25 California Real Estate Agency Practice Questions
Agency is one of the highest-weighted areas on the California real estate salesperson exam outline. The California Department of Real Estate's RE 425 examination description lists "Laws of Agency and Fiduciary Duties" as approximately 17% of the exam.
Use these original practice questions to review agency relationships, fiduciary duties, agency disclosures, commissions, termination of agency, and duties owed to third parties.
Disclaimer: Not affiliated with PSI, Pearson VUE, California DRE, NAR, or any state real estate commission. These are original practice questions for study support. They are not actual, recalled, leaked, or official exam questions.
How to Use This Set
- Answer all 25 questions before checking the explanations.
- Mark every missed question by subtopic: agency creation, fiduciary duty, disclosure, compensation, or third-party duty.
- Retake missed questions after reviewing the related concept.
Questions
1. Agency Relationship
A seller signs a listing agreement with a brokerage to market a property. In this relationship, the seller is best described as the:
A. Customer B. Principal C. Subagent only D. Third-party beneficiary
Answer: B. Principal
Explanation: The principal is the person who authorizes the agent to act on the principal's behalf. In a listing agreement, the seller is the principal and the brokerage is the agent.
2. Fiduciary Duty
Which duty requires a real estate agent to place the client's interests above the agent's own interests within the lawful scope of the agency?
A. Accountability B. Loyalty C. Reasonable care D. Disclosure to third parties
Answer: B. Loyalty
Explanation: Loyalty is the fiduciary duty that requires the agent to put the principal's lawful interests first and avoid undisclosed self-dealing or conflicts.
3. Material Facts
A listing agent knows that the roof leaked during the last major storm. The seller tells the agent not to mention it because the roof is not currently leaking. What should the agent do?
A. Stay silent because the seller is the principal B. Disclose the material fact as required C. Mention it only if the buyer asks about the roof D. Cancel the listing immediately without explanation
Answer: B. Disclose the material fact as required
Explanation: An agent's duty of loyalty to a client does not permit concealment of material facts from other parties. Material facts affecting value or desirability must be disclosed as required.
4. Creation of Agency
Which event most clearly creates an express agency relationship?
A. A buyer views a property online B. A seller signs a written listing agreement with a broker C. A neighbor recommends a broker to a friend D. A salesperson attends an open house hosted by another brokerage
Answer: B. A seller signs a written listing agreement with a broker
Explanation: Express agency is created by an agreement, either written or oral. A written listing agreement is a clear example.
5. Agency Disclosure
In a California residential transaction, agency disclosure rules are designed primarily to help parties understand:
A. The exact appraised value of the property B. Which broker represents which party or parties C. Whether the buyer will qualify for financing D. Whether the property will increase in value
Answer: B. Which broker represents which party or parties
Explanation: Agency disclosure helps buyers and sellers understand representation, including whether an agent represents the seller, buyer, or both through dual agency.
6. Dual Agency
Dual agency may occur when:
A. A broker represents both the buyer and the seller in the same transaction B. Two buyers make offers on the same property C. A seller lists two properties with the same brokerage D. A salesperson works under two brokers at the same time without consent
Answer: A. A broker represents both the buyer and the seller in the same transaction
Explanation: Dual agency involves representation of both sides in the same transaction, subject to proper disclosure and consent requirements.
7. Confidential Information
A buyer tells the buyer's agent that the buyer can pay up to $25,000 over the current offer if necessary. The agent should generally:
A. Tell the seller to help close the deal B. Keep the information confidential unless disclosure is authorized or legally required C. Postpone all negotiations until the seller asks D. Disclose it to the listing agent because all price information is public
Answer: B. Keep the information confidential unless disclosure is authorized or legally required
Explanation: Confidential information from a principal must be protected. The buyer's maximum willingness to pay is negotiation-sensitive information.
8. Accountability
An agent receives an earnest money deposit from a buyer. Which fiduciary duty is most directly involved?
A. Obedience B. Accountability C. Loyalty D. Confidentiality
Answer: B. Accountability
Explanation: Accountability requires the agent to properly handle and account for money, documents, or property entrusted to the agent.
9. Obedience
A seller instructs the listing agent to reject all offers from buyers of a particular national origin. What should the agent do?
A. Obey because the seller is the principal B. Obey only if the instruction is in writing C. Refuse to follow the unlawful instruction D. Follow the instruction but avoid documenting it
Answer: C. Refuse to follow the unlawful instruction
Explanation: The duty of obedience applies only to lawful instructions. Agents must not follow instructions that violate fair housing or other laws.
