Real Estate License Exam Study Guide

Key concepts, definitions, and rules the state exam will test you on. Focus on understanding principles — not memorizing word-for-word.

1. Property Ownership & Land Use

Type of Ownership	Key Feature
Fee Simple Absolute	Highest form of ownership — unlimited, inheritable, no conditions
Fee Simple Defeasible	Ownership with conditions — can revert to grantor if violated
Life Estate	Ownership for life of a person; passes to remainderman at death
Leasehold Estate	Temporary right to use property (tenant's interest)

Encumbrances reduce value or restrict use: Liens (financial — mortgage, tax, mechanic's), Easements (right to use another's land), Deed restrictions/CC&Rs, Encroachments

Deed types:

General Warranty Deed — strongest; grantor warrants title against all defects ever
Special Warranty Deed — warrants only against defects during grantor's ownership
Quitclaim Deed — conveys whatever interest grantor has; no warranties (used in divorces, clearing title)
Sheriff's Deed / Trustee's Deed — used in foreclosure sales

Zoning types: R (residential), C (commercial), I (industrial), A (agricultural). Nonconforming use = legal use that predates zoning change. Variance = official exception to zoning rules.

2. Contracts

ELVIS — elements of a valid contract: Express agreement, Legal purpose, Valid consideration, Identification of parties, Signature of competent parties

Contract Status	Meaning
Executory	Not yet fully performed by both parties (most purchase agreements during escrow)
Executed	All parties have fully performed
Void	No legal effect from the start (illegal purpose, no consideration)
Voidable	Valid but one party can cancel (minors, fraud, duress)
Unenforceable	Valid but can't be enforced in court (oral real estate contract — Statute of Frauds)

Listing agreements: Exclusive Right to Sell (broker always gets commission), Exclusive Agency (seller can sell themselves without paying commission), Open Listing (only selling broker gets paid).

Statute of Frauds: Real estate contracts must be in writing to be enforceable. Oral agreements are valid between parties but unenforceable in court.

Contingencies give buyers an exit: financing contingency (can't get loan), inspection contingency (property issues), appraisal contingency (property appraises low).

3. Financing

Term	Definition
LTV (Loan-to-Value)	Loan amount ÷ Property value. 80% LTV = 20% down payment.
PMI	Required when LTV > 80% on conventional loans. Protects lender, paid by borrower.
Points (Discount Points)	1 point = 1% of loan amount. Paid upfront to buy down interest rate.
ARM	Adjustable Rate Mortgage — rate changes after initial fixed period
FHA Loan	3.5% minimum down, requires MIP (mortgage insurance premium), lower credit score OK
VA Loan	0% down for eligible veterans, no PMI, VA funding fee

Three appraisal approaches: Sales Comparison (comps — most common for residential), Cost Approach (land value + depreciated replacement cost — best for unique/new properties), Income Approach (NOI ÷ cap rate — used for investment/commercial property)

RESPA (Real Estate Settlement Procedures Act) — requires Good Faith Estimate, prohibits kickbacks between settlement service providers, mandates HUD-1 settlement statement disclosure.

Truth in Lending (TILA / Reg Z) — requires disclosure of APR (Annual Percentage Rate), total finance charges, and right of rescission on refinances.

4. Agency Relationships

Fiduciary duties — COALD: Confidentiality, Obedience, Accounting, Loyalty, Disclosure

Agency Type	Who They Represent
Seller's Agent (Listing Agent)	Seller — full fiduciary duties to seller
Buyer's Agent	Buyer — full fiduciary duties to buyer
Dual Agent	Both parties — limited fiduciary duties to both; must disclose and get consent
Transaction Broker	Facilitates transaction, no fiduciary duty (some states)
Subagent	Works for seller through cooperation with listing broker

Latent vs. Patent defects: Latent = hidden defects agent/seller must disclose (foundation crack behind drywall). Patent = visible defects buyer can see themselves (broken window). Must disclose ALL known material defects.

5. Fair Housing

7 Protected Classes (Federal): Race, Color, Religion, National Origin, Sex, Familial Status, Disability
Mnemonic: RC RNS FD — Race, Color, Religion, National origin, Sex, Familial status, Disability

Prohibited acts: Steering (directing buyers toward/away from neighborhoods based on protected class), Blockbusting (inducing sales by warning of demographic changes), Redlining (refusing to lend in certain areas based on demographics)

ADA (Americans with Disabilities Act) — applies to commercial properties and public accommodations. Reasonable accommodations must be made. Fair Housing Act separately requires landlords to allow reasonable modifications for disabled tenants (at tenant's expense).

Exemptions to Fair Housing: Owner-occupied buildings with 4 or fewer units (Mrs. Murphy exemption), single-family homes sold without a broker, housing for 55+ communities (HUD rules apply)

6. License Law

License hierarchy: Real Estate Commissioner/Superintendent (state regulator) → Broker → Salesperson. Salesperson must work under a broker — cannot operate independently.

Commingling vs. Conversion: Commingling = mixing client funds with personal/business funds (illegal). Conversion = using client funds for personal use (illegal, criminal).

Disciplinary actions (from least to most severe): Reprimand → Fine → License suspension → License revocation

Trust/Escrow accounts: Client earnest money must go into a trust account immediately. Never into operating account. Interest usually goes to state housing fund (IOLTA).

Sherman Antitrust Act: Prohibits price-fixing between competing brokers (agreeing on commission rates). Each brokerage sets its own commission — always negotiable.