Form B: 140 practice questions and answers

Correct answer: B. Amendment

The parties are changing a term of an agreement that already exists.

What to remember: A later closing-date extension is a modification of an existing contract.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: C. Metes and bounds

Metes and bounds traces courses and distances around a parcel and should close at the point of beginning.

What to remember: Metes and bounds follows distances and directions around a parcel to a closing point.

Check the rule: Bureau of Land Management, Land Records: legal descriptions.

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Correct answer: B. Lien

A lien is a claim or security interest against property tied to a monetary obligation.

What to remember: A lien secures an obligation rather than granting the right to occupy the property.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: C. Recorded plat

The lot, block, subdivision name, and recording reference point to the plat that maps the parcel.

What to remember: A recorded plat identifies the lot and block within the subdivision.

Check the rule: Bureau of Land Management, Land Records: legal descriptions.

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Correct answer: A. Assignment

The right moved, but the facts do not show mutual substitution and extinguishment of the original buyer's obligation.

What to remember: An assignment can transfer rights without releasing the first party from obligations.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: C. The agreed listing compensation is earned

The classic exclusive-right agreement protects compensation regardless of who produces the buyer during the term, subject to the written agreement and law.

What to remember: An exclusive-right-to-sell clause can cover an owner-found buyer, subject to the agreed exceptions.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: D. Regression

Inferior surrounding properties can restrain the superior property's value through regression.

What to remember: Regression concerns a superior property affected by less valuable surroundings.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: B. Use written lawful criteria and one documented queue

Preexisting lawful criteria and a neutral documented process reduce arbitrary treatment and support consistent decisions.

What to remember: Apply lawful screening criteria consistently. A neutral-looking rule can still require fair-housing analysis.

Check the rule: HUD fair housing rights and responsibilities.

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Correct answer: D. It changes the lien's relative priority

Subordination makes the interest junior to another interest without necessarily releasing it.

What to remember: Subordination changes priority by agreement. It does not cancel the debt.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: B. Use the remedy stated in the contract before its deadline

As-is does not erase an express inspection right. The buyer must follow the contractual notice and deadline.

What to remember: An as-is clause and an express inspection contingency must be read together.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: D. Counteroffer

No contract formed on the original terms, and the material change proposes a new offer.

What to remember: A material change before acceptance is a counteroffer, not a post-formation amendment.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: D. Two-bedroom unit with step-free entrance

It describes the property rather than expressing a protected occupant preference.

What to remember: Describe the property’s features rather than a preferred protected category of occupant.

Check the rule: HUD, Housing Discrimination Under the Fair Housing Act.

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Correct answer: B. Encroachment

A physical object extending across a boundary creates an encroachment issue.

What to remember: A physical intrusion over a boundary is different from a recorded right to use land.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: C. Counteroffer

Changing a material term prevents mirror-image acceptance and creates a counteroffer.

What to remember: A counteroffer replaces proposed material terms rather than accepting them unchanged.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: C. FCRA adverse-action notice

A less favorable term based in whole or in part on a consumer report is adverse action even without complete denial.

What to remember: An adverse-action notice can be required for a higher deposit, even when the applicant is accepted.

Check the rule: FTC, Using Consumer Reports: What Landlords Need to Know.

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Correct answer: D. A builder warranty addresses stated construction coverage, while a home warranty is usually a purchased service contract

The documents protect different interests. Coverage must be determined from their actual terms, limits, and exclusions.

What to remember: A warranty or service contract is limited by its coverage, exclusions, and conditions.

Check the rule: FTC, Warranties for New Homes: warranties versus service contracts.

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Correct answer: A. Commingling

Funds of others have been mixed with the brokerage's business money instead of held in the proper special account.

What to remember: Commingling mixes another person’s funds with business or personal funds.

Check the rule: California DRE, Trust Funds: accounting and reconciliation principles.

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Correct answer: C. $87,000

$450,000 + $15,000 - $360,000 - $12,000 - $6,000 = $87,000.

What to remember: Subtract financing, deposits, and permitted credits from the stated buyer obligations.

Check the rule: CFPB, Closing Disclosure explainer.

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Correct answer: D. All required parties agree that a valid substitute replaces and releases the original obligation

Novation requires mutual agreement, a valid new contract, and extinguishment of the old obligation.

What to remember: Novation requires agreement to replace and release an obligation or party.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: C. Promptly notify the appropriate parties and refer the correction to the title professionals and attorneys

The broker should flag the issue and preserve the transaction record, while qualified title and legal professionals determine the correction and coverage.

What to remember: A broker should flag a title problem without pretending to decide legal coverage or draft a cure.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: D. Sparse comparable data and unrecorded renovation

Weak coverage and missing subject changes undermine both inputs and property fit.

What to remember: Weak or sparse inputs limit confidence in a model’s output.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: D. $231,425

The closing payoff is the amount required to satisfy the debt on the settlement date.

