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The real estate licensing exam is fundamentally a vocabulary test. You will not calculate complex formulas in your head — you will recognize a scenario, identify the correct term, and select the right answer. Knowing these 100 terms cold is the foundation of a first-attempt pass.
These are organized by topic area, matching how questions appear on both the PSI and Pearson VUE exams.
Practice these terms in context → Click2CE's adaptive exam engine tests your vocabulary with scenario-based questions and an AI Tutor that explains each concept in depth.
1. Real property — Land, anything permanently attached to land, and the legal rights that come with ownership (the bundle of rights). Distinguished from personal property (chattel), which is movable.
2. Fixture — Personal property that has become attached to real property and is therefore considered real property. Classified by the MARIA test: Method of attachment, Adaptability, Relationship of parties, Intention, Agreement.
3. Trade fixture — Equipment or personal property installed by a commercial tenant for business purposes. Trade fixtures remain the tenant's personal property and may be removed before lease expiration (with repairs made).
4. Easement appurtenant — An easement that benefits one parcel (dominant estate) and burdens another (servient estate). Runs with the land — transfers when either parcel is sold.
5. Easement in gross — An easement that benefits a person or entity, not a parcel. Utility easements and personal easements are common examples. Do not run with the land.
6. Easement by necessity — Created by law when a landlocked parcel has no access except through another's property. Courts create these to ensure reasonable access.
7. License (real property) — Revocable, non-transferable permission to use another's land. Distinguished from an easement by being revocable at will.
8. Encroachment — When a structure, fence, or improvement physically crosses a property boundary onto another owner's land. May ripen into an easement by prescription if unaddressed.
9. Lien — A financial claim or charge against property as security for payment of a debt. May be voluntary (mortgage) or involuntary (tax lien, mechanic's lien).
10. Encumbrance — Any claim, lien, easement, restriction, or other burden that affects the owner's use or the title to real property. Note: encumbrances may be financial (liens) or non-financial (easements, CC&Rs).
11. Joint tenancy — Co-ownership with the right of survivorship. Requires four unities: Time, Title, Interest, and Possession (TTIP). A joint tenant's interest passes automatically to surviving co-owners at death, avoiding probate.
12. Tenancy in common — Co-ownership where each owner holds an undivided interest that may be of unequal size. No right of survivorship — a co-owner's interest passes through their estate at death.
13. Community property — Property acquired during marriage in one of nine community-property states (including Arizona). Each spouse owns an equal undivided half. Separate property (gifts, inheritance, pre-marital assets) is excluded.
14. Tenancy by the entirety — A form of co-ownership available only to married couples in some states. Similar to joint tenancy with right of survivorship; neither spouse can convey their interest without the other's consent. Not recognized in Arizona.
15. Fee simple absolute — The highest and most complete form of real property ownership. Owner has unrestricted rights to use, lease, sell, or devise the property.
16. Fee simple defeasible — Ownership subject to conditions. If the condition is violated, the property may revert to the grantor. Examples: "so long as," "but if," "on condition that."
17. Life estate — Ownership for the duration of a person's life (the life tenant). When the life tenant dies, ownership transfers to the remainderman or reverts to the grantor.
18. Remainder interest — The future interest that takes effect after a life estate ends. The person who holds it is the remainderman.
19. Riparian rights — The water-use rights of a landowner whose property borders a stream or river. (Note: Arizona follows prior appropriation doctrine, not riparian rights.)
20. Prior appropriation — A water rights doctrine (used in Arizona and other western states) in which water rights are granted by the state on a "first in time, first in right" basis, unrelated to land ownership.
21. Market value — The most probable price a property would sell for in an arm's-length transaction, with both parties acting prudently and without undue pressure.
22. Market price — The price actually paid for a property. May differ from market value (in a forced sale, the market price might be below market value).
23. Sales comparison approach — An appraisal method that estimates value by comparing recent sales of similar properties (comparables). Most reliable for residential properties.
24. Cost approach — Estimates value by calculating the cost to replace or reproduce the improvements, subtracting depreciation, and adding land value. Best for new construction or special-use properties.
