Practice of Real Estate and Disclosures

This area covers the daily work of a licensee: licensing, advertising, trust funds, fair housing, disclosures, and discipline. It is the heaviest area on both exams, about 37 of 150 salesperson questions and 50 of 200 broker questions, because these rules protect consumers directly and drive most real discipline.

§ 6.1Who needs a license, and keeping it current

A license is required to sell, buy, solicit, negotiate, lease, or arrange loans on real property for another, for compensation or the expectation of it. Expectation alone is enough even if nothing is ever paid (Bus. & Prof. Code §§ 10130, 10131). Selling your own property does not, and § 10133 exempts corporate officers handling the entity's property, holders of a power of attorney, attorneys rendering legal services, court-ordered actors, and trustees selling under a deed of trust. Clerical staff and supervised apartment complex employees are also outside licensing (§§ 10133.2, 10131.01). Unlicensed activity, including merely advertising, is a crime: up to $20,000 and six months in county jail for a person, $60,000 for a corporation (§ 10139). Compensation flows only through the responsible broker. A salesperson may accept it only from their own broker, and a broker may pay only their own licensees or another licensed broker, including one from another state (§ 10137).

Licenses run four years, and renewal takes 45 hours of continuing education. The first salesperson renewal includes three-hour courses in ethics, agency, trust fund handling, risk management, and interactive fair housing, a two-hour implicit bias course, and 18 hours of consumer protection, with brokers adding management and supervision. A licensee 70 or older with 30 continuous years licensed is exempt, both prongs required (§§ 10170.5, 10170.8). Since January 1, 2024 the prelicensing Practice course must include implicit bias content and interactive fair housing role play. Broker applicants add eight courses and two years of recent salesperson experience, never waived by State Bar membership. A broker retaining a salesperson notifies the Commissioner within five days (10 CCR 2752).

§ 6.2Truth in advertising

An ad for licensed services must reveal licensed status. Concealing it is an unlawful blind ad, and a phone number is not identification (Bus. & Prof. Code § 10140.6). First point of contact materials, cards, websites, flyers, and signs bearing the licensee's name, must carry the licensee's eight-digit license number and the responsible broker's name, the number no smaller than the smallest type used. The broker's own number is optional, and an unbranded sign needs no number (10 CCR 2773). A rule newer than most prep books: any ad using a digitally altered image of the property, including AI alteration such as virtual staging, must disclose the alteration and give access to the original image (§ 10140.8). Knowingly publishing a false statement about land for sale brings up to $1,000 and one year in jail plus license discipline (§ 10140). Under Regulation Z, four trigger terms force full credit disclosure: a downpayment figure, the number of payments or repayment period, a payment amount, or a finance charge amount. A triggered ad must add the downpayment, full repayment terms, and the annual percentage rate, but the APR alone triggers nothing (12 CFR 1026.24(d)). A team name needs a member's surname plus associates, group, or team, while any other dba must appear on the DRE license itself (§§ 10159.7, 10159.5). Sale agreements for one to four residential units must state in 10-point boldface that commissions are negotiable, not fixed by law (§ 10147.5).

§ 6.3Trust funds

Money received on behalf of another in a licensed transaction is a trust fund with exactly three lawful destinations.

The broker's operating account is never lawful. The account names the broker as trustee, may not require withdrawal notice, and interest is allowed only at the owner's request, never benefiting the broker, whatever the client agrees (§ 10145(d), 10 CCR 2832).

These deadlines run in business days, so a check received Thursday is due Tuesday, not Sunday, while the disclosure windows later in this area run in calendar days. A check may be held uncashed until acceptance only on the offeror's written instructions or a nonnegotiable check, with the seller told at presentation (10 CCR 2832). Commingling is the mixing itself, and records do not cure it: broker money beyond the $200 exception, trust funds in the general account, or earned fees sitting past 25 days. Disputed fees freeze until settled (10 CCR 2835). Required records: a chronological master record of all funds received, even checks never deposited, a separate record per beneficiary with a running balance, and a documented monthly reconciliation of the two (10 CCR 2831, 2831.1, 2831.2). Aggregate liability is the sum of all positive beneficiary balances, never netted against negative ones, and the account must always equal it. Disbursing below it needs the advance written consent of every owner of funds in the account, and an unexplained overage is also a violation (10 CCR 2832.1). Withdrawals need the broker's signature or a specifically authorized, bonded delegate, and responsibility never transfers (10 CCR 2834). Exam arithmetic: $10,450 held against $9,800 owed leaves $650 of broker money, $450 over the lawful $200.

§ 6.4Fair housing

The federal Fair Housing Act names seven protected classes: race, color, national origin, religion, sex, familial status, and disability (42 USC 3604). Familial status includes pregnancy, and disability protects a person in recovery but not a current illegal drug user. The exemptions are narrow (42 USC 3603, 3607):

• An owner selling a single-family home, no agent involved in any manner, at most three such homes owned.
• Rooms or units in an owner-occupied dwelling of up to four families.
• Religious organizations and private clubs, for noncommercial housing.
• Housing for older persons: everyone 62 or older, or a 55 plus community where at least 80 percent of occupied units have an occupant 55 or older.

A modification is a physical change at the disabled occupant's own expense, which must be permitted. An accommodation is a policy bend the provider must make, such as allowing an assistance animal despite a no-pets rule, with no pet deposit. California reaches further. FEHA adds marital status, sexual orientation, gender identity, ancestry, veteran status, and source of income, which includes Section 8 vouchers, so a no Section 8 policy is unlawful (Gov. Code § 12955). The state's own exemption is a single roomer in the owner's home, the Unruh Act covers every business establishment, brokerages included (Civ. Code § 51), and California senior housing needs at least 35 units. Blockbusting induces sales for profit through fear of a protected class entering the neighborhood, steering channels buyers by protected class toward or away from areas, and redlining, banned by the Holden Act, is neighborhood-based lending discrimination (10 CCR 2780, 2781, Health & Saf. Code § 35810). Panic selling solicitation alone is a discipline ground, and following a client's discriminatory instruction is never a defense.

