Which of the following business entities is generally prohibited from brokering real estate?

A non-profit corporation is a corporate entity which is not legally entitled to generate profit. A non-profit organization may not broker real estate. Brokerage is limited to entities the state allows to hold a real estate license. Individuals, partnerships, and for-profit corporations may broker when properly licensed, but a non-profit corporation cannot earn the profit that brokerage produces, so it is barred from acting as a broker.

A property has sold for $380,000. The listing agreement calls for a commission of 6.5%. The listing broker and selling broker agree to share the commission equally. What will the listing agent receive if the agent is scheduled to get a 40% share?

First calculate the total commission, then the co-brokerage splits, then the agent-broker split. Thus: $380,000 x 6.5% = $24,700 total commission. ($24,700 x 50%) = $12,350 total listing broker share. ($12,350 x 40% = $4,940 agent's share. Commission math follows a fixed sequence: total sale price times the agreed rate gives the full commission. Then apply the co-brokerage split between the listing and selling brokers, and finally the split between the broker and the agent.

A broker receives an earnest money deposit from a buyer and signs the check over to the listing agent as a partial commission advance. What is wrong with this procedure?

Conversion is the act of misappropriating escrow funds for the broker's business or personal use. Conversion carries serious consequences, including license revocation. Earnest money and other security funds belong to the parties, not the broker. Holding them in trust means the broker may not convert them for business or personal use; doing so is conversion, a serious violation that can cost the license.

Nothing, provided the deposit clears the bank and doesn't bounce.

The broker and the agent are guilty of price fixing.

The agent may not be able to return the advance if the transaction falls through.

How does the position of an independent contractor licensee (IC) differ from that of an employee licensee?

Generally, a broker has limited control over the actions of a contractor. Specifically: a broker can require performance results, but is limited in demanding how a contractor performs the work; and the broker does not take responsibility for a contractor's income and social security taxes. An independent contractor licensee works under a broker but is treated differently for control and taxes. The broker may require results but not dictate how the work is done, and the broker does not withhold income or Social Security taxes for the IC.

The IC must obtain his or her own training; it is not provided by the broker.

The employee is not entitled to company benefits.

The IC must abide by all office meeting schedules.

A real estate sale contract is an executory contract until

An executory contract is one for which the signatories have yet to perform their respective obligations and promises. Upon closing, the sale contract is fully performed and no longer exists as a binding agreement. An executory contract is one where promises remain unperformed. A signed sale contract is executory because the parties still owe duties; once every obligation is performed at closing it becomes executed and the contract is finished.

the completed sale transaction is recorded.

the buyer and seller have agreed to all provisions and have signed the contract.

the loan has been approved, the title insurance has been obtained, and the closing date is set.

What kind of interest does the buyer acquire once a real estate sale contract is signed by the principal parties?

A sale contract gives the buyer an interest in the property that is called equitable title, or ownership in equity. If the seller defaults and the buyer can show good faith performance, the buyer can sue for specific performance, that is, to compel the seller to transfer legal title upon payment of the contract price. Signing a sale contract gives the buyer equitable title, an ownership interest recognized in equity, while the seller keeps legal title until closing. If the seller defaults, the buyer's equitable title supports a suit for specific performance.

On Wednesday, Fred offers to sell his property to Jack for $275,000, with the offer to remain open until 5 p.m. the next day. On Thursday morning, Sally offers Fred $280,000 for the property and Fred accepts. At 1 p.m. on Thursday afternoon, Jack accepts. Which of the following is true of this situation?

Jack's acceptance of Fred's offer creates a valid contract, just as Fred's acceptance of Sally's offer creates a valid contract. Fred should have revoked his offer to Jack before accepting Sally's offer. An offer can be accepted as long as it has not been revoked or terminated. Accepting Sally's offer did not revoke the still-open offer to Jack, so when Jack accepted, two valid contracts existed and Fred exposed himself to a breach claim.

The acceptance by Sally creates a contract and terminates Fred's offer to Jack.

Fred's acceptance of Sally's offer is invalidated by Jack's acceptance, because Fred's offer to Jack was made prior to Sally's offer to Fred.

No contract has been created because it is impossible to have two valid sale contracts for the same property.