10. Reasonable Care
Which behavior best illustrates the duty of reasonable care and skill?
A. Guaranteeing that a property will appreciate B. Advising a client only after considering facts, documents, deadlines, and licensee competence C. Ignoring contract dates because escrow will monitor them D. Giving legal opinions on title disputes without recommending legal counsel
Answer: B. Advising a client only after considering facts, documents, deadlines, and licensee competence
Explanation: Reasonable care and skill require competent, diligent real estate practice within the scope of the licensee's role.
11. Commission
A broker's right to compensation is usually based on:
A. The broker's license existing at any time in the past B. An agreement for compensation and performance under that agreement C. The buyer's verbal compliment about the broker's work D. The property's final sales price only
Answer: B. An agreement for compensation and performance under that agreement
Explanation: Compensation generally depends on the brokerage agreement and whether the broker performed as required under that agreement and applicable law.
12. Salesperson Authority
A real estate salesperson in California generally acts on behalf of:
A. The salesperson's broker B. The county recorder C. The escrow holder only D. The DRE as an employee
Answer: A. The salesperson's broker
Explanation: A salesperson is licensed to act under the supervision of a responsible broker. The broker is the party who contracts with clients through brokerage agreements.
13. Third-Party Duties
An agent represents a seller but speaks with an unrepresented buyer. Which statement is most accurate?
A. The agent owes no duties at all to the buyer B. The agent may intentionally misstate property facts because the buyer is not a client C. The agent must be honest and disclose required material facts D. The agent automatically becomes the buyer's fiduciary
Answer: C. The agent must be honest and disclose required material facts
Explanation: An agent's fiduciary duties are owed to the principal, but agents still owe honesty, fair dealing, and required disclosures to non-client parties.
14. Termination of Agency
Which event can terminate an agency relationship?
A. Completion of the purpose of the agency B. A buyer asking for a flyer C. A neighbor discussing market prices D. A salesperson changing business cards
Answer: A. Completion of the purpose of the agency
Explanation: Agency may terminate through completion, expiration, mutual agreement, revocation, renunciation, death, incapacity, or other legal events depending on the circumstances.
15. Conflict of Interest
A listing agent wants to buy the listed property personally. What is the best statement?
A. The agent may proceed without disclosure because the agent already knows the property B. The agent should disclose the agent's interest and obtain appropriate consent before proceeding C. The agent must always offer below asking price D. The agent may use confidential seller information to gain an advantage
Answer: B. The agent should disclose the agent's interest and obtain appropriate consent before proceeding
Explanation: Acting as a principal or having a personal interest creates a conflict that must be disclosed. The agent may not exploit the agency relationship for undisclosed personal benefit.
16. Puffing vs. Misrepresentation
Which statement is most likely puffing rather than a factual misrepresentation?
A. "The roof was replaced in 2024" when it was not B. "This is the best view in the neighborhood" C. "The property has 2,100 permitted square feet" when permits show 1,650 D. "The foundation report found no defects" when the report found major cracking
Answer: B. "This is the best view in the neighborhood"
Explanation: Puffing is opinion or sales talk. Specific false statements about roof age, permitted square footage, or inspection results are factual misrepresentations.
17. Buyer Representation
A buyer signs a buyer representation agreement with a broker. The broker's fiduciary duties are owed primarily to:
A. The seller B. The buyer C. The lender D. The county assessor
Answer: B. The buyer
Explanation: In a buyer agency relationship, the buyer is the principal and fiduciary duties are owed to the buyer.
18. Listing Agreement
The listing agreement primarily establishes:
A. The agency relationship and terms for marketing and compensation B. The final property tax assessment C. The escrow holder's title insurance premium D. The lender's underwriting approval
Answer: A. The agency relationship and terms for marketing and compensation
Explanation: A listing agreement authorizes brokerage services and sets key terms such as price, duration, compensation, and the scope of representation.
19. Subagent
A subagent is best described as:
A. A person appointed to assist an agent in representing the principal B. Any buyer who submits an offer C. A lender's employee who approves the loan D. A county official who records the deed
Answer: A. A person appointed to assist an agent in representing the principal
Explanation: A subagent acts under authority derived from the agent and owes duties to the principal.
20. Material Disclosure Timing
An agent learns of a material fact after the buyer has made an offer but before closing. What is the best course?
A. Wait until after closing because the offer was already accepted B. Disclose the material fact as required before the transaction proceeds C. Tell only the escrow company and no party D. Ignore the fact if repair costs are uncertain
Answer: B. Disclose the material fact as required before the transaction proceeds
Explanation: Required disclosure of material facts is not limited to facts known before an offer. New material information should be addressed when discovered.
