The California real estate exam is vocabulary-heavy. Many questions are not testing whether you understand a complex idea — they are testing whether you know the precise definition of a specific term. Get the definition slightly wrong and you get the question wrong, even if you almost had it right.
The 25 terms below are among the most frequently tested on the California DRE Salesperson exam. For each one you will find a clear definition and an exam note explaining exactly how or why that term shows up on test day.
How to use this list: Do not just read through it once. After reading, cover the definitions and quiz yourself on each term. Then come back tomorrow and do it again. Vocabulary is built through repetition, not recognition.
California Law & Licensing
Term 01
DRE — California Department of Real Estate
The California state agency responsible for licensing and regulating real estate licensees. The DRE issues licenses, investigates complaints, and enforces California real estate law. It is headed by the Real Estate Commissioner, who is appointed by the Governor.
📝 Exam note: Know the difference between the DRE (the department that administers licensing) and the Real Estate Commissioner (the individual who heads it). Questions often ask about the Commissioner's authority and appointment process.
Term 02
Transfer Disclosure Statement (TDS)
A California-required written disclosure that sellers of residential property (1–4 units) must provide to buyers. The TDS requires the seller to disclose all known material facts and defects about the property. Both the listing agent and selling agent must also complete their own sections of the TDS.
📝 Exam note: The TDS is one of California's most heavily tested disclosure requirements. Know who must complete it (seller and both agents), when it must be delivered, and what happens if a buyer receives it late — they may have the right to rescind.
Term 03
Real Estate Commissioner
The head of the California Department of Real Estate, appointed by the Governor. The Commissioner does not need to be a licensed real estate broker. The Commissioner has the authority to suspend or revoke licenses, issue regulations, and conduct hearings.
📝 Exam note: A common trick question: the Commissioner does NOT have to be a real estate licensee. Also know that the Commissioner can issue regulations but cannot create new laws — only the legislature can do that.
Term 04
Puffing
Exaggerated or subjective praise about a property that a reasonable person would not interpret as a statement of fact. Puffing is generally not considered misrepresentation or fraud because it is understood to be opinion, not a factual claim.
📝 Exam note: "This is the most stunning home in the hills" is puffing. "This home has a new roof installed in 2023" is a factual claim that can create liability if false. The exam tests whether you can tell the difference.
Term 05
Commingling
The illegal act of mixing a client's funds — such as earnest money deposits or rental income — with the broker's personal or business funds. In California, client funds must be kept in a separate trust account at all times.
📝 Exam note: Commingling is a serious violation that can result in license suspension or revocation. Know the difference between commingling (mixing funds) and conversion (using client funds for personal purposes) — both are violations but conversion is more severe.
Agency & Relationships
Term 06
Fiduciary Duty
The highest duty of care owed by an agent to their client. In California, an agent acting as a single agent owes fiduciary duties including utmost care, integrity, honesty, and loyalty. These duties go beyond simply following instructions — the agent must act in the client's best interest at all times.
📝 Exam note: California uses the phrase "utmost care, integrity, honesty, and loyalty" to describe fiduciary duty. This exact phrasing appears on the exam. Know that fiduciary duty is owed to the client — not to the other party in a transaction.
Term 07
Dual Agency
A situation in which a real estate broker represents both the buyer and the seller in the same transaction. In California, dual agency is legal but requires written informed consent from both parties. A dual agent cannot fully advocate for either side and must remain neutral.
📝 Exam note: California requires written disclosure and consent for dual agency — verbal consent is not sufficient. Know that a dual agent cannot disclose one party's confidential information (like their bottom line price) to the other without consent.
Term 08
Agency Disclosure
California law requires that licensees provide a written disclosure of agency relationship to buyers and sellers in residential transactions. The disclosure must be made as soon as practicable — for sellers, before listing; for buyers, before writing an offer. It explains the different types of agency relationships available.
📝 Exam note: The timing of agency disclosure is frequently tested. "As soon as practicable" is the legal standard. Failure to properly disclose agency can expose the licensee to liability and potential loss of commission.
Term 09
Ostensible Agency
Also called apparent agency — a situation in which a principal (such as a seller) allows a third party to reasonably believe that an agent has authority to act on the principal's behalf, even without an explicit agreement. The principal can be held liable for the ostensible agent's actions.
📝 Exam note: Ostensible agency is created by the principal's conduct, not by a formal agreement. If a seller lets someone act as their agent without correcting the impression, that person may be considered an ostensible agent — and the seller may be bound by their actions.