Several buyers are competing for the last available home in a desirable new subdivision. One buyer calls the owner-developer directly on the phone and offers $20,000 over and above the listed price. The developer accepts the offer. At this point,

As a sale contract created by an offer and acceptance, the parties have an executory contract: the parties have yet to perform their respective obligations and promises. However, as a contract for the sale of real estate, this verbal contract is not enforceable. An enforceable real estate sale contract must be in writing. A verbal agreement to buy real estate can satisfy offer and acceptance and form an executory contract, meaning the duties are not yet performed. Because the statute of frauds requires real estate sale contracts in writing, that verbal deal cannot be enforced.

the parties have a valid, enforceable sale contract on the home.

the parties may not cancel their contract.

the developer could not entertain other offers on the property.

Which of the following is NOT a trust fund violation?

Brokers may maintain an amount of operating funds in the trust account in order to pay monthly banking fees. Trust funds must be kept separate from the broker's operating money. Commingling trust and operating funds, or using escrow money for business expenses, is a violation, but the broker may leave enough operating funds in the trust account to cover bank service fees.

Using operating funds to reimburse a tenant's lease deposit if spent by the broker.

Depositing trust funds in an operating account.

Returning trust funds to a buyer if approved by all parties.

Emily is a broker representing both the buyer and seller in a property transaction. What disclosure must she make to ensure compliance with dual agency laws?

In a dual agency situation, the broker must disclose their role to both the buyer and seller and obtain their written consent. Dual agency happens when one broker represents both sides of the same transaction. The law requires the broker to disclose the dual role to the buyer and the seller and to obtain each party's written consent before continuing.

Only disclose to the buyer her relationship with the seller.

Disclose to the seller her relationship with the buyer only.

No disclosure is needed if both parties agree on the transaction terms.

Which of the following best defines 'specific performance' as a legal remedy in real estate?

Specific performance is a legal remedy that compels a party to complete the terms of the contract, often used in real estate where monetary damages are insufficient. Specific performance is a court order forcing a breaching party to carry out the contract as written. Courts use it in real estate because each property is unique, so money damages often cannot give the buyer what was promised.

Awarding monetary damages to compensate for a contract breach.

Negotiating new terms to satisfy both parties.

Returning the earnest money deposit to the buyer.

Robert, a licensed salesperson, accepts a commission from a cooperating broker. What is wrong with this scenario?

Salespersons must receive all commission payments from their employing broker, not from other brokers involved in the transaction. A salesperson cannot collect a commission straight from another broker or a client. All compensation must flow through the salesperson's employing broker, who then pays the licensee according to their agreement.

Robert is required to disclose this commission to the client.

Commissions cannot be paid to any salesperson directly.

Nothing is wrong if Robert performed most of the work.

If a contract for sale is terminated due to a contingency failure, what typically happens to the earnest money deposit?

If a contingency (like financing or inspection) fails, the earnest money deposit is usually refunded to the buyer per contract terms. A contingency protects the buyer by making the purchase conditional on some event, such as financing or inspection. When that condition fails, the buyer is not in default, so the earnest money is returned under the contract terms.

It is split between the buyer and seller.

It is retained by the escrow company.

Samantha is a buyer who learns that the property has several unpermitted improvements. What is the most likely impact on her contract to purchase?

If unpermitted improvements are discovered, the buyer may request repairs, a permit, or even choose to cancel the contract depending on its terms. Unpermitted improvements can create code and title problems, so they are a material issue in a sale. The buyer's remedy is generally to ask the seller to fix or permit the work, or to cancel the contract under its terms.

The contract will automatically terminate.

The seller must remove all unpermitted improvements.

The contract must be renegotiated with reduced pricing.

In an exclusive agency listing agreement, who is entitled to the commission if the owner finds a buyer without the broker’s help?

In an exclusive agency listing, the owner retains the right to sell the property independently without owing a commission to the broker. An exclusive agency listing reserves the owner's right to sell without the broker and owe no commission. This differs from an exclusive right to sell, where the broker is paid no matter who finds the buyer.

The broker receives the full commission regardless.

The buyer’s broker is paid by the owner.

Only the co-brokerage receives a portion of the commission.

