49 Agency & Contracts Practice Questions & Answers
Every Agency & Contracts practice question from the Real Estate License Practice Test, with the correct answer and a short explanation.
Start practice test →1. The acronym 'OLD CAR' summarizes an agent's fiduciary duties to a client. What does the 'C' stand for?
- A.Compensation
- B.Compliance
- C.Cooperation
- D.Confidentiality✓ Answer
In OLD CAR (Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable care), the 'C' stands for Confidentiality.
2. In a disclosed dual agency, the licensee represents:
- A.Both the buyer and the seller in the same transaction✓ Answer
- B.Neither party, acting only as a facilitator
- C.Only the buyer
- D.Only the seller
Dual agency occurs when one agent (or firm) represents both the buyer and the seller in the same transaction, which requires informed written consent from both parties.
3. Which type of listing agreement gives one broker the exclusive right to sell, so the broker earns a commission no matter who finds the buyer, including the owner?
- A.Open listing
- B.Exclusive right-to-sell listing✓ Answer
- C.Exclusive agency listing
- D.Net listing
Under an exclusive right-to-sell listing, the listing broker is owed a commission regardless of who procures the buyer, even the owner.
4. Under an exclusive agency listing, when does the seller owe the listing broker NO commission?
- A.When another cooperating broker finds the buyer
- B.When the owner personally finds the buyer without the broker's help✓ Answer
- C.When the property sells above the list price
- D.When the buyer uses financing
In an exclusive agency listing, the seller reserves the right to sell the property themselves and owes no commission if they procure the buyer without the broker.
5. Which of the following is NOT one of the essential elements required for a valid contract?
- A.Consideration
- B.Notarization of all parties' signatures✓ Answer
- C.Legal purpose
- D.Offer and acceptance (mutual assent)
The essential elements of a valid contract are offer/acceptance, consideration, legally competent parties, and legal purpose; notarization is not required for validity.
6. In an option contract to purchase real estate, which party is obligated?
- A.The optionor (owner) must sell if the optionee exercises the option✓ Answer
- B.The optionee (buyer) must purchase
- C.Neither party has any obligation
- D.Both parties must close within 30 days
An option is a unilateral contract: the optionor (owner) is bound to sell at agreed terms, but the optionee has the right, not the obligation, to buy.
7. What is the primary purpose of earnest money in a real estate purchase contract?
- A.To demonstrate the buyer's good faith and serious intent to perform✓ Answer
- B.To pay the seller's closing costs
- C.To pay the listing broker's commission
- D.To serve as the required down payment set by federal law
Earnest money is a good-faith deposit showing the buyer is serious; it is typically held in escrow/trust and applied to the purchase at closing.
8. A financing contingency in a purchase agreement primarily protects:
- A.The buyer, by allowing exit without penalty if a loan cannot be obtained✓ Answer
- B.The seller, by guaranteeing a cash sale
- C.The lender's appraisal fee
- D.The listing broker's commission
A financing (mortgage) contingency lets the buyer cancel and recover earnest money if they cannot secure the specified loan.
9. Under the federal Residential Lead-Based Paint Hazard Reduction Act, disclosure is required for target housing built:
- A.Only for commercial buildings
- B.After 1978
- C.Before 1978✓ Answer
- D.Before 2000
Federal law requires lead-based paint disclosure for most residential housing built before 1978, when lead paint was banned for residential use.
10. A material defect that a seller must disclose is best described as one that:
- A.Is purely cosmetic and easily noticed on a walk-through
- B.Has already been repaired by a licensed contractor
- C.Would significantly affect the property's value or a buyer's decision to purchase✓ Answer
- D.Only involves the neighborhood, not the property itself
A material defect is one that a reasonable buyer would consider important because it affects the property's value or their decision to buy, and it must be disclosed.
11. When a buyer's counteroffer is delivered to the seller, the effect on the buyer's original offer is that it:
- A.Is automatically accepted
- B.Remains open and can still be accepted
- C.Is terminated and cannot be accepted✓ Answer
- D.Becomes a binding contract on its own
A counteroffer is a rejection of the original offer plus a new offer, which terminates the original offer so it can no longer be accepted.
12. In an agency relationship, a third party who is NOT the agent's client is properly called the:
- A.Subagent
- B.Fiduciary
- C.Customer✓ Answer
- D.Principal
The client (principal) is the party the agent represents; a customer is a third party the agent deals with honestly but does not represent.
