Grounds include fraud, misrepresentation, commingling, and trust-fund violations.
Before you read
Test yourself first: 5 questions
Question 1 of 5
A broker who collects a buyer's earnest-money deposit must place those trust funds into a trust account, neutral escrow, or the principal's hands no later than:
Answer: B. Under California trust-fund rules, a broker must deposit trust funds into a trust account, a neutral escrow depository, or into the hands of the principal no later than three business days following receipt. Improper handling of trust funds is a frequent basis for discipline.
Question 2 of 5
The California Real Estate Recovery Account (recovery fund) exists primarily to:
Answer: B. The Recovery Account compensates aggrieved members of the public who have an unsatisfied final court judgment against a licensee based on fraud, misrepresentation, deceit, or conversion of trust funds arising from a licensed act. It protects consumers, not licensees.
Question 3 of 5
California real-estate licenses are issued and disciplined by:
Answer: C. The DRE and its Real Estate Commissioner administer the license law — issuing, renewing, suspending and revoking licenses. Trade associations set ethics for members only, not licenses.
Question 4 of 5
Which California agency is responsible for licensing real estate salespersons and brokers and enforcing the Real Estate Law against licensees?
Answer: A. The California Department of Real Estate (DRE), headed by the Real Estate Commissioner, licenses real estate salespersons and brokers and enforces the Real Estate Law, including investigating complaints and imposing discipline.
Question 5 of 5
A broker pays a referral fee to a person who is not licensed and who performed acts requiring a license. Under California law this is:
Answer: B. It is unlawful for a broker to compensate an unlicensed person for performing acts that require a real estate license. Paying or splitting commissions with unlicensed individuals for licensed activity is prohibited conduct subject to discipline.
Keep the streak going with more questions like these, each with a full rationale.
Must-know rules
- The DRE Commissioner may investigate, and may suspend or revoke a license.
- Grounds include fraud, misrepresentation, commingling, and trust-fund violations.
- The DRE administers a Consumer Recovery Account (recovery fund).
- It pays eligible consumers harmed by a licensee's fraud after an unsatisfied court judgment.
- A licensee whose payout is covered has their license suspended until the fund is reimbursed.
- Discipline can be combined with civil and, in some cases, criminal penalties.
California License Discipline, Penalties & Recovery Fund Quick Sheet: FAQs
Is California License Discipline, Penalties & Recovery Fund Quick Sheet on the real estate exam?
Yes. State License Law is a scored domain on the California real estate licensing exam, and this topic appears in the state license-law portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
Does California test this differently?
California applies its own license law on top of the national portion. This page covers the California rules specifically, which is what the state section of your exam tests.