What to remember: A dated payoff can include accrued interest and other amounts beyond principal balance.

Check the rule: CFPB, Closing Disclosure explainer.

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Correct answer: A. Condemnation

Condemnation is the procedure for exercising the taking power.

What to remember: Condemnation is the legal process for exercising eminent domain.

Check the rule: Congress.gov Constitution Annotated, Fifth Amendment.

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Correct answer: B. It supplies public notice and can affect priority

Recordation supports constructive notice and the public chain of title. It does not guarantee that the instrument was otherwise valid.

What to remember: Recording creates notice under the recording system; it does not cure every defect in a deed.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: C. It evaluates verified repayment ability, credit, funds, collateral, and program eligibility

Underwriting applies lender and program standards to the borrower, property, and transaction evidence.

What to remember: Underwriting assesses the borrower, collateral, and loan against lending criteria.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: B. Physically possible

Size, shape, access, soil, utilities, and design feasibility belong to physical possibility.

What to remember: Highest and best use must also be legally permissible, financially feasible, and maximally productive.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: A. Addendum

It supplements the original agreement as the contract is formed.

What to remember: Distinguish an accompanying document at formation from a later change to an existing agreement.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: D. An owner-sale exception

The classic exclusive-agency form reserves the owner's right to sell personally without the listing commission, while exclusive right generally does not.

What to remember: An exclusive-agency listing commonly retains an owner-sale exception. Read the actual agreement.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: D. Cash to close

Cash to close combines the remaining down payment with costs and adjustments, net of deposits and credits.

What to remember: Down payment excludes many settlement costs included in cash to close.

Check the rule: CFPB, Closing Disclosure explainer.

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Correct answer: D. Intestate succession determines the heir's share

Escheat is a last resort. Legally entitled heirs take under intestate succession first.

What to remember: A person dying without a will does not necessarily leave property without lawful heirs.

Check the rule: Cornell Legal Information Institute, escheat.

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Correct answer: C. The assumption does not by itself prove a novation

A novation additionally requires the agreed substitution and extinguishment of the old obligation.

What to remember: An assumption may add an obligor without releasing the original one.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: A. CMA

A CMA uses market competition and transaction data to advise brokerage pricing.

What to remember: A CMA supports brokerage pricing decisions. It should not be represented as a formal appraisal.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: B. The affected property owner

An owner brings the claim after alleging government action took a protected interest without the ordinary process.

What to remember: Inverse condemnation starts with the owner seeking compensation for an alleged government taking.

Check the rule: Cornell Legal Information Institute, inverse condemnation.

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Correct answer: A. Record the change in an amendment signed by the parties

Follow the agreement’s amendment requirement and clearly document the new obligation. A deed conveys property; it is not the service-contract amendment.

What to remember: Follow the amendment procedure stated in the agreement.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: A. ADA Title III

A brokerage office open to the public is a public accommodation under Title III.

What to remember: A public-facing real estate office is different from the dwelling itself for ADA analysis.

Check the rule: U.S. Department of Justice, ADA Title III: businesses open to the public.

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Correct answer: B. Provide objective public property information

Objective information is customer assistance. Confidential disclosure, loyalty promises, and strategy advice conflict with the seller agency.

What to remember: Public factual information is different from private negotiating strategy.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: B. Professional land surveyor

Locating and reestablishing real-property boundaries is professional land-surveying work in Illinois.

What to remember: A survey addresses boundaries and location matters within its scope, not hidden building defects.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: B. Police power

Zoning regulates land use to advance public health, safety, and welfare under police power.

What to remember: Police power regulates use; eminent domain takes property for public use with required compensation.

Check the rule: California DRE, Planning and Zoning: general land-use concepts.

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Correct answer: C. 40%

$2,800 divided by $7,000 equals 0.40, or 40%.

What to remember: Total debt-to-income uses the specified recurring debt divided by gross income for the same period.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: B. The client's confidential price ceiling

A client's bargaining limit is confidential information unless disclosure is authorized or required.

What to remember: The buyer’s ceiling is confidential negotiating information unless disclosure is authorized or required.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: D. Buying a farm in another county

The agreement is limited by transaction type, property type, and geography. A farm purchase elsewhere falls outside all three stated boundaries.

What to remember: Representation scope comes from the engagement, not every future transaction the client considers.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: C. An owner sale for less than the secured obligations require, subject to necessary creditor approval

The seller remains the owner, but affected creditors must approve the treatment needed to release their claims for closing.

What to remember: A short sale needs the relevant creditor approvals. It does not automatically waive a deficiency.

Check the rule: CFPB, What is a short sale?.

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Correct answer: A. The agent exceeded the stated authority

Authority to present a particular offer does not include authority to bind the buyer at a higher price. Ratification and other legal consequences require separate analysis.

