlords may take two.
HIV disclosure: That an occupant had HIV or died of AIDS-related causes is not a material fact to disclose.
Option profit: A listing agent who holds an option to buy must disclose her full profit in writing and get the seller's written consent.
Fee simple absolute: The most complete ownership: no conditions, unlimited in time, and it passes to heirs.
Life estate: Ownership that lasts only for the length of a named person's life.
Easement appurtenant: A right to use a neighbor's land that benefits a parcel and passes with it when it sells.
Easement in gross: A right to use land that belongs to a person or company, such as a utility line, not to a parcel.
Encroachment: A building, fence or other improvement that extends onto a neighbor's land.
Fixture: An item once personal property that is attached to the land or building and now goes with the sale.
Trade fixture: Equipment a commercial tenant installs for business. The tenant may remove it before the lease ends.
Emblements: Yearly crops a tenant planted and tended. They are personal property.
Joint tenancy: Co-ownership with right of survivorship. It needs four unities: time, title, interest and possession.
Tenancy in common: Co-ownership with undivided shares, which may be unequal, and no right of survivorship.
Lien: A claim on property as security for a debt. A specific lien hits one property; a general lien hits all of a debtor's property.
Adverse possession: Gaining title by open, hostile and continuous use of another's land for the period state law sets.
General warranty deed: A deed in which the grantor guarantees the title against defects from any time, not just her own ownership.
Quitclaim deed: A deed that passes whatever interest the grantor has, with no promises about the title.
Recording: Filing a deed in the public records. It gives everyone constructive notice of the owner's interest.
Market value: The most probable price a property would bring in a competitive, open market.
Highest and best use: The legal, physically possible and financially feasible use that gives the land its highest value.
Substitution: A buyer will not pay more for a property than the cost of an equally good substitute.
Functional obsolescence: Lost value from an outdated design or feature inside the property, such as one bathroom for five bedrooms.
External obsolescence: Lost value from a cause outside the property, such as a new highway. The owner usually cannot cure it.
Bilateral contract: A promise in exchange for a promise, such as a purchase contract.
Unilateral contract: A promise in exchange for an act. An option binds only the seller.
Void contract: An agreement with no legal effect from the start, such as one for an illegal purpose.
Voidable contract: A valid contract one party may cancel, such as one signed by a minor.
Statute of frauds: The rule that a contract to sell real estate must be in writing and signed to be enforced.
Counteroffer: A new offer that changes the terms. It rejects the original offer, which cannot then be accepted.
Option: A right, bought for a fee, to buy at a set price within a set time. Only the seller is bound.
Liquidated damages: An amount the parties agree in advance will be the damages for a breach, often the earnest money.
Specific performance: A court order making a party carry out the contract as written.
Fiduciary duties: What an agent owes a client: obedience, loyalty, disclosure, confidentiality, accounting and reasonable care.
Special agent: An agent with authority for one task or one transaction, as a listing broker usually is.
General agent: An agent with broad authority over a range of matters, as a property manager usually is.
Exclusive right to sell: A listing that pays the broker whoever sells the property during the term, even the owner.
Exclusive agency listing: A listing that pays the broker unless the owner finds the buyer herself.
Open listing: A listing given to any number of brokers. Only the broker who brings the buyer is paid.
Net listing: The broker keeps whatever the price exceeds a set amount. Illegal or discouraged in most states.
Steering: Channeling buyers toward or away from areas because of a protected class.
Blockbusting: Pushing owners to sell by claiming a protected class is moving into the area.
Redlining: Refusing loans or insurance in an area because of the people who live there.
Loan-to-value ratio: The loan divided by the lower of the price and the appraised value.
Point: One percent of the loan amount, paid at closing.
Private mortgage insurance: Insurance that protects the lender, usually required on a conventional loan above 80% of value.
Acceleration clause: Lets the lender demand the whole balance at once if the borrower defaults.
Alienation clause: Lets the lender call the loan due when the property is sold. Also called due-on-sale.
Capitalization rate: Net operating income divided by value. Value = NOI ÷ cap rate.
Proration: Splitting a bill or income between buyer and seller by the days each owns the property.
Debit: On a closing statement, an amount a party owes.
Credit: On a closing statement, an amount a party has paid or is owed.
Mill: One tenth of a cent. A tax of 1 mill is $1 for every $1,000 of assessed value.
Lead-based paint disclosure: Required for housing built before 1978. Buyers get 10 days to test for lead unless they waive it.
CERCLA: The federal Superfund law. Owners can be liable for cleaning up hazardous waste even if they did not cause it.
Variance: Permission to depart from a zoning rule because following it would cause real hardship.
Nonconforming use: A use that was legal before new zoning banned it and is allowed to continue.
Antitrust: Federal law that bans brokers agreeing on commission rates, boycotting a competitor or splitting up markets.

