Contracts and Agency on the Real Estate Exam: The Biggest Content Area, Explained

How much of the national portion this area covers

Contracts and agency is the largest block on both national outlines, and one of the most applied. As checked on October 28, 2026:

Pearson VUE classifies the 16 as 7 knowledge, 6 application and 3 analysis items, so more than half ask you to use a rule in a situation. PSI splits the same ground into two areas: Contracts at 19% of the salesperson exam and Agency at 13%, together about 26 of 80 items, with listing and buyer-representation contracts filed under Agency. The vendor comparison maps the rest.

Because so many items are scenarios, practice volume pays off here. 125 contracts-and-agency questions planned for launch make this the largest area in the planned bank, in line with its weight.

This guide explains exam concepts. It isn't legal advice: in a real transaction, your state's law, your contracts and your broker decide.

Contract terms you have to be able to apply

What makes a contract valid

Pearson VUE lists five required elements: the agreement is voluntary, there is an agreement or promise, the parties are legally competent, there is lawful consideration, and the purpose is legal. State codes phrase the same idea in their own words. South Dakota's statute, for example, names "parties capable of contracting," "their consent," "a lawful object" and "sufficient cause or consideration." Consideration is the exchange of promises or obligations that binds both parties.

Void, voidable and unenforceable

Pearson VUE lists all three under contract performance. Cornell's Legal Information Institute defines them this way:

Statutes don't always use the same words for the consequence. Washington's statute of frauds says the agreements it lists "shall be void" unless written and signed, so read the question's facts and the rule it states.

Offers, counteroffers and options

An offer can generally be withdrawn by notifying the other party before it is accepted. A counteroffer is both a rejection and a new offer, so the original offer can no longer be accepted. An option contract is a promise to keep an offer open for a set time, during which the offeror can't revoke it, and most options require consideration. Multiple offers and counteroffers are their own subtopic on PSI's outline, so practice tracking which offer is alive at each step.

The statute of frauds and electronic signatures

A statute of frauds requires certain contracts to be in writing and signed by the party bound. The most common categories are contracts to sell or transfer land and contracts that can't be performed within a year. Washington's list also includes "an agreement authorizing or employing an agent or broker to sell or purchase real estate for compensation or a commission." Federal law adds that a contract affecting interstate commerce "may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation."

Breach and remedies

States can limit liquidated damages. California's Civil Code, for example, covers a buyer's deposit kept as liquidated damages on a home of up to four units that the buyer intends to live in. If the contract meets the code's form requirements, an amount actually paid of up to 3% of the purchase price is valid unless the buyer shows it is unreasonable, and a larger amount is invalid unless the seller shows it is reasonable. A "time is of the essence" clause makes timing a material term, so a missed deadline matters.

For quick recall of these terms, 112 contracts-and-agency flashcards planned for launch cover the vocabulary area by area.

Agency: who represents whom

The relationships the outlines name

• Seller's agent and buyer's agent. Each represents one party. California's required disclosure says a seller's agent "acts as the agent for the Seller only."
• Dual agent. One agent represents both sides, only with consent. California requires "the knowledge and consent of both the Seller and the Buyer," and Washington allows a limited dual agent "only with the written consent of both parties," set out in the services agreement.
• Designated agents, facilitators and transaction brokers. PSI's outline lists "transaction brokers and facilitators." New Hampshire's state outline cites separate statutes for designated agents and facilitators, and Colorado's listing form lets the seller choose seller agency or transaction-brokerage, with transaction-brokerage the default if neither box is checked.

How agency starts and ends

In the documents checked, agency starts with an agreement: a listing agreement with a seller or a buyer-representation agreement with a buyer. Washington requires the firm to sign a services agreement with each principal, buyers included, before or as soon as reasonably practical after the broker starts providing services; a buyer's agreement has a default term of 60 days. The broker must also give a pamphlet on agency law before the party signs a services agreement, and disclose in writing whom the broker represents before the parties reach agreement. Colorado's 2026 listing form runs for a stated Listing Period that ends at the earlier of the completed sale or a set date, plus any written extensions.

Duties: what a client gets that a customer doesn't

A client is the party the agent represents. Everyone else in the transaction is a customer. The California and Washington statutes show the split clearly:

California's Department of Real Estate adds obedience to the client's lawful instructions and full accounting for client funds to its summary of fiduciary duties. The pattern to learn: in both states, loyalty doesn't extend to hiding a known material fact from the other side. When a duty question turns on one word, AI Rescue's planned plain-language rewording of a rule can restate it under the explanation.

Listing agreements and how compensation is earned

Pearson VUE's Real Estate Practice area names exclusive right-to-sell, exclusive agency, open and net listings, and flags net listings as a conflict of interest. The exam question is usually who earns the commission when someone other than the listing agent finds the buyer. California's Business and Professions Code (sections 10018.15 to 10018.17, in effect January 1, 2026) defines three of the four, and Maine's commission rules define the fourth:

Net listings are where states differ most. Maine's rule says "A net listing shall be prohibited"; other states word their rules differently, so learn your own state's. Colorado's mandatory 2026 listing form shows the exclusive right-to-sell pattern in practice: compensation is earned on "any Sale of the Property within the Listing Period by Seller, by Broker or by any other person." It also has a holdover period after the listing ends, and its first page states that compensation "is not set by law and is fully negotiable."

Two Passy practice items on contracts and agency

These are Passy's own examples, not exam items.

1. A seller tells her listing agent that the basement floods every spring and asks him not to mention it. A buyer's agent asks whether the house has had water problems. Under duties like those in California's and Washington's statutes, what should the listing agent do?

• A. Disclose the known flooding to the buyer
• B. Stay silent, because loyalty to the seller comes first
• C. Disclose it only if the buyer asks in writing
• D. Refer the question to the seller and say nothing

Answer: A. Loyalty and confidentiality are owed to the client, but disclosure of known material facts is owed to all parties, and the duty of obedience covers only lawful instructions. B confuses loyalty with concealment, C invents a writing condition, and D still leaves a known material fact undisclosed.

2. A buyer offers $400,000. The seller replies, "I accept at $410,000." The buyer says no. The next day the seller writes, "Fine, I accept your $400,000 offer." Is there a contract?

• A. No, the counteroffer ended the original offer
• B. Yes, the original offer stayed open until it expired
• C. Yes, because the seller accepted in writing
• D. No, because a price change requires an option

Answer: A. The seller's reply was a counteroffer, which rejected the $400,000 offer. The seller's later message is a new offer the buyer may accept or reject. B ignores the rejection, C confuses form with substance, and D misstates what an option is.

Scenario drills like these build a useful habit: name the rule, then check each fact against it. When you can explain both items, a No-Miss Run challenge planned for launch is a way to check that the rules hold across a full set.

Where state law takes over

Agency rules vary a lot by state. Which relationships are allowed, which disclosure form is used and when, whether dual agency is permitted and what a transaction broker owes are set by each state, and they are tested on your state portion. New Hampshire's state outline, for example, cites a separate statute for each relationship. Study the national concepts here, then learn your state's versions from its outline and your prelicensing course.

Next, the ownership and title guide covers deeds and recording, which many contract questions lead into, and the free practice questions include a counteroffer item to test yourself on.