1
FREC 4 EXAM Actual Exam 2026/2027
Complete Questions and Verified Answers
with Detailed Rationales Pass Guaranteed
- A+ Graded
Section 1: FREC 4 Exam
Q1: A Florida real estate broker must maintain written office policies that include which of the
following elements?
A. Personal social media guidelines only
B. Commission splits and transaction file retention procedures [CORRECT]
C. Employee vacation schedules only
D. Personal investment strategies of the broker
Correct Answer: B
Rationale: Florida Administrative Code requires brokers to establish written policies covering
commission arrangements, supervision of associates, and procedures for maintaining transaction
files. Commission splits and file retention are core operational requirements for brokerage
management.
Q2: A broker's office policy manual must address procedures for handling earnest money
deposits. According to Florida law, how long does a broker have to deposit these funds into an
escrow account?
A. 3 business days
B. 5 business days
C. No later than the end of the next business day [CORRECT]
D. 10 business days
Correct Answer: C
Rationale: Chapter 475, Florida Statutes, and FREC rules require brokers to deposit earnest
money into an escrow account no later than the end of the next business day following receipt of
the funds. This strict timeline protects consumer funds and ensures proper trust account
management.
1
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Q3: A designated broker in Florida is responsible for supervising all licensed activities at the
brokerage. Which of the following is NOT within the designated broker's supervisory duties?
A. Reviewing all advertising for compliance
B. Ensuring proper escrow account reconciliation
C. Setting personal investment goals for sales associates [CORRECT]
D. Maintaining current office licenses and registrations
Correct Answer: C
Rationale: The designated broker's supervisory responsibilities include overseeing advertising
compliance, ensuring proper handling of escrow funds, and maintaining office licenses. Personal
investment goals for associates fall outside the scope of real estate brokerage supervision and are
not a regulatory requirement.
Q4: A property management company in Florida collects security deposits from tenants. Under
Florida landlord-tenant law, how must these deposits be handled?
A. Deposited in the property manager's operating account
B. Held in a separate non-interest-bearing account only
C. Deposited in a Florida banking institution, with the option for interest-bearing or non-interest-
bearing accounts, and proper notice given to tenants [CORRECT]
D. Given directly to the property owner within 24 hours
Correct Answer: C
Rationale: Florida Statute 83.49 requires security deposits to be held in a Florida banking
institution. The landlord (or property manager) may hold the deposit in an interest-bearing or
non-interest-bearing account, but must provide written notice to the tenant within 30 days
regarding how the deposit is held and the rate of interest if applicable.
Q5: An investor purchases a rental property for $350,000 with a 75% loan-to-value mortgage at
6.5% annual interest. The property generates $28,000 annual gross rent with $8,400 in operating
expenses. Calculate the cash-on-cash return.
A. 8.5%
B. 11.2% [CORRECT]
C. 14.7%
D. 6.3%
Correct Answer: B
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Rationale: Cash-on-cash return = Annual Pre-Tax Cash Flow / Initial Cash Investment. Initial
cash investment = $350,000 × 25% = $87,500. Annual debt service = $262,500 × 6.5% =
$17,062.50 (interest-only for simplicity). Net operating income = $28,000 - $8,400 = $19,600.
Pre-tax cash flow = $19,600 - $17,062.50 = $2,537.50. Cash-on-cash return = $2,537.50 /
$87,500 = 0.112 or 11.2%.
Q6: A commercial property generates $85,000 net operating income annually. Similar properties
in the market sell at a 7.5% capitalization rate. Using the income approach, what is the estimated
value of this property?
A. $1,133,333 [CORRECT]
B. $637,500
C. $6,375,000
D. $850,000
Correct Answer: A
Rationale: Capitalization Rate Formula: Value = Net Operating Income / Capitalization Rate.
Value = $85,.075 = $1,133,333.33. The cap rate method divides the annual net operating
income by the market-derived capitalization rate to estimate property value.