What to remember: Presenting an offer does not automatically authorize signing a different offer for the buyer.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: A. The seller has not given one broker an exclusive listing

An open listing permits competing broker efforts. Entitlement to compensation depends on the agreement and applicable procuring-cause principles, not simply holding a listing.

What to remember: Open listings are nonexclusive; they do not promise a fee to every participating broker.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: D. Parcel Y

The parcel carrying the easement burden is the servient estate.

What to remember: The servient parcel bears the burden; the dominant parcel receives an appurtenant benefit.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: A. The lowest level that could be used regularly

Testing should reflect the lowest level suitable for regular use, including a basement the buyer plans to occupy.

What to remember: The test location should reflect the buyer’s intended regular use, including a basement.

Check the rule: EPA, Home Buyer’s and Seller’s Guide to Radon, March 2024.

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Correct answer: A. 7%

$84,000 / $1,200,000 = 0.07, or 7%.

What to remember: Cap rate equals annual NOI divided by value or price, expressed as a percentage.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: C. AVM

An automated valuation model produces an estimate through data and algorithms.

What to remember: An AVM is a model’s estimate, not a physical inspection or a guaranteed sale price.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: D. Riparian

The standard exam convention uses riparian for rivers and streams.

What to remember: Riparian rights concern land adjoining a watercourse. Their scope depends on applicable law.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: C. Reinstatement of the loan under those terms

Curing the default restores the loan to good standing under the stated terms. It differs from paying the entire debt off. Deadlines and rights vary by law and instrument.

What to remember: Reinstatement cures the default; redemption or payoff can involve the full debt.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: A. Notify tenants and vendors who dealt with the manager and update public information

Notice to affected third parties and removal of the principal's public manifestations help prevent reasonable reliance on former authority.

What to remember: Notice may be needed to prevent third parties from reasonably relying on former authority.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: A. No contract formed because the response was a counteroffer

Formation fails before contract-status analysis because no mirror-image acceptance or acceptance of the counteroffer occurred.

What to remember: Acceptance must respond to the offer actually on the table.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: D. Valid delivery and present intent

A signature alone does not answer whether the deed was delivered with present intent to transfer the stated interest.

What to remember: Signing, delivery, acceptance, and recording are related but distinct steps.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: C. Acceleration clause

Acceleration advances the maturity of the debt so that the full balance becomes immediately due.

What to remember: Acceleration makes the unpaid balance due following a contractual trigger.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: A. The feature's effect on total property value

Contribution is the marginal value effect, which can differ from cost.

What to remember: An improvement’s cost and its contribution to market value may differ.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: B. Confidentiality

An agent safeguards confidential client information unless disclosure is authorized or required. The question excludes a legal duty to disclose.

What to remember: Confidentiality has exceptions for authorized or legally required disclosure.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: D. The agreement’s compensation terms and any stated exceptions

The stipulated exclusive-right-to-sell provision covers an owner-found sale. Read exceptions and performance conditions before assuming compensation is owed.

What to remember: The type of listing and its compensation clause determine the owner-sale analysis.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: A. Delegation

Contract rights are assigned, while performance duties are delegated.

What to remember: Delegating performance is different from assigning a right to receive performance.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: C. None automatically; the seller makes a lawful choice

No general rule requires acceptance of the first or highest offer. The seller evaluates complete terms subject to duties and law.

What to remember: An offer that meets the asking price does not automatically compel the owner to accept it.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: B. Excess land

Independent sale and development potential distinguish excess land from surplus land.

What to remember: Excess land can have a separate highest and best use; surplus land generally cannot be separately used that way.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: B. Promissory note

The note evidences the debt and states the repayment terms. The mortgage separately secures that debt with the property.

What to remember: The note evidences the debt; the mortgage or deed of trust provides security.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: D. Decline the unsupported claim and seek appropriate expert evaluation

An appraisal does not certify structural condition. An agent should not turn an unresolved concern into an unsupported factual promise.

What to remember: A broker cannot turn an unresolved physical concern into an invented professional assurance.

Check the rule: CFPB, Schedule a home inspection.

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Correct answer: A. The assignor's position, subject to the transferred right's existing limits and defenses

Illinois authority says the assignee stands in the assignor's shoes and receives no greater interest.

What to remember: An assignee generally receives the assignor’s rights, not greater rights than the assignor held.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: B. Defeasance

Defeasance is the classic exam term for defeating or ending the security interest upon full performance.

What to remember: A defeasance provision concerns release of the security upon satisfaction of the obligation.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: C. Keep it confidential unless authorized to disclose

A client's acceptable terms are negotiating-position information and should not be disclosed without authority.

What to remember: The seller’s minimum is not the same as the published list price.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: A. $152,000

Commission is $30,000. Net = $500,000 - $30,000 - $310,000 - $8,000 = $152,000.

What to remember: The stated compensation rate is an assumption for this problem, not a standard or mandated rate.

Check the rule: CFPB, Closing Disclosure explainer.