§ 6.5Mandated disclosures

The seller of one to four residential units must deliver the Transfer Disclosure Statement, and any waiver is void, so an as-is sale still requires it (Civ. Code § 1102 et seq.). Probate, foreclosure and REO sales, most fiduciary transfers, intrafamily and co-owner transfers, and tax sales are exempt. The listing broker separately owes the buyer a diligent visual inspection of reasonably accessible areas, recorded in the TDS agent sections, never a duty to inspect the roof or inaccessible spaces (§§ 2079, 1102.6). The Natural Hazard Disclosure Statement covers six zones: special flood hazard, dam failure inundation, high or very high fire hazard severity, wildland fire, earthquake fault, and seismic hazard (§§ 1103, 1103.2).

Both rescission windows run in calendar days and require written notice (§§ 1102.3, 1103.3). The death statute removes liability for not volunteering a death more than three years old, with recent deaths judged by materiality, and an occupant's HIV status or AIDS-related death is never a required disclosure, with no time limit, though nothing immunizes a lie to a direct question (§ 1710.2). Contracts and leases must include the Megan's Law registry notice, and delivering it is the whole duty (§ 2079.10a). For housing built before 1978, the seller or lessor must disclose known lead-based paint and hand over existing reports and the pamphlet Protect Your Family From Lead In Your Home. No testing or abatement is required, a 1977 home is covered while a 1978 home is not, and agents share compliance responsibility (42 USC 4852d). The environmental hazards booklet covers general education on mold, asbestos, and radon, but known conditions on the property must always be disclosed (§ 2079.7).

§ 6.6Mobilehomes, business opportunities, and advance fees

A broker may sell only a registered mobilehome, and displaying two or more at one location requires a dealer license (Bus. & Prof. Code § 10131.6). Ads must be withdrawn within 48 hours of notice the unit is unavailable, and a unit may never be called new. On transfer, the Department of Housing and Community Development must be notified within 20 days. Older materials teach 10 days, but the statute says 20, and the agency is HCD (Health & Saf. Code § 18100.5). A business opportunity is the sale of a business and its goodwill, conveyed by bill of sale, not a deed. A bulk sale requires notice at least 12 business days ahead, by recording, publication, and mail to the county tax collector, protecting the seller's creditors (Com. Code § 6105). Liquor licenses transfer through an escrow holding the full price, approved by the Department of Alcoholic Beverage Control, not the DRE (§ 24074). An advance fee is any qualifying fee collected before full performance, whatever its size. Materials go to the Commissioner 10 calendar days before use, agreements may never guarantee a result, and collected fees stay trust funds, withdrawable only when spent for the principal or five days after a verified accounting is mailed. Misapplication brings treble damages plus attorney's fees (§§ 10026, 10085, 10146).

§ 6.7Discipline and the Consumer Recovery Account

Two statutes govern discipline. Section 10176 covers wrongdoing within licensed activity: misrepresentation, false promises, undisclosed dual agency, commingling, an exclusive listing with no definite termination date, and secret profit. Section 10177 needs no licensed transaction: license fraud, qualifying convictions, false advertising, failure to supervise, and fraud in a personal deal. A licensee must self-report within 30 days a felony charge, any conviction, or discipline by another agency, and the charge alone starts the clock (Bus. & Prof. Code § 10186.2). A victim holding a final, uncollectible judgment against a licensee for intentional fraud, misrepresentation, deceit, or conversion of trust funds may tap the Consumer Recovery Account for up to $50,000 per transaction, capped at $250,000 per licensee. Negligence and contract judgments do not qualify. Payment automatically suspends the license until the account is repaid with interest, and bankruptcy does not lift it (§§ 10471, 10474, 10475).

§ 6.8Supervision, assistants, and modern practice

A responsible broker must reasonably supervise every retained licensee, and independent contractor status changes nothing. Supervision means real systems for reviewing transactions, documents, trust funds, and advertising, plus monitoring that policies are followed, and delegation shifts work but never accountability (Bus. & Prof. Code §§ 10159.2, 10177(h), 10 CCR 2725). Every broker-salesperson relationship needs a signed written agreement (10 CCR 2726). Each branch office needs its own license, and a corporation acts through its designated broker-officer (§§ 10162, 10163). Unlicensed assistants may do clerical work, prepare a comparative market analysis for the licensee's approval, and at open houses may place signs, greet visitors, and hand out approved materials. Surprisingly, they may accept and receipt trust funds. They may never show property, discuss terms, solicit, negotiate, or explain documents, and they must be paid by wage, never a commission share (§ 10137, DRE Guidelines for Unlicensed Assistants).

Practice rules finish the area. Verify wiring instructions by phone using numbers collected at the transaction's start, never a number inside the suspicious email. A dwelling lease longer than one month negotiated primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean requires an unexecuted translation before signing, triggered by the negotiation language, not the tenant's origin (Civ. Code § 1632). And a change newer than most course materials: since July 1, 2024 residential security deposits are capped at one month's rent beyond the first month, two months for qualifying small landlords except as to service members. The old furnished versus unfurnished limits are dead law, and the itemized refund is due within 21 calendar days after the tenant vacates (Civ. Code § 1950.5).