DRE & LicensingIntermediateCalifornia Exam
Under California law, a 'net listing' arrangement where the broker keeps everything above a specified net price to the seller is:
APerfectly legal and commonly used, as required for license renewal in California
BLegal only for commercial properties, consistent with Business and Professions Code licensing rules
CLegal but strongly discouraged by the DRE, and the broker must disclose the profit madeCorrect
DIllegal and grounds for license revocation, under California Department of Real Estate requirements
Why Legal but strongly discouraged by the DRE, and the broker must disclose the profit made Is Correct
Answer C: Legal but strongly discouraged by the DRE, and the broker must disclose the profit made
Net listings are legal in California but are strongly disfavored by the DRE because of the inherent conflict of interest — the broker benefits directly from a higher sale price at the seller's expense. A broker using a net listing must disclose the purchase price and the profit they earned to the seller.
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Key Terms to Know
Fiduciary Duty
The highest legal duty an agent owes to a principal — requiring the agent to act in the principal's best interest above all others.
Earnest MoneyA deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Purchase AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.
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