The National Real Estate Exam Study Guide

1. Property Ownership

The foundational chapter. Real property is land, everything permanently attached to it, and the bundle of legal rights that comes with it — personal property (chattels) is everything else. Ownership is described by the estate you hold, how long you hold it, and how many owners are on the deed.

Must know

• Real vs personal property: fixtures (attached, adapted, intended to stay) travel with the real estate; trade fixtures leave with the business tenant.
• Freehold estates (fee simple absolute, fee simple defeasible, life estate) last for an indeterminate time; leasehold estates (estate for years, periodic, at will, at sufferance) have a defined term.
• Forms of co-ownership: tenancy in common (no right of survivorship), joint tenancy (four unities + survivorship), tenancy by the entirety (spouses), community property (nine states).
• Condominiums own a unit + undivided interest in common elements; co-ops own shares in a corporation that owns the building; townhomes typically own the lot beneath the unit.

2. Land Use Controls & Regulations

Government and private restrictions on what an owner can do with land. The state's police power lets it regulate use for health, safety, and welfare without paying; eminent domain lets it take property for public use with just compensation.

Must know

• Zoning classifies land use (residential, commercial, industrial, agricultural); a variance permits a specific deviation from zoning.
• Nonconforming use ("grandfathered") is a use that predates a new zoning restriction — it can continue but usually can't expand or be rebuilt after destruction.
• Eminent domain (the power) → condemnation (the process) → just compensation. A regulation so restrictive it destroys value can be an inverse condemnation / regulatory taking.
• Deed restrictions and CC&Rs are private (enforced by neighbors / HOA); zoning is public (enforced by the municipality).
• Police power vs taking: regulating use = no compensation; taking title or destroying all economic use = compensation.

3. Valuation & Market Analysis

Value is what a property is worth to a typical buyer; price is what it actually sold for; cost is what it took to build. Appraisers estimate value using three approaches and reconcile them into a final opinion.

Must know

• Sales comparison approach: adjust recent comparable sales for differences from the subject. Best for residential resale.
• Cost approach: land value + reproduction/replacement cost of improvements − depreciation. Best for new construction and special-purpose buildings.
• Income approach: capitalize net operating income into value (value = NOI ÷ cap rate). Best for income-producing property.
• A CMA is prepared by an agent for pricing and is not an appraisal.
• Key principles: substitution (a buyer won't pay more than the cost of an equivalent), highest and best use (legally permissible, physically possible, financially feasible, maximally productive), progression, regression, conformity.

4. Financing

How the deal actually closes. Almost every exam has heavy math and vocabulary from this section — memorize the ratios and know the difference between the loan documents.

Must know

• LTV = loan ÷ appraised value (or sale price, whichever is lower). Above 80% LTV usually triggers PMI.
• PITI = principal + interest + taxes + insurance — the total monthly housing payment lenders qualify on.
• Amortization spreads principal + interest over the term; early payments are mostly interest, later payments mostly principal.
• One discount point = 1% of the loan amount, paid at closing to buy down the rate.
• Conventional (Fannie/Freddie), FHA (low down, MIP for the life of the loan in most cases), VA (0% down, funding fee, eligible veterans), USDA (rural, income-limited).
• The promissory note is the promise to pay; the mortgage (or deed of trust in trust-deed states) is the security instrument that pledges the property as collateral.
• Foreclosure is judicial (court-supervised, mortgage states) or non-judicial (power of sale, deed-of-trust states).

5. Agency

The legal relationship between an agent, a principal (client), and a customer. Agency creates fiduciary duties — the highest duties the law recognizes.

Must know

• Remember OLDCAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable care.
• Types of agency: express (written), implied (conduct), and — in most states — designated (one agent per side within the same firm).
• Dual agency = one agent (or firm) represents both sides of the same transaction. Requires written informed consent; illegal in some states.
• The client is the principal; the other party is the customer, who is owed honesty and fair dealing but not fiduciary duties.
• Agency terminates by: completion, expiration, mutual agreement, revocation, renunciation, death/incapacity, destruction of the property, or bankruptcy.

6. Contracts

The purchase agreement, listing agreement, lease, and option are all contracts. Know what makes one enforceable — and what breaks it.

Must know

• Elements of a valid contract: competent parties, mutual assent (offer + acceptance), legal purpose, consideration, and — for real estate — in writing (Statute of Frauds).
• Void = never a contract; voidable = one party can walk (e.g. fraud, minor); unenforceable = valid but a court won't enforce it (e.g. oral RE contract).
• Executed = fully performed; executory = still being performed.
• An option gives the buyer a unilateral right to buy for a set period; the seller can't back out, the buyer can.
• Contingencies (financing, inspection, appraisal) allow a party to void without penalty if not satisfied.
• Breach remedies: specific performance (courts force the sale — real estate is unique), monetary damages, liquidated damages (the earnest money), rescission.