13. Commingling, a prohibited practice for real estate licensees, refers to:
- A.Mixing clients' trust funds with the broker's own operating funds✓ Answer
- B.Representing two clients in one transaction
- C.Sharing a commission with a cooperating broker
- D.Advertising a property without the owner's consent
Commingling is the improper mixing of client trust/escrow funds with the broker's own funds and is prohibited in the practice of real estate.
14. An agency relationship that arises from the conduct of the parties, without a written or spoken agreement, is called:
- A.Express agency
- B.Implied agency✓ Answer
- C.Universal agency
- D.Gratuitous agency
Implied agency is created by the actions and conduct of the parties, whereas express agency is created by an explicit oral or written agreement.
15. In designated agency, the broker appoints one licensee to represent the seller and a different licensee in the same firm to represent the buyer. The broker's role is that of a:
- A.Subagent of the seller only
- B.Customer to both parties
- C.Dual agent overseeing both designated agents✓ Answer
- D.Escrow officer
In designated agency, each client gets an individual designated agent, but the broker who supervises both is treated as a dual agent for the transaction.
16. The fiduciary duty of loyalty requires an agent to:
- A.Place the client's interests above the agent's own or those of third parties✓ Answer
- B.Obey every instruction, even if illegal
- C.Disclose the client's confidential information to buyers
- D.Guarantee the property will sell
Loyalty means the agent must act in the client's best interest, putting the principal's interests ahead of the agent's own or any third party's.
17. Under the doctrine of procuring cause, the broker generally entitled to a commission in a dispute is the one who:
- A.Listed the property first
- B.Held the open house
- C.Had the lowest commission rate
- D.Set an uninterrupted chain of events leading to the sale✓ Answer
The procuring cause is the broker whose uninterrupted efforts started the chain of events that resulted in the sale, entitling them to the commission.
18. A net listing, which is illegal or discouraged in many states, is one in which:
- A.The broker keeps any amount above a price the seller sets as commission✓ Answer
- B.The commission is a fixed flat fee
- C.The seller pays no commission at all
- D.Two brokers split the commission equally
In a net listing the broker keeps everything above the seller's stated net amount, creating a conflict of interest that leads many states to prohibit it.
19. The Statute of Frauds requires that contracts for the sale of real estate be:
- A.Recorded within 30 days
- B.Notarized by a public notary
- C.Reviewed by an attorney
- D.In writing and signed to be enforceable✓ Answer
The Statute of Frauds requires contracts for the sale of real property to be in writing and signed by the party to be charged in order to be enforceable.
20. When a contract is transferred to a new party who assumes all rights AND the original party is released from liability, this is called:
- A.Assignment
- B.Rescission
- C.Novation✓ Answer
- D.Subordination
Novation substitutes a new party and releases the original party from liability; a mere assignment transfers rights but the assignor may remain secondarily liable.
21. A buyer and seller sign a purchase agreement. Before closing, the seller refuses to sell. A court order forcing the seller to complete the sale is a remedy known as:
- A.Liquidated damages
- B.Rescission
- C.Novation
- D.Specific performance✓ Answer
Specific performance is a court order compelling a breaching party to perform the contract, available in real estate because each parcel is considered unique.
22. A liquidated damages clause in a purchase contract specifies:
- A.An agreed-upon amount payable if a party breaches, avoiding proof of actual damages✓ Answer
- B.The commission owed to the broker
- C.The interest rate on the buyer's loan
- D.The date the deed must be recorded
A liquidated damages clause sets a predetermined sum (often the earnest money) that the non-breaching party keeps, avoiding the need to prove actual damages.
23. For an acceptance to form a binding contract under the common-law 'mirror image rule,' it must:
- A.Add new favorable terms for the offeror
- B.Be delivered only in person
- C.Be accompanied by a deposit of 20%
- D.Match the terms of the offer exactly, without changes✓ Answer
Under the mirror image rule, an acceptance must match the offer's terms exactly; any change makes it a counteroffer rather than an acceptance.
24. The three federal protected classes originally established by the Civil Rights Act of 1866 and the Fair Housing Act do NOT include which of the following?
- A.Race
- B.Religion
- C.Marital status✓ Answer
- D.National origin
The federal Fair Housing Act protects race, color, religion, national origin, sex, familial status, and disability; marital status is not a federally protected class.
