"Let the buyer beware" — the older rule that buyers inspect at their own risk
Once the default position in property sales, now substantially displaced in residential transactions by statutory seller disclosure requirements in most states. It has not disappeared: buyers still inspect, and an as-is sale still shifts real risk.
How the exam asks about it
The nuance the exam wants is that disclosure statutes did not create a warranty. A seller reports known defects; a seller does not promise the property is sound.
Mixing client funds with the brokerage’s or the licensee’s own money
Depositing an earnest money check into the firm’s operating account is commingling even if not a cent is spent and the money is available in full at closing. The violation is the mixing itself, because it destroys the separation that protects the client.
How the exam asks about it
Distinguish from conversion, which is actually using the money. Commingling is the lesser offense and it is still a violation.
Using client funds for the licensee’s or the brokerage’s own purposes
Spending money held in trust, even briefly and even with every intention of replacing it. It is theft in substance and is treated accordingly — license revocation and, commonly, criminal exposure.
How the exam asks about it
Ranked above commingling in seriousness, and intention to repay is not a defense to either.
Professional liability cover for negligence in providing real estate services
It responds to the missed disclosure, the arithmetic mistake, the deadline that slipped. Intentional wrongdoing is excluded, and some states require licensees to carry a policy as a condition of licensure.
How the exam asks about it
The exclusion is the examinable point: insurance is not available for choosing to defraud someone.
A hidden defect a buyer would not discover on a reasonable inspection
A cracked foundation behind finished walls, a septic field that fails only under load, contaminated soil. Known latent defects must be disclosed precisely because the buyer cannot find them; a patent defect, visible on inspection, is a different matter.
How the exam asks about it
"Known" is doing the work. The duty is to disclose what the seller or licensee actually knows, not to inspect and discover on the buyer’s behalf.
A fact that would affect a reasonable party’s decision about the property
Structural defects, a failed septic system, a known flooding history, a pending assessment. Material facts about the property must be disclosed to everyone in the transaction, client and customer alike.
How the exam asks about it
The exam’s sharpest distinction: facts about the property are disclosable, and facts about people generally are not — several states expressly provide that a death on the property is not material, and anything touching a protected characteristic must never be volunteered.
A false statement of material fact that another party relies on
It comes in degrees: innocent, where the speaker believed it; negligent, where they should have checked; and fraudulent, where they knew. All three can unwind a contract, and the more culpable ones carry damages and license discipline as well.
How the exam asks about it
Silence counts. Failing to disclose a known material defect is treated as misrepresentation, which is why concealment and false statement appear in the same items.
Exaggerated opinion in sales talk that a reasonable person would not take as fact
"The most charming house on the street", "a fantastic investment", "the best view in town". Puffing is opinion, and opinion is not actionable as misrepresentation — which is why the line matters so much in practice.
"A fantastic investment" and "values here always go up" edge from opinion into a prediction about financial outcomes. Predictions of appreciation are the puffing that most often turns into a complaint.
How the exam asks about it
It stops being harmless the moment it touches something verifiable. "Spacious" is puffing; "2,400 square feet" is a fact, and a wrong fact is misrepresentation regardless of how it was meant.
Property some buyers find undesirable for reasons unrelated to its physical condition
A death on the premises, a crime, or a reputation attached to the building. Nothing about the structure has changed, which is why states treat these facts very differently from physical defects — many provide expressly that they are not material facts requiring disclosure.
Whether and how a stigmatized condition may be discussed is set by state law, and some states restrict answering even when asked directly. This is a subject to check locally rather than to answer from general principle.
How the exam asks about it
The rule is state-specific and the exam tests that you know it is. What is universal is the limit: any answer touching a protected characteristic is wrong under fair housing law regardless of state disclosure rules.
A separate account holding client money, never the brokerage’s own funds
Earnest money, rent collected for owners and security deposits go here. The account is separate from operating funds by law, and records must show at all times whose money is in it and how much.
How the exam asks about it
The two offenses to name on sight: commingling, which is mixing client funds with the firm’s, and conversion, which is using them. Both are among the fastest routes to revocation.
Independent exam preparation. Real Estate Exam Bank is not a state-approved pre-licensing course and completing anything here does not satisfy any state education requirement. Not affiliated with, endorsed by, or authorized by any state real estate commission, Pearson VUE, or PSI. Practice questions here are original study material, not the official exam.