John offers to buy a property for $200,000, but the seller counters with $210,000. What is John's original offer status after the counteroffer?

A counteroffer terminates the original offer, creating a new offer that must be accepted or rejected by the original offeror. A counteroffer operates as a rejection of the original offer and creates a brand new offer. Once the seller counters, the buyer's first offer is dead, and the buyer must accept or reject the new terms.

It remains valid until John accepts the counteroffer.

It must be accepted if John rejects the counteroffer.

It can be revised by John at any time.

James has an option-to-purchase agreement with the seller, but he has not yet exercised the option. Which of the following best describes his interest in the property?

An option-to-purchase gives the buyer an equitable interest in the property, which becomes a legal interest if the option is exercised. Holding an option to purchase gives the buyer an equitable interest in the property, not legal title. That equitable interest ripens into legal title only if and when the buyer exercises the option and the sale closes.

Under what circumstance might a buyer’s offer be automatically revoked?

If the seller counters the buyer's original offer, the original offer is effectively terminated, requiring the buyer to accept or reject the new terms. A counteroffer ends the offer it responds to. When a seller counters the buyer's offer, the buyer's original offer is terminated automatically, leaving the buyer to accept or reject the seller's new terms.

The buyer makes a counteroffer to the seller.

A broker’s compensation structure is primarily determined by:

Broker compensation structures are generally determined by market conditions and negotiations with the employing brokerage. Broker compensation is set by the market and by the agreement between the broker and client, not by regulators or trade groups. Agreeing with other brokers to set rates is price fixing, which is illegal.

agreements made among local brokers.

the commission rates set by the MLS service.

A 'buyer-broker agreement' primarily establishes which of the following?

A buyer-broker agreement establishes an exclusive relationship where the buyer commits to working with only one broker for a specified period. A buyer-broker agreement creates an exclusive working relationship for a set period, obligating the buyer to work through that broker. It represents the buyer's interests, and its compensation terms are negotiable, not fixed by rule.

The buyer’s right to cancel the agreement at any time.

A requirement for the broker to represent the seller's interest.

A fixed commission rate that must be paid to the broker.

ApexAgent Practice Questions

Brokerage Practice and Sale Contracts

Brokerage practice and sale contracts test process as much as vocabulary: offer and acceptance, contingencies, escrow, disclosure, and how a commission is actually earned. This set of 20 questions follows the sale contract from offer through closing. Every answer includes the rule, and every wrong option is explained.

20 practice questions with answers and explanations. Written and reviewed by the ApexAgent team against the national exam content outline, updated 2026-10-04.

Answer these, then test yourself under time

The free practice test scores you instantly, with no signup, and tells you which topics cost you the most points.

Take the Free Practice Test

What this topic tests

Non-profit corporations may not broker real estate; licensed individuals, partnerships, and for-profit corporations may.
A salesperson's commission must always be paid through the employing broker.
A counteroffer terminates the original offer and creates a new one.
A signed sale contract is executory until all obligations are performed at closing.
The buyer gains equitable title at contract signing; the seller keeps legal title until closing.
Dual agency requires written disclosure and consent from both buyer and seller.

Jump to a question

1. Which of the following business entities is generally prohibited
2. A property has sold for $380,000. The listing agreement
3. A broker receives an earnest money deposit from a
4. How does the position of an independent contractor licensee
5. A real estate sale contract is an executory contract
6. What kind of interest does the buyer acquire once
7. On Wednesday, Fred offers to sell his property to
8. Several buyers are competing for the last available home
9. Which of the following is NOT a trust fund
10. Emily is a broker representing both the buyer and
11. Which of the following best defines 'specific performance' as
12. Robert, a licensed salesperson, accepts a commission from a
13. If a contract for sale is terminated due to
14. Samantha is a buyer who learns that the property
15. In an exclusive agency listing agreement, who is entitled
16. John offers to buy a property for $200,000, but
17. James has an option-to-purchase agreement with the seller, but
18. Under what circumstance might a buyer’s offer be automatically
19. A broker’s compensation structure is primarily determined by:
20. A 'buyer-broker agreement' primarily establishes which of the following?