25. The practice of a licensee directing buyers toward or away from certain neighborhoods based on protected-class characteristics is called:
- A.Blockbusting
- B.Steering✓ Answer
- C.Redlining
- D.Puffing
Steering is illegally guiding prospects toward or away from areas based on protected characteristics; it is a violation of fair housing law.
26. A buyer-broker (buyer agency) agreement is a contract that establishes:
- A.Agency representation of the buyer by the broker✓ Answer
- B.The seller's listing price
- C.A lease between landlord and tenant
- D.The lender's loan terms
A buyer-broker agreement creates an agency relationship in which the broker represents the buyer and owes the buyer fiduciary duties.
27. Which of these best describes when agency disclosure should be provided to a consumer?
- A.Only after closing
- B.At or before the first substantive contact or discussion✓ Answer
- C.Only if the consumer asks for it
- D.Only when a dispute arises
Agency disclosure is generally required at or before the first substantive discussion so the consumer understands whom the agent represents.
28. An agent tells a prospective buyer, 'This is the finest home in the whole area!' This kind of non-factual sales talk is known as:
- A.Fraud
- B.Puffing✓ Answer
- C.Misrepresentation
- D.Steering
Puffing is exaggerated opinion or sales talk that is not a statement of material fact; it becomes actionable only if it crosses into misrepresentation or fraud.
29. The fiduciary duty of accounting requires an agent to:
- A.Prepare the client's income tax return
- B.Provide a market analysis at no charge
- C.Guarantee the accuracy of the appraisal
- D.Report and safeguard all money and property entrusted by the client✓ Answer
Accounting requires the agent to properly report on and safeguard all funds and documents entrusted by the client, avoiding commingling or conversion.
30. Which listing type allows the seller to list with multiple brokers simultaneously, owing a commission only to the one who procures the buyer?
- A.Exclusive right-to-sell listing
- B.Exclusive agency listing
- C.Open listing✓ Answer
- D.Net listing
In an open listing, the seller may engage several brokers and pays a commission only to the broker who actually procures the buyer.
31. A contract in which both parties exchange mutual promises to perform is classified as a:
- A.Unilateral contract
- B.Voidable contract
- C.Bilateral contract✓ Answer
- D.Executed contract
A bilateral contract is a promise for a promise, where both parties are obligated to perform; a purchase agreement is a common example.
32. A contract signed by a minor (someone under the age of majority) is generally considered:
- A.Void from the start
- B.Voidable by the minor✓ Answer
- C.Fully enforceable
- D.Automatically illegal
A minor lacks full contractual capacity, so a contract with a minor is generally voidable at the minor's option rather than automatically void.
33. If an offeror dies before the offeree accepts an ordinary offer, the offer:
- A.Remains valid and may still be accepted
- B.Passes to the offeror's heirs
- C.Converts into a binding contract
- D.Is automatically terminated✓ Answer
The death or incapacity of a party before acceptance terminates an ordinary offer, because there is no meeting of the minds yet (unlike a paid option).
34. The fiduciary duty of obedience means the agent must:
- A.Follow all of the client's lawful instructions✓ Answer
- B.Obey any instruction, even if it violates fair housing law
- C.Follow the other party's instructions
- D.Ignore instructions that reduce the commission
Obedience requires the agent to follow the client's lawful instructions; the agent must not obey instructions that are illegal, such as violating fair housing law.
35. An 'as-is' clause in a purchase contract generally means the seller:
- A.Is relieved of the duty to disclose known material defects
- B.Will not make repairs, but must still disclose known material defects✓ Answer
- C.Guarantees the property is defect-free
- D.Must pay all of the buyer's closing costs
An as-is sale means the seller won't make repairs, but it does not eliminate the legal duty to disclose known material defects.
36. A contract that has been fully performed by all parties is described as:
- A.Executory
- B.Executed✓ Answer
- C.Void
- D.Implied
An executed contract is one that all parties have fully performed; an executory contract still has obligations remaining to be performed.
37. A single agent who represents only one party (either the buyer or the seller, but not both) in a transaction is practicing:
- A.Dual agency
- B.Designated agency
- C.Non-agency
- D.Single agency✓ Answer
Single agency means the licensee represents only one party in the transaction, owing full fiduciary duties to that one client.