Property & Ownership
Term 10
Community Property
California is a community property state. Property acquired by a married couple during the marriage is generally considered equally owned by both spouses, regardless of whose name is on the title. Property owned before marriage or received as a gift or inheritance is separate property.
📝 Exam note: Community property comes up frequently on California-specific exam questions. Know the distinction between community property (acquired during marriage) and separate property (owned before marriage or received as gift/inheritance), and how each is treated in a sale or divorce.
Term 11
Homestead Exemption
A California protection that shields a portion of a homeowner's primary residence equity from unsecured creditors. As of recent California law, the automatic homestead exemption is the greater of $300,000 or the median sale price of homes in the county, up to $600,000.
📝 Exam note: California's homestead exemption amounts were significantly updated in 2021. Know that it applies to the primary residence only, that it protects against unsecured creditors (not mortgage lenders), and that it does not prevent the sale of the home for mortgage debt.
Term 12
Encumbrance
Any claim, lien, charge, or restriction on real property that may affect its value or limit its use. Encumbrances include mortgages, deeds of trust, easements, CC&Rs, tax liens, and judgment liens. They transfer with the property unless cleared before closing.
📝 Exam note: Know the two categories: financial encumbrances (liens, mortgages, taxes) and non-financial encumbrances (easements, deed restrictions, encroachments). A buyer who takes title subject to existing encumbrances is bound by them.
Term 13
Deed of Trust
The primary security instrument used in California real estate transactions — used instead of a traditional mortgage. A deed of trust involves three parties: the trustor (borrower), the trustee (neutral third party), and the beneficiary (lender). The trustee holds legal title as security for the loan.
📝 Exam note: California primarily uses deeds of trust, not mortgages. Know the three parties and their roles. Also know that California allows non-judicial foreclosure under a deed of trust (via the power of sale clause), which is faster than judicial foreclosure.
Contracts & Transactions
Term 14
Statute of Frauds
A legal doctrine requiring certain contracts — including real estate purchase agreements and leases longer than one year — to be in writing to be legally enforceable. Verbal agreements to buy or sell real estate are generally not enforceable in California.
📝 Exam note: If a question involves an oral real estate contract, the Statute of Frauds is almost always the key concept. Written contracts are required for enforceability — this is one of the most fundamental rules tested on the exam.
Term 15
Contingency
A condition in a purchase contract that must be satisfied for the transaction to proceed. Common contingencies in California include financing approval, satisfactory inspection, and appraisal at or above the purchase price. If a contingency is not met, the protected party may cancel and recover their deposit.
📝 Exam note: California's standard purchase agreement (the CAR RPA) includes specific contingency removal timelines. Know that contingencies must be actively removed in writing in California — they do not automatically expire on their own without action by the parties.
Term 16
Rescission
The cancellation of a contract, restoring all parties to their original positions as if the contract never existed. In California real estate, rescission may occur by mutual agreement, by operation of law, or when a party exercises a legal right — such as after receiving a late Transfer Disclosure Statement.
📝 Exam note: Know when a buyer has the right to rescind in California. Receiving the TDS after making an offer gives the buyer a 3-day right of rescission (or 5 days if mailed). This is a frequently tested timeline.
Term 17
Liquidated Damages
A pre-agreed amount specified in a contract to be paid as damages if one party defaults. In California residential purchase agreements, the buyer's earnest money deposit is typically the seller's liquidated damages if the buyer defaults — but only if both parties have initialed the liquidated damages clause.
📝 Exam note: Both parties must initial the liquidated damages clause for it to be enforceable in California. If they do, the seller's remedy is limited to keeping the deposit. If they do not initial it, the seller may sue for actual damages instead.
Finance & Math
Term 18
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the appraised value or purchase price of the property, whichever is lower. Expressed as a percentage. A $720,000 loan on an $800,000 property = 90% LTV.
📝 Exam note: Higher LTV = higher lender risk. LTV above 80% typically requires private mortgage insurance (PMI). Know the formula and what LTV thresholds trigger different lender requirements. California's high home prices make LTV calculations common on practice exams.
Term 19
Proration
The proportional division of ongoing expenses — such as property taxes, HOA dues, or prepaid rent — between buyer and seller at closing based on the closing date. In California, prorations are typically calculated on a 30-day month / 360-day year basis.