7. Transfer of Title

How ownership actually moves from one person to another — and how a buyer verifies they're getting good title.

Must know

• General warranty deed: strongest, warrants against all defects back to the beginning of time. Special warranty: only warrants defects during the grantor's ownership. Quitclaim: no warranties, just transfers whatever interest (if any) the grantor has.
• Title insurance protects against past defects (undiscovered liens, forged deeds). Owner's policy protects the buyer for as long as they own; lender's policy protects the lender for the loan balance.
• Recording gives constructive notice — the world is presumed to know what's in the public record.
• Title by descent (no will) vs devise (by will); probate is the court process that validates the will and clears title.
• Adverse possession requires possession that is open, notorious, continuous, hostile, and exclusive for the statutory period.

8. Practice of Real Estate

The rules that govern how licensees behave. Fair housing, ADA, antitrust, advertising, and trust-account handling account for a disproportionate share of exam questions.

Must know

• Federal Fair Housing Act (1968, amended 1988) protected classes: race, color, religion, national origin, sex, familial status, disability. Many states add more (age, sexual orientation, source of income).
• ADA requires reasonable accommodations in public accommodations and commercial facilities.
• Antitrust: no price fixing, no group boycotts, no market allocation, no tie-in arrangements. Commissions are always negotiable — never say "the standard rate."
• Advertising must not be misleading and must disclose the brokerage. Blind ads (agent-only, no brokerage) are prohibited.
• Trust / escrow accounts hold other people's money separately from the broker's operating funds. Commingling and conversion are among the fastest ways to lose a license.

9. Real Estate Calculations

The math section. Every formula on the exam derives from the T-bar (Part = Whole × Rate). Practice until you can set them up without thinking.

Must know

• Commission = sale price × commission rate; then apply splits (listing/selling firm, then firm/agent).
• Area: rectangle = L × W; triangle = ½ × base × height; 1 acre = 43,560 sq ft; 1 sq mile = 640 acres.
• Loan math: monthly interest = (principal × annual rate) ÷ 12; 1 point = 1% of loan.
• Proration: (annual expense ÷ 365) × days owed. Know who owes whom on the day of closing (varies by state / contract).
• Transfer tax = taxable amount × rate (often per $500 or $1,000 of price).

Top 20 vocabulary terms that trip people up

If a term below is unfamiliar, expect it on the exam.

Encumbrance vs lien

Encumbrance = any claim against title (liens, easements, restrictions). Lien = a monetary encumbrance.

Appurtenance

A right or privilege that belongs to the land and transfers with it (e.g. an easement).

Escheat

The state takes property when an owner dies with no will and no heirs.

Estoppel

A party is barred from asserting something inconsistent with their prior conduct or statement.

Novation

Substituting a new contract or party for an old one, releasing the original.

Subordination

Voluntarily agreeing that your lien is junior to another.

Defeasance

Clause that voids the mortgage once the loan is paid in full.

Alienation

Transferring title. A due-on-sale clause is an alienation clause.

Riparian vs littoral rights

Riparian = flowing water (rivers, streams). Littoral = standing water (lakes, oceans).

Severalty

Sole ownership by one person or entity.

Avulsion vs accretion

Avulsion = sudden loss of land (flood). Accretion = gradual addition of soil (alluvion).

Emblements

Annual crops planted by a tenant — the tenant keeps the right to harvest.

Laches

Losing a legal right by waiting too long to assert it.

Lis pendens

A recorded notice that litigation is pending against the property.

Cloud on title

Any claim or defect that impairs marketable title.

Habendum clause

The "to have and to hold" clause in a deed defining the estate granted.

Hypothecation

Pledging property as collateral without giving up possession.

Usury

Charging interest above the legal maximum.

Reconveyance

The trustee returns title to the borrower once the deed-of-trust loan is paid off.

Constructive notice

Notice the law presumes you have because it's in the public record.

Test-day strategy

• Answer every question. The exam doesn't penalize guesses — a blank is a guaranteed miss.
• Flag and return. Move past anything that takes more than ~60 seconds. Get the easy points first, then loop back.
• Eliminate two, then guess. Two of the four choices are usually clearly wrong — that turns a 25% shot into a coin flip.
• Watch for absolutes. "Always" and "never" are usually wrong; "may" and "generally" are usually right.
• The state portion is where prep quality shows. Most first-time failures happen there. See first-attempt pass rates by state to gauge what you're up against.
• Take timed practice exams. Nothing else moves your score like sitting for full-length simulated exams under real time pressure.