20 real estate exam questions on this topic

Question 1 of 20
Which of the following business entities is generally prohibited from brokering real estate?
- Sole proprietorship.
- Partnership.
- Corporation for profit.
- Non-profit corporation.Correct answer
Correct answer: D. Non-profit corporation.
Why: A non-profit corporation is a corporate entity which is not legally entitled to generate profit. A non-profit organization may not broker real estate.
The rule: Brokerage is limited to entities the state allows to hold a real estate license. Individuals, partnerships, and for-profit corporations may broker when properly licensed, but a non-profit corporation cannot earn the profit that brokerage produces, so it is barred from acting as a broker.
Why the other options are wrong
- Sole proprietorships are permitted to broker when the individual owner holds a valid real estate license.
- Partnerships may broker real estate as long as the partners or the entity hold the required licenses.
- A corporation organized for profit may obtain a broker's license and lawfully broker real estate.
Question 2 of 20
A property has sold for $380,000. The listing agreement calls for a commission of 6.5%. The listing broker and selling broker agree to share the commission equally. What will the listing agent receive if the agent is scheduled to get a 40% share?
- $4,445.00
- $3,556.00
- $2,667.00
- $4,940.00Correct answer
Correct answer: D. $4,940.00
Why: First calculate the total commission, then the co-brokerage splits, then the agent-broker split. Thus: $380,000 x 6.5% = $24,700 total commission. ($24,700 x 50%) = $12,350 total listing broker share. ($12,350 x 40% = $4,940 agent's share.
The rule: Commission math follows a fixed sequence: total sale price times the agreed rate gives the full commission. Then apply the co-brokerage split between the listing and selling brokers, and finally the split between the broker and the agent.
Why the other options are wrong
- $4,445 comes from taking 40% of the total commission, skipping the co-brokerage split.
- $3,556 reflects an incorrect split percentage, deriving from mismatched division steps rather than the stated 40% share.
- $2,667 misreads the sequence by applying the 40% agent split to the wrong base amount.
Question 3 of 20
A broker receives an earnest money deposit from a buyer and signs the check over to the listing agent as a partial commission advance. What is wrong with this procedure?
- Nothing, provided the deposit clears the bank and doesn't bounce.
- The broker and the agent are guilty of price fixing.
- The broker has illegally converted security funds for business use.Correct answer
- The agent may not be able to return the advance if the transaction falls through.
Correct answer: C. The broker has illegally converted security funds for business use.
Why: Conversion is the act of misappropriating escrow funds for the broker's business or personal use. Conversion carries serious consequences, including license revocation.
The rule: Earnest money and other security funds belong to the parties, not the broker. Holding them in trust means the broker may not convert them for business or personal use; doing so is conversion, a serious violation that can cost the license.
Why the other options are wrong
- Clearing the bank does not legalize the use; trust funds still must be held for the parties.
- Price fixing concerns brokers agreeing on rates, not misusing escrow funds held in trust.
- The problem is the unlawful use itself, not whether the advance could later be repaid.
Question 4 of 20
How does the position of an independent contractor licensee (IC) differ from that of an employee licensee?
- The IC is responsible for his or her own taxes; the broker does not withhold.Correct answer
- The IC must obtain his or her own training; it is not provided by the broker.
- The employee is not entitled to company benefits.
- The IC must abide by all office meeting schedules.
Correct answer: A. The IC is responsible for his or her own taxes; the broker does not withhold.
Why: Generally, a broker has limited control over the actions of a contractor. Specifically: a broker can require performance results, but is limited in demanding how a contractor performs the work; and the broker does not take responsibility for a contractor's income and social security taxes.
The rule: An independent contractor licensee works under a broker but is treated differently for control and taxes. The broker may require results but not dictate how the work is done, and the broker does not withhold income or Social Security taxes for the IC.
Why the other options are wrong
- The broker may still provide training and support; the real dividing line is control and tax withholding.
- Employees are the ones generally entitled to company benefits, not independent contractors.
- Independent contractors are not bound to office meeting schedules the way employees are.
Question 5 of 20
A real estate sale contract is an executory contract until
- the completed sale transaction is recorded.
- the buyer and seller have agreed to all provisions and have signed the contract.