Q7: A broker is calculating the internal rate of return (IRR) for a property investment. The IRR
represents:
A. The simple interest rate on the purchase price
B. The discount rate at which the net present value of all cash flows equals zero [CORRECT]
C. The annual appreciation rate of the property
D. The mortgage interest rate minus inflation
Correct Answer: B
Rationale: The Internal Rate of Return (IRR) is defined as the discount rate that makes the net
present value (NPV) of all cash inflows and outflows equal to zero. It represents the expected
compound annual rate of return that will be earned on a project or investment.
Q8: Under Florida law, which of the following constitutes a violation of broker supervision
requirements?
A. Reviewing all contracts within 48 hours
B. Failing to establish a system for associates to submit contracts for review before presentation
to clients [CORRECT]
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, 4
C. Conducting monthly training sessions
D. Maintaining a written policy manual
Correct Answer: B
Rationale: Florida law requires brokers to establish adequate supervision systems, including
procedures for contract review. Failing to establish a system for associates to submit contracts for
review before client presentation violates the broker's duty of supervision and exposes the broker
to disciplinary action by the FREC.
Q9: A property manager in Florida must account for tenant security deposits within what
timeframe after the tenant vacates?
A. 10 days
B. 15 days
C. 30 days [CORRECT]
D. 60 days
Correct Answer: C
Rationale: Florida Statute 83.49 requires landlords and property managers to return security
deposits within 15 days if no claim is made, or within 30 days if making a claim for damages.
The 30-day period applies when the landlord intends to impose a claim on the deposit.
Q10: An investor is analyzing a property using the net present value (NPV) method. If the NPV
is positive when using a 10% discount rate, this indicates:
A. The investment should be rejected
B. The investment earns more than 10% and should be accepted [CORRECT]
C. The investment earns exactly 10%
D. The discount rate should be increased to 15%
Correct Answer: B
Rationale: A positive NPV indicates that the investment's return exceeds the discount rate used
(hurdle rate). When NPV > 0 at a given discount rate, the project generates value above the
required rate of return and should be accepted from a financial standpoint.
Q11: A Florida broker is creating an independent contractor agreement with a sales associate.
Which provision is required by Florida law?
A. The associate must work exclusively for one broker
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FREC 4 EXAM Actual Exam 2026/2027
Complete Questions and Verified Answers
with Detailed Rationales Pass Guaranteed
- A+ Graded
Section 1: FREC 4 Exam
Q1: A Florida real estate broker must maintain written office policies that include which of the
following elements?
A. Personal social media guidelines only
B. Commission splits and transaction file retention procedures [CORRECT]
C. Employee vacation schedules only
D. Personal investment strategies of the broker
Correct Answer: B
Rationale: Florida Administrative Code requires brokers to establish written policies covering
commission arrangements, supervision of associates, and procedures for maintaining transaction
files. Commission splits and file retention are core operational requirements for brokerage
management.
Q2: A broker's office policy manual must address procedures for handling earnest money
deposits. According to Florida law, how long does a broker have to deposit these funds into an
escrow account?
A. 3 business days
B. 5 business days
C. No later than the end of the next business day [CORRECT]
D. 10 business days
Correct Answer: C
Rationale: Chapter 475, Florida Statutes, and FREC rules require brokers to deposit earnest
money into an escrow account no later than the end of the next business day following receipt of
the funds. This strict timeline protects consumer funds and ensures proper trust account
management.
1
,2
Q3: A designated broker in Florida is responsible for supervising all licensed activities at the
brokerage. Which of the following is NOT within the designated broker's supervisory duties?
A. Reviewing all advertising for compliance
B. Ensuring proper escrow account reconciliation
C. Setting personal investment goals for sales associates [CORRECT]
D. Maintaining current office licenses and registrations
Correct Answer: C
Rationale: The designated broker's supervisory responsibilities include overseeing advertising
compliance, ensuring proper handling of escrow funds, and maintaining office licenses. Personal
investment goals for associates fall outside the scope of real estate brokerage supervision and are
not a regulatory requirement.
Q4: A property management company in Florida collects security deposits from tenants. Under
Florida landlord-tenant law, how must these deposits be handled?