21. Client vs. Customer
In agency terminology, a customer is usually:
A. The principal represented by the agent B. A non-client party who may receive services but is not owed fiduciary duties C. The broker supervising a salesperson D. The person who signs the listing agreement only
Answer: B. A non-client party who may receive services but is not owed fiduciary duties
Explanation: A client is the principal owed fiduciary duties. A customer is not represented as a client, though the agent still owes honesty and required disclosures.
22. Confidentiality After Closing
After a transaction closes, a former seller's agent is asked whether the seller would have accepted a lower price. The agent should generally:
A. Disclose it because the transaction is over B. Keep the former client's confidential information confidential C. Tell the buyer if the buyer promises not to sue D. Post the information online as market commentary
Answer: B. Keep the former client's confidential information confidential
Explanation: Confidentiality can continue after the agency relationship ends. Former client information should not be disclosed unless authorized or legally required.
23. Broker Supervision
Why is broker supervision important in agency practice?
A. Salespersons act through and under the supervision of their broker B. It eliminates all disclosure obligations C. It transfers fiduciary duties to escrow only D. It allows unlicensed people to negotiate contracts independently
Answer: A. Salespersons act through and under the supervision of their broker
Explanation: California salespersons are supervised by responsible brokers. Brokerage policies, files, advertising, client communications, and trust fund handling are all supervision-sensitive areas.
24. Undisclosed Compensation
A buyer's agent receives a referral fee from a service provider connected to the transaction but does not disclose it. What is the main agency concern?
A. The fee is always allowed if the amount is small B. Undisclosed compensation can create a conflict with the duty of loyalty C. Referral fees are never relevant to clients D. The agent has no duty because the service provider is not a party
Answer: B. Undisclosed compensation can create a conflict with the duty of loyalty
Explanation: Undisclosed financial benefits can conflict with fiduciary duties and client trust. Compensation arrangements should be handled consistently with disclosure and legal requirements.
25. Best Overall Rule
Which statement best summarizes agency duties in a California salesperson exam scenario?
A. Protect the client at all costs, even by hiding facts from others B. Follow the client's lawful instructions, protect confidential information, disclose required facts, and act competently C. Treat every person in the transaction as a fiduciary client D. Avoid written agreements because agency can only be accidental
Answer: B. Follow the client's lawful instructions, protect confidential information, disclose required facts, and act competently
Explanation: Agency questions often combine several duties. The agent must serve the principal within lawful limits while still making required disclosures and treating other parties honestly.
Answer Key
| # | Answer | Subtopic |
|---|---|---|
| 1 | B | Principal and agent |
| 2 | B | Loyalty |
| 3 | B | Material facts |
| 4 | B | Express agency |
| 5 | B | Agency disclosure |
| 6 | A | Dual agency |
| 7 | B | Confidentiality |
| 8 | B | Accountability |
| 9 | C | Lawful obedience |
| 10 | B | Reasonable care |
| 11 | B | Compensation |
| 12 | A | Salesperson authority |
| 13 | C | Duties to third parties |
| 14 | A | Termination |
| 15 | B | Conflict of interest |
| 16 | B | Puffing vs. misrepresentation |
| 17 | B | Buyer agency |
| 18 | A | Listing agreement |
| 19 | A | Subagency |
| 20 | B | Disclosure timing |
| 21 | B | Client vs. customer |
| 22 | B | Post-closing confidentiality |
| 23 | A | Broker supervision |
| 24 | B | Undisclosed compensation |
| 25 | B | Combined agency duties |
What to Review Next
If you missed more than 5 questions, review agency relationships and fiduciary duties before moving to another topic. If you scored 20 or higher, continue with disclosure practice because disclosures are part of the largest DRE content area.
Related guides:
- California Real Estate Salesperson Practice Questions
- California Real Estate Salesperson Exam Content Outline
- 25 California Real Estate Property Ownership Practice Questions
- 25 California Real Estate Valuation Practice Questions
- 25 California Real Estate Financing Practice Questions
- 25 California Real Estate Transfer of Property Practice Questions
- 25 California Real Estate Disclosures Practice Questions
- 25 California Real Estate Contracts Practice Questions
- California Real Estate Salesperson Exam Day Rules
Source
- California Department of Real Estate, "Examination Description - RE 425": https://www.dre.ca.gov/files/pdf/forms/re425.pdf