- all the obligations and promises are performed and the transaction is closed.Correct answer
- the loan has been approved, the title insurance has been obtained, and the closing date is set.
Correct answer: C. all the obligations and promises are performed and the transaction is closed.
Why: An executory contract is one for which the signatories have yet to perform their respective obligations and promises. Upon closing, the sale contract is fully performed and no longer exists as a binding agreement.
The rule: An executory contract is one where promises remain unperformed. A signed sale contract is executory because the parties still owe duties; once every obligation is performed at closing it becomes executed and the contract is finished.
Why the other options are wrong
- Recording is a public notice step and has nothing to do with whether the contractual duties are performed.
- Agreement and signatures create the contract, but it stays executory until performance, not at signing.
- Loan approval and title work are contingencies; they do not mean all obligations under the contract are performed.
Question 6 of 20
What kind of interest does the buyer acquire once a real estate sale contract is signed by the principal parties?
- Legal title.
- Lienholder interest.
- Reversionary interest.
- Equitable title.Correct answer
Correct answer: D. Equitable title.
Why: A sale contract gives the buyer an interest in the property that is called equitable title, or ownership in equity. If the seller defaults and the buyer can show good faith performance, the buyer can sue for specific performance, that is, to compel the seller to transfer legal title upon payment of the contract price.
The rule: Signing a sale contract gives the buyer equitable title, an ownership interest recognized in equity, while the seller keeps legal title until closing. If the seller defaults, the buyer's equitable title supports a suit for specific performance.
Why the other options are wrong
- Legal title remains with the seller until the transaction closes and the deed is delivered.
- A lienholder interest describes a creditor's claim against the property, not the buyer's contractual position.
- A reversionary interest is a future interest held by a grantor, unrelated to a pending sale contract.
Question 7 of 20
On Wednesday, Fred offers to sell his property to Jack for $275,000, with the offer to remain open until 5 p.m. the next day. On Thursday morning, Sally offers Fred $280,000 for the property and Fred accepts. At 1 p.m. on Thursday afternoon, Jack accepts. Which of the following is true of this situation?
- The acceptance by Sally creates a contract and terminates Fred's offer to Jack.
- Fred has entered into contracts with both Jack and Sally to sell the same property.Correct answer
- Fred's acceptance of Sally's offer is invalidated by Jack's acceptance, because Fred's offer to Jack was made prior to Sally's offer to Fred.
- No contract has been created because it is impossible to have two valid sale contracts for the same property.
Correct answer: B. Fred has entered into contracts with both Jack and Sally to sell the same property.
Why: Jack's acceptance of Fred's offer creates a valid contract, just as Fred's acceptance of Sally's offer creates a valid contract. Fred should have revoked his offer to Jack before accepting Sally's offer.
The rule: An offer can be accepted as long as it has not been revoked or terminated. Accepting Sally's offer did not revoke the still-open offer to Jack, so when Jack accepted, two valid contracts existed and Fred exposed himself to a breach claim.
Why the other options are wrong
- Accepting Sally's offer did not revoke the open offer to Jack, so it did not terminate his ability to accept.
- Timing of the offers does not matter; an unrevoked offer stays open regardless of which offer came first.
- Two sale contracts for the same property are legally possible, even though performing both is impossible.
Question 8 of 20
Several buyers are competing for the last available home in a desirable new subdivision. One buyer calls the owner-developer directly on the phone and offers $20,000 over and above the listed price. The developer accepts the offer. At this point,
- the parties have a valid, enforceable sale contract on the home.
- the parties have completed a verbal, executory contract.Correct answer
- the parties may not cancel their contract.
- the developer could not entertain other offers on the property.
Correct answer: B. the parties have completed a verbal, executory contract.
Why: As a sale contract created by an offer and acceptance, the parties have an executory contract: the parties have yet to perform their respective obligations and promises. However, as a contract for the sale of real estate, this verbal contract is not enforceable. An enforceable real estate sale contract must be in writing.
The rule: A verbal agreement to buy real estate can satisfy offer and acceptance and form an executory contract, meaning the duties are not yet performed. Because the statute of frauds requires real estate sale contracts in writing, that verbal deal cannot be enforced.
Why the other options are wrong