A. Deposited in the property manager's operating account
B. Held in a separate non-interest-bearing account only
C. Deposited in a Florida banking institution, with the option for interest-bearing or non-interest-
bearing accounts, and proper notice given to tenants [CORRECT]
D. Given directly to the property owner within 24 hours
Correct Answer: C
Rationale: Florida Statute 83.49 requires security deposits to be held in a Florida banking
institution. The landlord (or property manager) may hold the deposit in an interest-bearing or
non-interest-bearing account, but must provide written notice to the tenant within 30 days
regarding how the deposit is held and the rate of interest if applicable.
Q5: An investor purchases a rental property for $350,000 with a 75% loan-to-value mortgage at
6.5% annual interest. The property generates $28,000 annual gross rent with $8,400 in operating
expenses. Calculate the cash-on-cash return.
A. 8.5%
B. 11.2% [CORRECT]
C. 14.7%
D. 6.3%
Correct Answer: B
2
,3
Rationale: Cash-on-cash return = Annual Pre-Tax Cash Flow / Initial Cash Investment. Initial
cash investment = $350,000 × 25% = $87,500. Annual debt service = $262,500 × 6.5% =
$17,062.50 (interest-only for simplicity). Net operating income = $28,000 - $8,400 = $19,600.
Pre-tax cash flow = $19,600 - $17,062.50 = $2,537.50. Cash-on-cash return = $2,537.50 /
$87,500 = 0.112 or 11.2%.
Q6: A commercial property generates $85,000 net operating income annually. Similar properties
in the market sell at a 7.5% capitalization rate. Using the income approach, what is the estimated
value of this property?
A. $1,133,333 [CORRECT]
B. $637,500
C. $6,375,000
D. $850,000
Correct Answer: A
Rationale: Capitalization Rate Formula: Value = Net Operating Income / Capitalization Rate.
Value = $85,.075 = $1,133,333.33. The cap rate method divides the annual net operating
income by the market-derived capitalization rate to estimate property value.
Q7: A broker is calculating the internal rate of return (IRR) for a property investment. The IRR
represents:
A. The simple interest rate on the purchase price
B. The discount rate at which the net present value of all cash flows equals zero [CORRECT]
C. The annual appreciation rate of the property
D. The mortgage interest rate minus inflation
Correct Answer: B
Rationale: The Internal Rate of Return (IRR) is defined as the discount rate that makes the net
present value (NPV) of all cash inflows and outflows equal to zero. It represents the expected
compound annual rate of return that will be earned on a project or investment.
Q8: Under Florida law, which of the following constitutes a violation of broker supervision
requirements?
A. Reviewing all contracts within 48 hours
B. Failing to establish a system for associates to submit contracts for review before presentation
to clients [CORRECT]
3
, 4
C. Conducting monthly training sessions
D. Maintaining a written policy manual
Correct Answer: B
Rationale: Florida law requires brokers to establish adequate supervision systems, including
procedures for contract review. Failing to establish a system for associates to submit contracts for
review before client presentation violates the broker's duty of supervision and exposes the broker
to disciplinary action by the FREC.
Q9: A property manager in Florida must account for tenant security deposits within what
timeframe after the tenant vacates?
A. 10 days
B. 15 days
C. 30 days [CORRECT]
D. 60 days
Correct Answer: C
Rationale: Florida Statute 83.49 requires landlords and property managers to return security
deposits within 15 days if no claim is made, or within 30 days if making a claim for damages.
The 30-day period applies when the landlord intends to impose a claim on the deposit.
Q10: An investor is analyzing a property using the net present value (NPV) method. If the NPV
is positive when using a 10% discount rate, this indicates:
A. The investment should be rejected
B. The investment earns more than 10% and should be accepted [CORRECT]
C. The investment earns exactly 10%
D. The discount rate should be increased to 15%
Correct Answer: B
Rationale: A positive NPV indicates that the investment's return exceeds the discount rate used
(hurdle rate). When NPV > 0 at a given discount rate, the project generates value above the
required rate of return and should be accepted from a financial standpoint.
Q11: A Florida broker is creating an independent contractor agreement with a sales associate.
Which provision is required by Florida law?
A. The associate must work exclusively for one broker
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