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Correct answer: B. The agent has substituted a term the parties did not agree to

An agent cannot manufacture mutual assent. The parties must agree to a change through a valid amendment under the contract and applicable law.

What to remember: An agent’s unauthorized edit does not establish the parties’ mutual assent.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: C. Legal access, survey location, title records, and any maintenance agreement

Physical use does not prove legal access. The buyer needs the survey, title, and agreement evidence reviewed.

What to remember: A driveway’s existence does not prove a legal right to cross someone else’s land.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: A. It has no legal effect and cannot be ratified

Void status means the apparent bargain cannot gain legal effect through a party's later affirmation.

What to remember: An unlawful bargain cannot be made valid merely by adding earnest money.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: A. Special assessment

A project-specific charge allocated to benefited parcels is the classic special-assessment pattern.

What to remember: A special assessment funds a particular public improvement rather than general property-tax operations.

Check the rule: California DRE, Subdivisions: special assessment districts, page 454.

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Correct answer: A. Area preference

Area preference, or situs, concerns market demand for location and is economic.

What to remember: Situs concerns location’s economic effect; it is not another word for building size.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: A. Closing Disclosure

The Closing Disclosure summarizes final covered loan terms, projected payments, and closing costs and is generally delivered at least three business days before consummation.

What to remember: The Closing Disclosure gives final loan terms and settlement costs for covered transactions.

Check the rule: CFPB, Closing Disclosure explainer.

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Correct answer: D. $3,200

One point is 1% of the loan amount. $320,000 x 0.01 equals $3,200.

What to remember: A point is calculated from principal. Convert the percentage before multiplying.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: D. Loyalty

The agent owes loyal advocacy to the represented client. Honesty, good faith, and accuracy also protect customers.

What to remember: An agent must put the client’s lawful interests ahead of an undisclosed personal advantage.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: B. The property or an interest is sold or transferred without required consent

Federal law defines due-on-sale around a sale or transfer of the secured property or an interest in it.

What to remember: A due-on-sale clause concerns a transfer; federal law also protects certain transfers from enforcement.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: C. 40

One-fourth of a 160-acre quarter section is 40 acres.

What to remember: A quarter of a quarter section is one-sixteenth of a nominal 640-acre section.

Check the rule: Bureau of Land Management, Land Records: legal descriptions.

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Correct answer: B. Voidable

Fraudulent inducement commonly gives the injured party a power to rescind or ratify.

What to remember: Fraud may give the injured party a right to avoid a contract; that differs from automatic nullity.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: C. 18,000 square feet

A rectangle's area is length times width: 120 × 150 = 18,000 square feet.

What to remember: Area uses length times width. Adding the dimensions calculates part of a perimeter instead.

Check the rule: Bureau of Land Management, Land Records: legal descriptions.

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Correct answer: D. $120,200

Vacancy loss is $10,800. EGI is $180,000 - $10,800 + $9,000 = $178,200. NOI is $178,200 - $58,000 = $120,200.

What to remember: Deduct vacancy and operating expenses as stated; exclude debt service from NOI.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

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Correct answer: D. $445,000

The qualifying price plus the increment is $445,000, which is below the ceiling.

What to remember: Apply the increment first, then check the cap and every stated qualifying condition.

Check the rule: California DRE, Transfer of Interests: general contract principles.

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Correct answer: C. It is credited against the buyer's remaining settlement obligation

The deposit is funds already paid by the buyer and therefore reduces the amount still needed at closing.

What to remember: An earnest-money deposit already paid reduces the remaining cash due; do not pay it twice.

Check the rule: CFPB, Closing Disclosure explainer.

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Correct answer: B. Secure disposal of the report and information from it

Consumer-report information needs secure disposal when no longer needed. Ordinary public trash or disclosure to unrelated people does not protect it.

What to remember: Protect information during retention and dispose of it securely when no longer needed.

Check the rule: FTC, Using Consumer Reports: What Landlords Need to Know.

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Correct answer: B. A survey locates land and improvements, while an inspection evaluates property components

The two services address different evidence and are separately regulated in Illinois.

What to remember: Inspection and survey reports answer different questions; neither replaces the other.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: D. Retaliation

Fair housing law protects people who assert rights, complain, or assist proceedings.

What to remember: Retaliation can be unlawful even when it follows, rather than accompanies, the original complaint.

Check the rule: HUD, Housing Discrimination Under the Fair Housing Act.

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Correct answer: A. Steering

Steering channels a housing seeker based on a protected characteristic.

What to remember: Steering changes a person’s housing choices because of a protected characteristic.

Check the rule: HUD, Housing Discrimination Under the Fair Housing Act.

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Correct answer: B. Bank, book, and total individual-ledger balances

Reconciliation connects the depository record, the brokerage books, and the sum owed across transaction ledgers.

What to remember: Reconcile bank, control account, and individual ledgers after legitimate timing adjustments.