- A verbal real estate sale contract is unenforceable under the statute of frauds, so it is not enforceable.
- Because the verbal contract is unenforceable, the parties are not locked in and can still cancel.
- An unenforceable verbal deal does not bind the developer, so other offers may still be entertained.
Question 9 of 20
Which of the following is NOT a trust fund violation?
- Using operating funds to reimburse a tenant's lease deposit if spent by the broker.
- Keeping enough operating funds in a trust account to cover bank fees.Correct answer
- Depositing trust funds in an operating account.
- Returning trust funds to a buyer if approved by all parties.
Correct answer: B. Keeping enough operating funds in a trust account to cover bank fees.
Why: Brokers may maintain an amount of operating funds in the trust account in order to pay monthly banking fees.
The rule: Trust funds must be kept separate from the broker's operating money. Commingling trust and operating funds, or using escrow money for business expenses, is a violation, but the broker may leave enough operating funds in the trust account to cover bank service fees.
Why the other options are wrong
- Using operating money to cover a tenant deposit the broker spent is conversion, a serious trust fund violation.
- Depositing trust funds into an operating account is commingling, which is prohibited.
- All-party approval does not override the rule that escrow money is released only under the contract terms.
Question 10 of 20
Emily is a broker representing both the buyer and seller in a property transaction. What disclosure must she make to ensure compliance with dual agency laws?
- Only disclose to the buyer her relationship with the seller.
- Disclose to both parties the dual agency and obtain written consent.Correct answer
- Disclose to the seller her relationship with the buyer only.
- No disclosure is needed if both parties agree on the transaction terms.
Correct answer: B. Disclose to both parties the dual agency and obtain written consent.
Why: In a dual agency situation, the broker must disclose their role to both the buyer and seller and obtain their written consent.
The rule: Dual agency happens when one broker represents both sides of the same transaction. The law requires the broker to disclose the dual role to the buyer and the seller and to obtain each party's written consent before continuing.
Why the other options are wrong
- Disclosing only to the buyer leaves the seller uninformed and fails the required written consent.
- Disclosing only to the seller ignores the buyer's right and the required written consent.
- Agreement on transaction terms does not substitute for disclosing dual agency and obtaining written consent.
Question 11 of 20
Which of the following best defines 'specific performance' as a legal remedy in real estate?
- Awarding monetary damages to compensate for a contract breach.
- Requiring the breaching party to fulfill their contractual obligations.Correct answer
- Negotiating new terms to satisfy both parties.
- Returning the earnest money deposit to the buyer.
Correct answer: B. Requiring the breaching party to fulfill their contractual obligations.
Why: Specific performance is a legal remedy that compels a party to complete the terms of the contract, often used in real estate where monetary damages are insufficient.
The rule: Specific performance is a court order forcing a breaching party to carry out the contract as written. Courts use it in real estate because each property is unique, so money damages often cannot give the buyer what was promised.
Why the other options are wrong
- Monetary damages are the remedy for compensation; specific performance orders the party to perform instead.
- Renegotiating terms is a settlement tool, not the court remedy that compels performance.
- Returning the earnest money is rescission, which undoes the deal rather than enforcing it.
Question 12 of 20
Robert, a licensed salesperson, accepts a commission from a cooperating broker. What is wrong with this scenario?
- Robert should only receive commissions through his employing broker.Correct answer
- Robert is required to disclose this commission to the client.
- Commissions cannot be paid to any salesperson directly.
- Nothing is wrong if Robert performed most of the work.
Correct answer: A. Robert should only receive commissions through his employing broker.
Why: Salespersons must receive all commission payments from their employing broker, not from other brokers involved in the transaction.
The rule: A salesperson cannot collect a commission straight from another broker or a client. All compensation must flow through the salesperson's employing broker, who then pays the licensee according to their agreement.
Why the other options are wrong
- Disclosing the payment to the client does not fix the problem; the commission still must come from the employing broker.
- Salespersons can receive commissions, but only from the employing broker, so the statement is too absolute.
- How much work was done is irrelevant; the payment source rule still requires routing through the employing broker.
Question 13 of 20