25. Income approach — Estimates value based on the income a property generates. Used primarily for commercial and investment properties. Net Operating Income (NOI) ÷ Cap Rate = Value.
26. Capitalization rate (cap rate) — The rate of return on a real estate investment based on expected income. Cap rate = NOI ÷ Value. Higher cap rate = lower value for the same income.
27. Gross rent multiplier (GRM) — A simple income-based valuation shortcut: GRM = Sale Price ÷ Gross Rent. Can be monthly or annual — clarify which the question uses.
28. Depreciation — A loss in property value. Three types: physical deterioration (wear and tear), functional obsolescence (outdated design), external/economic obsolescence (outside forces).
29. Curable vs. incurable depreciation — Curable depreciation can be fixed for less than the value added (worth repairing). Incurable is too costly to fix economically, or outside the owner's control.
30. Comparative Market Analysis (CMA) — A tool used by real estate licensees (not licensed appraisers) to estimate a property's value based on recent comparable sales. A CMA is NOT an appraisal.
31. Arm's-length transaction — A transaction between unrelated parties acting in their own self-interest. Non-arm's-length transactions (between relatives or related entities) may not reflect market value.
32. Assessed value — The value placed on a property by a government tax assessor for tax purposes. Not the same as market value or appraised value.
33. Assessment ratio — The percentage of a property's market value used to calculate its assessed value. Example: A $400,000 home with an 80% assessment ratio has an assessed value of $320,000.
34. Mill rate — The tax rate expressed in mills (1/10 of a cent, or $1 per $1,000 of assessed value). Property tax = Assessed Value × Mill Rate.
35. Plottage (assemblage) — When two or more adjacent parcels are combined to increase overall value. The increase in value from combining parcels is called plottage value.
36. Mortgage — A legal instrument pledging real property as security for a debt. Creates a lien on the property; the borrower retains title. Used in "lien theory" states (not Arizona's primary instrument).
37. Deed of trust — The primary security instrument in Arizona. Three parties: trustor (borrower), beneficiary (lender), and trustee (neutral third party who holds title). Allows nonjudicial foreclosure (trustee's sale) upon default.
38. Promissory note — The borrower's written promise to repay the loan. The note is the evidence of the debt; the mortgage or deed of trust is the security.
39. Amortization — The process of paying off a loan through regular scheduled payments that include both principal and interest. In a fully amortized loan, the balance reaches zero at the end of the term.
40. Adjustable-rate mortgage (ARM) — A loan where the interest rate adjusts periodically based on a market index (LIBOR, SOFR, etc.) plus a margin. Rate caps limit how much the rate can change per period and over the life of the loan.
41. LTV (Loan-to-Value) — Loan amount ÷ appraised value. A 90% LTV means the borrower is financing 90% and putting 10% down. Lower LTV = less risk to lender.
42. Private mortgage insurance (PMI) — Insurance required by conventional lenders when LTV exceeds 80%. Protects the lender (not the borrower) against default. Can be cancelled once equity reaches 20%.
43. Discount point — Prepaid interest paid at closing to buy down the mortgage interest rate. One point = 1% of the loan amount. Each point typically reduces the rate by 0.125–0.25%.
44. FHA loan — A mortgage insured by the Federal Housing Administration. Requires as little as 3.5% down payment (with 580+ credit score). Requires mortgage insurance premium (MIP) regardless of LTV.
45. VA loan — A mortgage guaranteed by the Department of Veterans Affairs. No down payment required for eligible veterans. No private mortgage insurance. Requires a funding fee (waived for some disabled veterans).
46. Conventional loan — A mortgage not insured by a government agency. Conforms to Fannie Mae/Freddie Mac guidelines if below conforming loan limits.
47. RESPA (Real Estate Settlement Procedures Act) — Federal law that requires disclosure of all settlement costs and prohibits kickbacks and referral fees between settlement service providers. Applies to federally related mortgage loans.
48. TRID (TILA-RESPA Integrated Disclosure) — Rule combining TILA and RESPA disclosures into two forms: the Loan Estimate (provided within 3 business days of loan application) and the Closing Disclosure (provided at least 3 business days before closing).