Check the rule: California DRE, Trust Funds: accounting and reconciliation principles.

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Correct answer: C. A 10-day lead inspection or risk-assessment opportunity, unless changed by mutual agreement or waived in writing

The federal rule provides the inspection opportunity and allows the specified agreement or written waiver. It does not generally require the seller to test or remove lead as a condition of every sale.

What to remember: The lead inspection opportunity may be changed by mutual agreement or waived in writing.

Check the rule: EPA, Real Estate Disclosures about Potential Lead Hazards.

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Correct answer: D. Authority ends, but the seller may still face contractual liability

The principal generally has power to revoke ordinary actual authority. Wrongful early revocation can still breach the service contract.

What to remember: The power to revoke authority and liability for breaking a contract are separate questions.

Check the rule: California DRE, Agency: general agency principles.

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Correct answer: C. License

A license grants personal permission and generally does not create an interest in land.

What to remember: A license is permission to use, not a permanent ownership estate.

Check the rule: California DRE, Title to Real Property: general ownership principles.

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Correct answer: A. Blockbusting

Using protected demographic change to induce transactions for profit is blockbusting.

What to remember: Blockbusting induces sales for profit through claims about protected demographic change.

Check the rule: HUD, Housing Discrimination Under the Fair Housing Act.

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Correct answer: A. Describe the observation and recommend timely evaluation by the appropriate licensed professional

The broker should identify and communicate the red flag while leaving diagnosis and repair conclusions to qualified professionals.

What to remember: A visible crack may need expert diagnosis even when an agent can see it clearly.

Check the rule: CFPB, Schedule a home inspection.

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Correct answer: B. 80%

$270,000 divided by $337,500 equals 0.80, or 80%.

What to remember: Use the loan amount as the numerator, not the down payment.

Check the rule: California DRE, Real Estate Finance: notes and security instruments.

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Correct answer: D. Choosing a winner without lawful authority

An escrow holder protects the funds and follows documented contractual, written, judicial, or other lawful authority.

What to remember: A disputed deposit does not give the holder authority to decide who deserves it.

Check the rule: California DRE, Trust Funds: accounting and reconciliation principles.

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Correct answer: C. Refuse because obedience is limited to lawful instructions

Neither loyalty nor confidentiality authorizes concealment of a fact that governing law requires disclosed.

What to remember: Obedience does not extend to unlawful client instructions.

Check the rule: California DRE, Agency: general agency principles.

Study this topicPSI national broker outline VI

Correct answer: B. Conditioning the incentive on positive sentiment is prohibited

Section 465.4 prohibits incentives conditioned expressly or implicitly on a particular review sentiment. Disclosing the payment does not cure a payment conditioned on a five-star consumer review.

What to remember: Incentivizing an honest review without requiring positive sentiment is a different issue from buying a five-star review.

Check the rule: FTC, Consumer Reviews and Testimonials Rule: § 465.4.

Study this topicPSI national broker outline X

Correct answer: C. Clearly disclose the paid relationship with the endorsement

A material connection may affect how people weigh an endorsement. The disclosure should be clear and placed where viewers encounter the endorsement.

What to remember: A paid endorsement should not be presented as an independent, unpaid opinion.

Check the rule: FTC, Endorsement Guides: what people are asking.

Study this topicPSI national broker outline X

Correct answer: A. Price

Price is the transaction amount; value is an opinion.

What to remember: Price is an amount in a transaction; value is an opinion under a stated definition and date.

Check the rule: California DRE, Appraisal and Valuation: valuation methods.

Study this topicPSI national broker outline III

Correct answer: B. The contingency’s notice and deadline terms

The contingency determines the parties’ contractual options and how to exercise them. Lack of approval is not a universal automatic cancellation rule.

What to remember: Contingencies have conditions and deadlines. Do not assume a universal automatic outcome.

Check the rule: California DRE, Transfer of Interests: general contract principles.

Study this topicPSI national broker outline V

Correct answer: D. A limited potential compensation right

Protection clauses concern post-term compensation under defined conditions. They do not ordinarily renew the agency relationship.

What to remember: A protection clause concerns specified post-expiration compensation conditions, not an indefinite listing.

Check the rule: California DRE, Agency: general agency principles.

Study this topicPSI national broker outline VI

Correct answer: C. Unenforceable

The missing required writing generally makes the agreement unenforceable under the stated statute-of-frauds assumption. That is different from a contract whose purpose is illegal.

What to remember: The statute of frauds concerns required written evidence. Check applicable exceptions before declaring an outcome.

Check the rule: California DRE, Transfer of Interests: general contract principles.

Study this topicPSI national broker outline V

Correct answer: D. Obtain authorization from that sponsoring broker and identify the listing broker as required.

The rule requires authorization from the sponsoring broker with the exclusive agreement and identification of the listing broker. Access to a listing or its photos is not, by itself, the authorization described in this rule.