📝 Exam note: Proration math almost always appears on the California exam. Know whether an item is a credit or debit to buyer or seller, and that California typically uses a 360-day year (12 months × 30 days) for proration calculations — unlike Florida which uses 365.
Term 20
Documentary Transfer Tax
A California county tax imposed on the transfer of real property, calculated based on the sale price minus any assumed loans. The standard rate is $1.10 per $1,000 of taxable value (or $0.55 per $500). Some cities also impose an additional city transfer tax on top of the county tax.
📝 Exam note: Practice the calculation: a $600,000 sale with no assumed loans = $600,000 ÷ $1,000 × $1.10 = $660 in county documentary transfer tax. Know that the tax is typically paid by the seller and that some cities (like Los Angeles) add their own transfer tax on top.
Appraisal & Value
Term 21
Comparative Market Analysis (CMA)
An evaluation of recently sold comparable properties used by real estate licensees to help determine a property's likely market value or appropriate listing price. A CMA is performed by licensees for pricing purposes — it is not the same as a formal appraisal and cannot be used for loan underwriting.
📝 Exam note: Know the distinction: a CMA is done by a licensee for pricing guidance; an appraisal is done by a licensed appraiser for formal valuation (required by lenders). Using the word "appraisal" when performing a CMA can constitute the unauthorized practice of appraising.
Term 22
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property. Calculated by dividing the property's Net Operating Income (NOI) by its current market value or purchase price. A higher cap rate generally indicates higher risk and higher potential return.
📝 Exam note: Cap rate math appears frequently on the California exam for income property questions. Formula: Cap Rate = NOI ÷ Value. Rearranged: Value = NOI ÷ Cap Rate. Practice all three versions of the formula — the exam may give you any two values and ask for the third.
Term 23
Depreciation
A loss in property value due to physical deterioration, functional obsolescence, or external (economic) obsolescence. In appraisal, depreciation is subtracted from a property's replacement cost to arrive at its current value under the cost approach.
📝 Exam note: Know all three types: physical deterioration (wear and tear — curable or incurable), functional obsolescence (outdated features like a one-bathroom home), and external obsolescence (outside factors like a new freeway nearby). External obsolescence is always incurable — that distinction is tested.
Fair Housing & Ethics
Term 24
Steering
An illegal practice under both the federal Fair Housing Act and California's Fair Employment and Housing Act in which a licensee guides buyers toward or away from certain neighborhoods based on the racial, ethnic, religious, or other protected characteristics of the area's residents.
📝 Exam note: Steering violates fair housing law even if the buyer does not realize it is happening and even if the licensee believes they are being helpful. Any recommendation based on the demographics of a neighborhood — rather than the buyer's stated needs — can constitute steering.
Term 25
Unruh Civil Rights Act
A California state law that prohibits discrimination by all business establishments — including real estate businesses — based on sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, or other characteristics. California's protections are broader than the federal Fair Housing Act.
📝 Exam note: The Unruh Act is California-specific and extends beyond housing to all business establishments. Know that California's fair housing protections are broader than federal law — including protections based on marital status and sexual orientation that are not covered under the federal Fair Housing Act.
How to Actually Memorize These Terms
Reading through a list of definitions once is not memorization. Here is what actually works:
- Cover and recall: After reading each definition, cover it and try to say it in your own words. If you cannot, read it again and repeat.
- Group related terms: Study fiduciary duty, dual agency, and agency disclosure together — the distinctions stick better when learned side by side.
- Practice in context: Vocabulary questions on the DRE exam are rarely "define this term." They present a scenario and ask you to identify the correct term or rule. Practice questions are essential.
- Space your review: Read today, quiz yourself tomorrow, revisit in three days. Spaced repetition is far more effective than cramming the night before.
These 25 terms are a starting point, not the complete list. The California DRE exam covers a wide range of vocabulary across all topic areas. The best way to make sure you know the terms that will actually appear is to practice with DRE-aligned questions that mirror the real exam format — scenario-based, timed, and four-option multiple choice.
Put Your Vocabulary to Work
The A+ Exam Simulator includes 1,000+ DRE-aligned practice questions that test your vocabulary exactly the way the real exam does — scenario-based, multiple choice, with instant explanations. It is the difference between knowing a definition and knowing how to use it on test day.
Get the Simulator — $39.99 Audio Guide — $24.99Bundle both and save with code AMRF54BX33. Try 10 free questions at californiaexamcram.com.