CA legal aspects of Real Estate: Chapter 7
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Section 3508 of the IRS code - CORRECT ANSWER - •allows real estate agents to be
classified as independent contractors under a supervising broker. In order to qualify as an
independent contractor, the IRS requires what's called the safe harbor test to establish that a
person is truly acting as an independent contractor and not an employee.
The three conditions of the safe harbor test are - CORRECT ANSWER - •The person must
be a qualified (properly licensed) real estate agent.
•Compensation paid to the real estate agent for services performed must be based on production,
not hours work.
•A written agreement must exist between the independent contractor and the broker. This
agreement must outline the services to be performed by the contractor and must explicitly state
that the contractor will not be treated as an employee for Federal tax purposes.
What type of contract will a new real estate licensee likely first experience? - CORRECT
ANSWER - An employment contract with his or her sponsoring broker
List three characteristics of licensees who are independent contractors? (Additional correct
answers on page 4.) - CORRECT ANSWER - •The agent controls his or her schedule,
hours, and workload
•The broker cannot control HOW the agent performs his or her real estate duties.
The broker does NOT withhold any money from the agent's paycheck.
Although it's usually easier for brokers to hire licensees as independent contractors rather than
employees, what is the trade-off? - CORRECT ANSWER - The amount of control brokers
have over their licensees
What are the conditions of the IRS safe harbor test? - CORRECT ANSWER - •The person
must be a qualified (properly licensed) real estate agent.
, •Compensation paid to the real estate agent for services performed must be based on production,
not hours work.
•A written agreement must exist between the independent contractor and the broker stating that
the contractor will not be treated as an employee for income tax purposes.
What provision of an independent contractor agreement allows an agent to enter into agency
agreements on behalf of the broker? - CORRECT ANSWER - The provision that
addresses the agent's authority
What does a provision discussing employee benefits typically state in an independent contractor
agreement? - CORRECT ANSWER - No benefits such as health insurance, retirement,
sick days, paid-time off, etc. are provided to the agent.
What are the typical conditions for terminating an independent contractor agreement? -
CORRECT ANSWER - Either party can terminate the agreement at any time with or
without cause.
What is the main difference between the two CAR Independent Contractor Agreements? -
CORRECT ANSWER - •The main difference between the two CAR Independent
Contractor Agreements is how disputes between the parties regarding terms of the agreement
will be resolved.
What is an important thing to remember about the enforceability of listing agreements? -
CORRECT ANSWER - They must be in writing to be enforceable
What is the major difference between an exclusive right to sell listing and an exclusive agency
listing? - CORRECT ANSWER - With exclusive right to sell, the broker has the exclusive
right to market the property and receive a commission regardless of who procures the buyer.
With exclusive agency, the owner retains the right to find a buyer and sell the property and owe
the exclusive broker no commission.
Describe an open listing. - CORRECT ANSWER - An open listing is a non-exclusive
listing that allows a seller to engage a number of different brokers to sell the property. The
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Section 3508 of the IRS code - CORRECT ANSWER - •allows real estate agents to be
classified as independent contractors under a supervising broker. In order to qualify as an
independent contractor, the IRS requires what's called the safe harbor test to establish that a
person is truly acting as an independent contractor and not an employee.
The three conditions of the safe harbor test are - CORRECT ANSWER - •The person must
be a qualified (properly licensed) real estate agent.
•Compensation paid to the real estate agent for services performed must be based on production,
not hours work.
•A written agreement must exist between the independent contractor and the broker. This
agreement must outline the services to be performed by the contractor and must explicitly state
that the contractor will not be treated as an employee for Federal tax purposes.
What type of contract will a new real estate licensee likely first experience? - CORRECT
ANSWER - An employment contract with his or her sponsoring broker
List three characteristics of licensees who are independent contractors? (Additional correct
answers on page 4.) - CORRECT ANSWER - •The agent controls his or her schedule,
hours, and workload
•The broker cannot control HOW the agent performs his or her real estate duties.
The broker does NOT withhold any money from the agent's paycheck.
Although it's usually easier for brokers to hire licensees as independent contractors rather than
employees, what is the trade-off? - CORRECT ANSWER - The amount of control brokers
have over their licensees
What are the conditions of the IRS safe harbor test? - CORRECT ANSWER - •The person
must be a qualified (properly licensed) real estate agent.
, •Compensation paid to the real estate agent for services performed must be based on production,
not hours work.
•A written agreement must exist between the independent contractor and the broker stating that
the contractor will not be treated as an employee for income tax purposes.
What provision of an independent contractor agreement allows an agent to enter into agency
agreements on behalf of the broker? - CORRECT ANSWER - The provision that
addresses the agent's authority
What does a provision discussing employee benefits typically state in an independent contractor
agreement? - CORRECT ANSWER - No benefits such as health insurance, retirement,
sick days, paid-time off, etc. are provided to the agent.
What are the typical conditions for terminating an independent contractor agreement? -
CORRECT ANSWER - Either party can terminate the agreement at any time with or
without cause.
What is the main difference between the two CAR Independent Contractor Agreements? -
CORRECT ANSWER - •The main difference between the two CAR Independent
Contractor Agreements is how disputes between the parties regarding terms of the agreement
will be resolved.
What is an important thing to remember about the enforceability of listing agreements? -
CORRECT ANSWER - They must be in writing to be enforceable
What is the major difference between an exclusive right to sell listing and an exclusive agency
listing? - CORRECT ANSWER - With exclusive right to sell, the broker has the exclusive
right to market the property and receive a commission regardless of who procures the buyer.
With exclusive agency, the owner retains the right to find a buyer and sell the property and owe
the exclusive broker no commission.
Describe an open listing. - CORRECT ANSWER - An open listing is a non-exclusive
listing that allows a seller to engage a number of different brokers to sell the property. The