Check the rule: 68 Ill. Adm. Code 1450.715: advertising.

Study this topicPSI broker outline II.B

Correct answer: B. Two bedrooms, step-free entrance, near the train station.

Describe the home's features and location without excluding people based on protected characteristics. The other options signal a preference involving familial status or religion. The same fair housing principles apply online and in print.

Check the rule: 775 ILCS 5/3-102: fair housing practices.

Study this topicPSI broker outline III.G

Correct answer: D. No later than the beginning of work as the designated agent for the consumer.

Section 15-35(a) requires the notice no later than beginning work as a designated agent. It may be part of the brokerage agreement or a separate retained document, with a copy to the consumer or client.

Check the rule: 225 ILCS 454/15-35: agency disclosure.

Study this topicPSI broker outline IV.A

Correct answer: D. Take reasonable steps to remove or correct the outdated advertising.

Rule 1450.715 requires reasonable efforts to remove advertising after closing or listing termination, whichever occurs first. Control over the ad and ease of removal matter. An ad the broker controls should not continue to suggest that a sold property is available.

Check the rule: 68 Ill. Adm. Code 1450.715: advertising.

Study this topicPSI broker outline II.B

Correct answer: C. Offering negotiation services for another for valuable consideration.

The broker definition reaches offering or attempting covered acts for another in return for compensation or valuable consideration. A rent discount can be consideration. Neither a completed negotiation nor a cash payment is needed for this concern.

Check the rule: 225 ILCS 454/1-10: definitions.

Study this topicPSI broker outline I.A

Correct answer: D. Do not impose the pet fee for the assistance animal; actual animal damage can still be charged as allowed.

The Act bars a pet-related fee or deposit as a condition of an assistance-animal accommodation. It does not excuse the tenant from permitted charges for actual damage caused by the animal. Distinguish an upfront pet fee from damage liability.

Check the rule: 310 ILCS 120/10: assistance animals.

Study this topicPSI broker outline III.H

Correct answer: B. That the property is broker-owned or agent-owned.

The owner-sale provision requires broker-owned or agent-owned wording in the advertising or sign. It also bars using the name of a sponsoring broker that is not involved. Inactive status does not remove this advertising disclosure.

Check the rule: 225 ILCS 454/10-30: advertising.

Study this topicPSI broker outline II.B

Correct answer: A. No. Give it in time to prevent disclosure of the customer's confidential information.

The no-agency rule has both a protective timing requirement and an outside deadline. Preparation of an offer is the latest allowed point, not permission to accept customer confidences before then without the notice.

Check the rule: 225 ILCS 454/15-35: agency disclosure.

Study this topicPSI broker outline IV.A

Correct answer: B. The bill also depends on rates, exemptions, and other applicable tax factors.

An assessment is one input into the tax calculation. Taxing-district levies, applicable rates, equalization, and exemptions can also affect the final bill. A lower assessment alone does not establish an identical percentage reduction in the bill.

Check the rule: Illinois Department of Revenue: The Illinois Property Tax System, January 2026 (pp. 6, 18, 22).

Study this topicPSI broker outline III.F

Correct answer: C. Property is a listed term that must be followed by team.

The rule lists property among terms considered inherently misleading unless followed by team. Sponsor approval does not override that requirement. The whole advertisement must also identify the sponsoring brokerage appropriately.

Check the rule: 68 Ill. Adm. Code 1450.715: advertising.

Study this topicPSI broker outline II.H

Correct answer: B. No. Compensation alone does not determine the agency relationship.

Section 15-40 separates compensation from agency. The payment source alone neither creates nor proves the claimed seller representation. Look to the actual brokerage relationship and required disclosures.

Check the rule: 225 ILCS 454/15-40: compensation and agency.

Study this topicPSI broker outline IV.C

Correct answer: A. No. A commission claim does not justify withholding authorized escrow funds.

Rule 1450.750(g)(4) prohibits withholding an authorized escrow disbursement because of a licensee's commission or compensation claim. Pursuing compensation and handling entrusted funds are separate duties.

Check the rule: 68 Ill. Adm. Code 1450.750: escrow money.

Study this topicPSI broker outline II.I

Correct answer: A. No. That licensee's referral fees are limited to residential lease or rental transactions.

Rule 1450.780(b)(2) restricts referral fees for residential leasing agents to a lease or rental of residential real estate. A home purchase is outside that permission even if another broker performs the sale work.

Check the rule: 68 Ill. Adm. Code 1450.780: referral fees.

Study this topicPSI broker outline I.C

Correct answer: C. Do not reveal that confidential price without the required permission.

The statutory dual-agency disclosure explains limits on advice and disclosure. Consent to dual agency is not blanket permission to reveal the other client's confidential negotiating position.

Check the rule: 225 ILCS 454/15-45: dual agency.