If a contract for sale is terminated due to a contingency failure, what typically happens to the earnest money deposit?
- It is forfeited to the seller.
- It is refunded to the buyer.Correct answer
- It is split between the buyer and seller.
- It is retained by the escrow company.
Correct answer: B. It is refunded to the buyer.
Why: If a contingency (like financing or inspection) fails, the earnest money deposit is usually refunded to the buyer per contract terms.
The rule: A contingency protects the buyer by making the purchase conditional on some event, such as financing or inspection. When that condition fails, the buyer is not in default, so the earnest money is returned under the contract terms.
Why the other options are wrong
- Forfeiting the deposit to the seller happens when the buyer defaults, not when a contingency fails.
- There is no standard rule splitting the deposit; a failed contingency usually returns it in full to the buyer.
- Escrow companies disburse funds per the contract; they do not keep the deposit for themselves.
Question 14 of 20
Samantha is a buyer who learns that the property has several unpermitted improvements. What is the most likely impact on her contract to purchase?
- The contract will automatically terminate.
- Samantha may request repairs or cancel the contract.Correct answer
- The seller must remove all unpermitted improvements.
- The contract must be renegotiated with reduced pricing.
Correct answer: B. Samantha may request repairs or cancel the contract.
Why: If unpermitted improvements are discovered, the buyer may request repairs, a permit, or even choose to cancel the contract depending on its terms.
The rule: Unpermitted improvements can create code and title problems, so they are a material issue in a sale. The buyer's remedy is generally to ask the seller to fix or permit the work, or to cancel the contract under its terms.
Why the other options are wrong
- Discovery of unpermitted work does not automatically end the contract; the buyer chooses among remedies.
- The seller is not automatically required to remove the improvements; the buyer may request a fix instead.
- Reduced pricing is one negotiation option, but renegotiation is not mandatory and the buyer may cancel.
Question 15 of 20
In an exclusive agency listing agreement, who is entitled to the commission if the owner finds a buyer without the broker’s help?
- The commission is waived, as the broker did not procure the buyer.Correct answer
- The broker receives the full commission regardless.
- The buyer’s broker is paid by the owner.
- Only the co-brokerage receives a portion of the commission.
Correct answer: A. The commission is waived, as the broker did not procure the buyer.
Why: In an exclusive agency listing, the owner retains the right to sell the property independently without owing a commission to the broker.
The rule: An exclusive agency listing reserves the owner's right to sell without the broker and owe no commission. This differs from an exclusive right to sell, where the broker is paid no matter who finds the buyer.
Why the other options are wrong
- Full commission regardless of who sells describes an exclusive right to sell listing, not exclusive agency.
- When the owner procures the buyer, no commission is owed, so no buyer's broker gets paid by the owner.
- No co-brokerage payment arises because the owner found the buyer without any broker's help.
Question 16 of 20
John offers to buy a property for $200,000, but the seller counters with $210,000. What is John's original offer status after the counteroffer?
- It remains valid until John accepts the counteroffer.
- It is terminated by the seller's counteroffer.Correct answer
- It must be accepted if John rejects the counteroffer.
- It can be revised by John at any time.
Correct answer: B. It is terminated by the seller's counteroffer.
Why: A counteroffer terminates the original offer, creating a new offer that must be accepted or rejected by the original offeror.
The rule: A counteroffer operates as a rejection of the original offer and creates a brand new offer. Once the seller counters, the buyer's first offer is dead, and the buyer must accept or reject the new terms.
Why the other options are wrong
- The original offer does not stay alive waiting for the counter; the counteroffer terminates it immediately.
- Rejecting the counteroffer does not revive the original offer, which was already terminated.
- The buyer cannot freely revise a terminated offer; a counteroffer left the buyer only acceptance or rejection.
Question 17 of 20
James has an option-to-purchase agreement with the seller, but he has not yet exercised the option. Which of the following best describes his interest in the property?
- Legal title.
- Encumbrance interest.
- Equitable interest.Correct answer
- Lienholder interest.
Correct answer: C. Equitable interest.
Why: An option-to-purchase gives the buyer an equitable interest in the property, which becomes a legal interest if the option is exercised.
The rule: Holding an option to purchase gives the buyer an equitable interest in the property, not legal title. That equitable interest ripens into legal title only if and when the buyer exercises the option and the sale closes.