38. An agency relationship is normally terminated by all of the following EXCEPT:
- A.Completion of the purpose (a closed sale)
- B.Mutual agreement of the parties
- C.The agent listing a second, unrelated property✓ Answer
- D.Expiration of the term
Agency ends by performance, expiration, mutual agreement, revocation, or death; taking on another unrelated listing does not terminate an existing agency.
39. When an agent secretly represents their own interest in a transaction against the client's interest, they breach the duty of loyalty by:
- A.Self-dealing / undisclosed conflict of interest✓ Answer
- B.Procuring cause
- C.Novation
- D.Ratification
Self-dealing or an undisclosed conflict of interest, such as secretly buying the client's property, violates the fiduciary duty of loyalty.
40. A home inspection contingency in a purchase agreement typically gives the buyer the right to:
- A.Automatically lower the price by 10%
- B.Cancel or renegotiate if the inspection reveals unacceptable problems✓ Answer
- C.Force the seller to replace the roof
- D.Extend the closing indefinitely
An inspection contingency lets the buyer cancel or renegotiate (and often recover earnest money) if the inspection uncovers problems the buyer finds unacceptable.
41. A contract that appears valid but contains a defect allowing one party to cancel it is best described as:
- A.Void
- B.Voidable✓ Answer
- C.Executed
- D.Unenforceable
A voidable contract is valid and enforceable until the party with the right to cancel (e.g., due to fraud or duress) chooses to rescind it.
42. The duty of disclosure requires a seller's agent to reveal to the client:
- A.All material facts relevant to the transaction that the agent knows✓ Answer
- B.The buyer's confidential financial details even if unrelated
- C.Only facts favorable to closing the deal
- D.Nothing, to protect the agent's position
The duty of disclosure (or 'notice') requires the agent to inform the client of all known material facts that could affect the client's decisions.
43. In an option contract, the consideration paid by the optionee for the option itself is generally:
- A.Fully refundable if the option is not exercised
- B.Non-refundable, whether or not the option is exercised✓ Answer
- C.Always credited to commission
- D.Required to equal 10% of the price
Option consideration is paid to keep the offer open and is generally non-refundable; if the optionee exercises, it is often (but not always) applied to the price.
44. The illegal practice of inducing owners to sell by claiming that members of a protected class are moving into the neighborhood is called:
- A.Steering
- B.Blockbusting✓ Answer
- C.Redlining
- D.Commingling
Blockbusting (panic selling) is illegally inducing owners to sell by suggesting that people of a protected class are moving in, thereby lowering values.
45. The confidentiality duty an agent owes a client generally:
- A.Ends the moment the listing is signed
- B.Allows disclosing the client's bottom-line price
- C.Applies only to written communications
- D.Survives the termination of the agency relationship✓ Answer
Confidentiality continues even after the agency relationship ends; an agent may not disclose a client's motivations or bottom-line price to the other party.
46. A time-is-of-the-essence clause in a real estate contract means:
- A.Deadlines are strict and failing to meet them is a breach✓ Answer
- B.The contract has no fixed dates
- C.Either party may extend deadlines at will
- D.Only the seller's deadlines matter
A time-is-of-the-essence clause makes the stated deadlines strictly binding, so missing a deadline is treated as a material breach of the contract.
47. When a seller accepts an offer but writes in a higher price and returns it, the seller has made a:
- A.Valid acceptance
- B.Ratification
- C.Novation
- D.Counteroffer✓ Answer
Changing any term of the offer, such as the price, constitutes a counteroffer, which rejects the original offer and puts the power of acceptance back on the buyer.
48. Under RESPA (Real Estate Settlement Procedures Act), the payment of an undisclosed fee for referring settlement business is:
- A.A permitted marketing expense
- B.An illegal kickback✓ Answer
- C.Required disclosure only
- D.A normal commission split
RESPA prohibits kickbacks and undisclosed referral fees for settlement services, treating them as illegal payments.
49. A vacant offer to buy is revoked by the offeror before the seller accepts. This revocation is effective:
- A.Only after closing
- B.Never, once an offer is made it is irrevocable
- C.When communicated to the offeree before acceptance✓ Answer
- D.Only if the earnest money is returned first
An offeror may revoke an offer any time before acceptance, and the revocation is effective once it is communicated to the offeree.
Practice questions cover the uniform national portion of the real estate exam. Your state adds a state-law portion — study your state's official materials before testing. Licensing info (ARELLO) →