Study this topicPSI broker outline IV.A

Correct answer: C. $200.

Section 31-10 permits the stated remaining-mortgage deduction when the transfer is subject to it and the amount is expressed as required. Taxable value is $200,000. Divide by $500 for 400 units, then multiply by $0.50: $200.

Check the rule: 35 ILCS 200/31-10: state transfer tax.

Study this topicPSI broker outline III.C

Correct answer: B. The licensee remains responsible for compliance with the Act and rules.

Rule 1450.750(n) expressly preserves the licensee's responsibility when a third-party service collects, manages, transmits, or disburses earnest money. Outsourcing the mechanics does not outsource the legal duty.

Check the rule: 68 Ill. Adm. Code 1450.750: escrow money.

Study this topicPSI broker outline II.I

Correct answer: A. Refer that client to another designated agent.

Rule 1450.830 and Section 15-15(b) require the referral when an affected client requests it. Giving written notice is one step; honoring the requested referral is another. Continue to protect each client's confidential information.

Check the rule: 68 Ill. Adm. Code 1450.830: contemporaneous offers; 225 ILCS 454/15-15: duties to a client.

Study this topicPSI broker outline IV.A

Correct answer: A. $2,000.

Section 9(a) generally allocates common expenses in the same ratio as the ownership percentage in the common elements stated in the declaration. Here 2% of $100,000 is $2,000. The question excludes special allocations that could change the calculation.

Check the rule: 765 ILCS 605/9: condominium common expenses.

Study this topicPSI broker outline III.A

Correct answer: A. Compensation for an unlicensed assistant cannot be transaction based.

Rule 1450.740(a) prohibits transaction-based compensation for unlicensed assistants. Permitted clerical duties do not make a per-closing payment plan acceptable. The brokerage should use a lawful compensation arrangement for the administrative work.

Check the rule: 68 Ill. Adm. Code 1450.740: unlicensed assistants.

Study this topicPSI broker outline II.G

Correct answer: D. The intended purpose, methodology, assumptions, and the required not-an-appraisal statement.

Section 10-45(b) requires these elements along with the property interest description, applicable interest disclosure, and the broker's identifying information and signature. A bare price is not a compliant substitute.

Check the rule: 225 ILCS 454/10-45: BPO and CMA requirements.

Study this topicPSI broker outline II.L

Correct answer: A. Both tenants must sign an effective lease of the homestead.

Section 1c states that a deed, contract for deed, mortgage, or lease of homestead property held in tenancy by the entirety is not effective unless signed by both tenants. Equal ownership does not authorize one spouse to sign for the other.

Check the rule: 765 ILCS 1005/1c: tenancy by the entirety.

Study this topicPSI broker outline III.A

Correct answer: D. No. The Act requires disclosure of known material defects but no specific investigation to complete the report.

Section 25 requires actual-knowledge disclosure and says the seller need not make a specific investigation or inquiry to complete the statement. This does not allow concealment of a known defect or replace a buyer's inspection.

Check the rule: 765 ILCS 77/25: actual knowledge.

Study this topicPSI broker outline IV.D

Correct answer: C. Yes. The consumer-initiated contact is one of the rule's permitted conditions.

The rule allows a discussion of a possible future agreement when the consumer initiates contact. This is not permission to induce a breach of the current exclusive agreement or pretend it has already ended.

Check the rule: 68 Ill. Adm. Code 1450.770: brokerage agreements.

Study this topicPSI broker outline II.D

Correct answer: C. It provides the stated education exemption, rather than an automatic broker license.

Section 5-27 exempts a qualifying Illinois attorney from the specified education requirements. It does not automatically issue a broker license or erase the remaining applicable requirements, such as passing the examination.

Check the rule: 225 ILCS 454/5-27: broker qualifications.

Study this topicPSI broker outline I.D

Correct answer: C. The stated division fits the five-acre-or-more exemption, while local requirements still need review.

Section 1(b)(1) exempts divisions into parcels of at least five acres that involve no new streets or access easements. The Act also preserves certain local authority, so a state exemption should not be described as universal permission to ignore local requirements.

Check the rule: 765 ILCS 205/1: subdivisions and exemptions.

Study this topicPSI broker outline III.E

Correct answer: B. It prohibits this interference with the existing agency relationship.

The rule bars inducing termination or amendment of another licensee's exclusive agency agreement to obtain a referral fee. Merely communicating relocation benefits is different when it does not advise or encourage breaking the agreement.

Check the rule: 68 Ill. Adm. Code 1450.780: referral fees.

Study this topicPSI broker outline II.F

Correct answer: B. The report communicates the seller's required knowledge; it is not a warranty or a substitute for inspections.

The statutory report explains its limits and encourages inspections. A seller must disclose required known conditions, but completing the form does not certify every concealed component or guarantee future performance.

Check the rule: 765 ILCS 77/35: disclosure report.