Why the other options are wrong
- Legal title stays with the seller until the option is exercised and the transaction actually closes.
- An encumbrance interest concerns liens or restrictions burdening title, not an option holder's position.
- A lienholder interest belongs to a creditor with a claim, which an unexercised option holder is not.
Question 18 of 20
Under what circumstance might a buyer’s offer be automatically revoked?
- The seller rejects the offer.
- The buyer changes their mind.
- The buyer makes a counteroffer to the seller.
- The seller makes a counteroffer to the buyer.Correct answer
Correct answer: D. The seller makes a counteroffer to the buyer.
Why: If the seller counters the buyer's original offer, the original offer is effectively terminated, requiring the buyer to accept or reject the new terms.
The rule: A counteroffer ends the offer it responds to. When a seller counters the buyer's offer, the buyer's original offer is terminated automatically, leaving the buyer to accept or reject the seller's new terms.
Why the other options are wrong
- A seller's rejection ends the offer, but the question asks about automatic termination through a counteroffer.
- A buyer changing their mind is a withdrawal by the offeror, not the automatic termination a counteroffer creates.
- The buyer making a counteroffer responds to a seller's offer; it does not revoke the buyer's own prior offer.
Question 19 of 20
A broker’s compensation structure is primarily determined by:
- the state licensing board.
- the competitive market and brokerage agreements.Correct answer
- agreements made among local brokers.
- the commission rates set by the MLS service.
Correct answer: B. the competitive market and brokerage agreements.
Why: Broker compensation structures are generally determined by market conditions and negotiations with the employing brokerage.
The rule: Broker compensation is set by the market and by the agreement between the broker and client, not by regulators or trade groups. Agreeing with other brokers to set rates is price fixing, which is illegal.
Why the other options are wrong
- State licensing boards regulate licensing and conduct, but they do not set the fees brokers charge.
- Agreements among local brokers to fix rates is price fixing, an antitrust violation, not a valid source.
- The MLS publishes listings and data; it has no authority to set commission rates.
Question 20 of 20
A 'buyer-broker agreement' primarily establishes which of the following?
- An exclusive relationship where the buyer agrees to work only with one broker.Correct answer
- The buyer’s right to cancel the agreement at any time.
- A requirement for the broker to represent the seller's interest.
- A fixed commission rate that must be paid to the broker.
Correct answer: A. An exclusive relationship where the buyer agrees to work only with one broker.
Why: A buyer-broker agreement establishes an exclusive relationship where the buyer commits to working with only one broker for a specified period.
The rule: A buyer-broker agreement creates an exclusive working relationship for a set period, obligating the buyer to work through that broker. It represents the buyer's interests, and its compensation terms are negotiable, not fixed by rule.
Why the other options are wrong
- Buyer-broker agreements run for a stated term, so the buyer cannot simply cancel at any time.
- The agreement has the broker represent the buyer, not the seller, whose interests conflict.
- Commission rates in the agreement are negotiable, not a fixed amount mandated by law.

Want questions that keep you honest?

The free practice test adds a timer, a score and a plan for the topics you keep missing. No signup to see your result.

Take the Free Practice Test

Brokerage Business and Sale Contracts: frequently asked

Who can legally broker real estate in most states?

Licensed individuals, partnerships, and for-profit corporations may broker real estate when properly licensed. A non-profit corporation is generally barred because it cannot generate profit, which brokerage produces. A sole proprietor who holds a broker's license and a licensed partnership may also act as a broker.

What is the difference between an exclusive agency and an exclusive right to sell listing?

In an exclusive agency listing, the owner keeps the right to find a buyer personally and owe no commission. In an exclusive right to sell listing, the broker is paid regardless of who procures the buyer, including the owner. Both still give the broker an exclusive listing for the term.

What happens to earnest money if a contingency fails?

If a contingency such as financing or an inspection fails, the buyer is not in default, so the earnest money is normally refunded. The deposit is forfeited to the seller only when the buyer defaults. The contract terms govern how escrow releases the funds.

Concepts behind these questions

Each definition includes the mnemonic, the trap the exam sets and a few practice questions of its own.

Practice another topic

Practicing for one state instead? See the state practice test pages.