What the California exam covers

150 questions in 3 hours, state law mixed through every area. You need 105 right.

Area	Share of the exam
Practice of real estate and disclosures	About 25%
Laws of agency and fiduciary duties	About 17%
Property ownership and land use	About 15%
Valuation and financial analysis	About 14%
Contracts	About 12%
Financing	About 9%
Transfer of property	About 8%

10 California math questions, worked

Try each one, then open the working.

A California home sells for $725,000 in a county using the standard documentary transfer tax. What is the tax?
Show the answer
$797.50
1. Count each $500 or part of $500: $725,000 ÷ 500 = 1,450.
2. 1,450 × $0.55 = $797.50.
A California condo sells for $612,300 in a county using the standard documentary transfer tax. What is the tax?
Show the answer
$673.75
1. $612,300 ÷ 500 = 1,224.6. A part of $500 counts as a whole one: 1,225.
2. 1,225 × $0.55 = $673.75.
A California home's assessed value is $650,000. What is the general property tax at the Proposition 13 rate, before bonds and special taxes?
Show the answer
$6,500
1. The general rate is capped at 1% of assessed value.
2. $650,000 × 1% = $6,500.
A California home's base year value is $500,000. If it rises by the most Proposition 13 allows for three years in a row, what is it then?
Show the answer
$530,604
1. The most it can rise is 2% a year, compounded.
2. $500,000 × 1.02 × 1.02 × 1.02 = $530,604.
A California landlord who is not a small landlord rents an unfurnished apartment for $2,850 a month. What is the most security deposit it may take, besides the first month's rent?
Show the answer
$2,850
1. The cap is one month's rent.
2. One month's rent is $2,850.
A California home sells for $1,150,000 at a 5% commission, split equally between two brokerages. The listing salesperson gets 60% of her broker's side. What does she earn?
Show the answer
$17,250
1. Commission: $1,150,000 × 5% = $57,500.
2. Listing side: $57,500 ÷ 2 = $28,750.
3. Salesperson: $28,750 × 60% = $17,250.
A California seller sells for $900,000 and pays a 5% commission, a $412,000 loan payoff and $6,500 of other costs. What does she net?
Show the answer
$436,500
1. Commission: $900,000 × 5% = $45,000.
2. $900,000 − $45,000 − $412,000 − $6,500 = $436,500.
A California buyer borrows $640,000 at 6.75% a year. What is the interest for the first month?
Show the answer
$3,600
1. Yearly interest: $640,000 × 0.0675 = $43,200.
2. One month: $43,200 ÷ 12 = $3,600.
A California building has gross rent of $96,000 a year, 5% vacancy and $31,500 of operating expenses. Buyers expect a 6% cap rate. What is it worth?
Show the answer
$995,000
1. Effective gross income: $96,000 − 5% = $91,200.
2. NOI: $91,200 − $31,500 = $59,700.
3. Value: $59,700 ÷ 0.06 = $995,000.
A California lot is 75 feet wide and 120 feet deep. What is its area in square feet, and to two decimals, in acres?
Show the answer
9,000 square feet, 0.21 acres
1. Area: 75 × 120 = 9,000 square feet.
2. 9,000 ÷ 43,560 = 0.2066, which is 0.21 acres.

5 California practice questions

Question 1

Which act, done for another for compensation, requires a California real estate license?

Question 2

A California agent buys a listing through a friend and resells it at a profit without telling the seller. Which ground for discipline applies?

Question 3

A California landlord rents an unfurnished apartment for $2,400 a month. What is the most security the landlord may usually demand, besides the first month's rent?

Question 4

Which California disclosure tells a buyer whether the property is in a special flood hazard area, a very high fire hazard severity zone or an earthquake fault zone?

Question 5

How long is a California real estate salesperson license valid?

Next step

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Questions people ask

What is on the California real estate exam?

Practice and disclosures (about 25%), agency (17%), property ownership and land use (15%), valuation (14%), contracts (12%), financing (9%) and transfer of property (8%).

How is the California documentary transfer tax worked out?

In most counties, $0.55 for each $500 of the price or part of $500. A $725,000 sale pays $797.50.

How many questions do I need right on the California exam?

105 of 150, which is 70%.