Study this topicPSI broker outline IV.D

Correct answer: B. The landlord may not require electronic funds transfer as the payment method.

Section 4 prohibits requiring a tenant or prospective tenant to remit residential lease amounts by electronic funds transfer for the agreements it covers. Offering electronic payment is different from requiring it.

Check the rule: 765 ILCS 705/4: electronic funds transfer.

Study this topicPSI broker outline III.I

Correct answer: D. Use a written amendment signed by the parties to the brokerage agreement.

A change to the amount or timing of compensation must be in writing and signed by the brokerage-agreement parties. The purchase contract may not be used to amend compensation in the brokerage agreement.

Check the rule: 68 Ill. Adm. Code 1450.770: brokerage agreements.

Study this topicPSI broker outline II.D

Correct answer: B. The Act exempts the transfer of new residential property that has never been occupied.

Section 15 includes a specific exemption for newly constructed residential real property that has never been occupied. A renovated older home is not automatically the same case. Other applicable disclosure or construction duties may still exist.

Check the rule: 765 ILCS 77/15: exempt transfers.

Study this topicPSI broker outline IV.D

Correct answer: A. No. The nonprincipal unlicensed person cannot receive that referral fee.

Section 10-15 and Rule 1450.780 prohibit paying a referral fee to an unlicensed person who is not a principal to the transaction. The question deliberately identifies the neighbor as a nonprincipal; a transaction-party incentive raises a different analysis.

Check the rule: 225 ILCS 454/10-15: referral fees; 68 Ill. Adm. Code 1450.780: referral fees.

Study this topicPSI broker outline II.E

Correct answer: D. The new construction must include passive radon-resistant construction.

Section 20 requires passive radon-resistant construction for the new residential construction covered by the Act. This construction requirement is separate from radon disclosure in a property sale and is not a promise that future radon levels will be zero.

Check the rule: 420 ILCS 52/20: passive radon construction.

Study this topicPSI broker outline III.K

Correct answer: B. Complete the three 15-hour post-license courses and their required final exams.

Section 5-50(b) requires 45 hours of post-license education in three 15-hour courses, with the required exams. The exception allowing completion by the second renewal is for first licenses received within the 180 days before the next deadline; this question excludes that exception.

Check the rule: 225 ILCS 454/5-50: renewal and post-license education.

Study this topicPSI broker outline I.G

Correct answer: D. No. The statute also requires the disclosure in the written renewal lease.

Section 25 expressly addresses the written lease or written renewal lease and requires signatures of both parties. Prior disclosure is not a reason to omit the required information from the renewal.

Check the rule: 765 ILCS 705/25: rental flood disclosure.

Study this topicPSI broker outline IV.E

Correct answer: C. No. The new sponsorship must be registered as required before licensed activities begin.

Section 5-27(c) requires valid sponsorship to be registered before an applicant begins licensed activities, and Section 5-40 governs sponsorship changes. A private employment agreement and the required licensing registration are distinct steps.

Check the rule: 225 ILCS 454/5-27: broker qualifications; 225 ILCS 454/5-40: sponsorship.

Study this topicPSI broker outline II.C

Correct answer: C. The broker named in the signed instrument, rather than its employee or independent contractor.

Section 10(a) makes the lien available to the broker named in the qualifying instrument, not that broker's employee or independent contractor. The remaining entitlement, recording, and notice requirements still must be satisfied.

Check the rule: 770 ILCS 15/10: commercial broker liens.

Study this topicPSI broker outline III.J

Correct answer: A. Allow a ten-day opportunity unless the parties agree in writing to a different period or the buyer waives it in writing.

The federal rule ordinarily provides a ten-day opportunity for a lead inspection or risk assessment. The period can be changed by written agreement, or the buyer can waive the opportunity in writing. That does not waive the separate disclosure package.

Check the rule: U.S. EPA: lead disclosures for sellers and lessors.

Study this topicPSI broker outline IV.E

Correct answer: C. Within 24 hours after signing or initialing the correction.

The rule requires a true copy of the original or corrected document within 24 hours after the person signs or initials it. It is not a next-closing or attorney-review deadline.

Check the rule: 68 Ill. Adm. Code 1450.775: written agreements.

Study this topicPSI broker outline II.J

Correct answer: A. Refuse to carry out the unlawful instruction.

Section 15-15 requires compliance with a client's lawful specific directions. The word lawful matters. Agency duties do not authorize prohibited discrimination, even when the client is insistent.

Check the rule: 225 ILCS 454/15-15: duties to a client.

Study this topicPSI broker outline II.A

Correct answer: D. To protect the public through standards of competence and conduct.

Section 1-5 identifies protection of the public and minimum competence and professional-conduct standards as the purpose of the Act. Licensing is not a guarantee of investment results or a mechanism for setting uniform commissions.

Check the rule: 225 ILCS 454/1-5: public protection.

Study this topicPSI broker outline II.N