49. Due-on-sale clause — Requires the full loan balance to be paid upon sale or transfer of the property. Prevents assumable mortgages without lender approval. Nearly all modern conventional loans include this clause.
50. Deficiency judgment — A court order allowing the lender to sue the borrower for the remaining balance if the foreclosure sale proceeds don't cover the debt. Many states (Arizona for trustee's sales) limit or prohibit deficiency judgments.
51. Agency — A relationship where one party (the agent) is authorized to act on behalf of another (the principal) in dealings with third parties.
52. Fiduciary duty — The highest duty of care in law. Real estate agents owe fiduciary duties to their clients: Care, Obedience, Loyalty, Disclosure, Accounting, Confidentiality (COLDAC or OLD CAR).
53. Listing agreement — A contract between a seller and a broker authorizing the broker to market the seller's property and act as the seller's agent.
54. Exclusive right to sell — The most common listing type. The broker earns a commission regardless of who produces the buyer — even if the seller sells it themselves.
55. Exclusive agency — The broker earns a commission if they or another broker produces a buyer. But if the seller finds their own buyer directly, no commission is owed.
56. Open listing — Non-exclusive. Multiple brokers may be hired; only the one who produces the buyer earns a commission. The seller may also sell independently without owing any commission.
57. Buyer agency — The broker represents the buyer, not the seller. Owes fiduciary duties to the buyer. Required written buyer agency agreement in most states post-NAR settlement.
58. Dual agency — When one agent or one brokerage represents both buyer and seller in the same transaction. Permitted in most states with informed, written consent from both parties.
59. Designated agency — One agent in the brokerage represents the buyer; a different agent represents the seller. The broker remains a dual agent but designates separate agents to limit the conflict.
60. Subagency — When a buyer's agent works for the seller's brokerage. Now rare; most MLS agreements explicitly disclaim subagency. A subagent owes fiduciary duties to the seller, not the buyer.
61. Procuring cause — The uninterrupted chain of events initiated by a broker that leads to a completed transaction. Relevant in determining which broker earns a commission in a dispute.
62. Material fact — Any fact that would affect a reasonable person's decision to buy, sell, or lease a property. Must be disclosed by licensees to all parties.
63. Stigmatized property — A property where a psychologically impactful event occurred (murder, reported haunting). Disclosure requirements vary by state; Arizona requires disclosure if directly asked.
64. Latent defect — A hidden defect not discoverable through ordinary inspection. Must be disclosed by the seller and agent if known.
65. Patent defect — A defect visible and discoverable through ordinary inspection. Buyer is presumed to have notice; seller still should not conceal.
66. Offer and acceptance — Mutual assent. When a buyer's offer is accepted without modification, a binding contract is formed.
67. Consideration — Something of value given by each party to a contract. In a purchase contract, the buyer's consideration is the purchase price; the seller's is delivering title to the property.
68. Earnest money — A deposit made by the buyer when submitting an offer, demonstrating good faith. Applied to the purchase price at closing; retained by the seller if the buyer defaults without cause (in most contracts).
69. Counteroffer — A response to an offer that changes any term of the original offer. A counteroffer is a rejection of the original offer and creates a new offer. The original offer cannot be accepted once a counteroffer is made.
70. Contingency — A condition in a contract that must be met for the contract to be binding. Common contingencies: inspection, financing, appraisal, sale of buyer's current home.
71. Specific performance — A court order requiring a party to perform their contractual obligation (typically requiring a seller to complete the sale). Most commonly invoked by buyers when a seller refuses to close.
72. Novation — Substituting a new contract or party for an existing one, releasing the original party from liability. Differs from assumption (where the original party remains liable).
73. Assignment — Transferring one's contractual rights to another party. The assignor may remain liable unless the other party agrees to a novation.
74. Rescission — The cancellation of a contract, returning parties to their pre-contract positions. Can occur by mutual agreement or court order.
75. Time is of the essence — A contract clause meaning that deadlines are strict and binding. Failure to meet a deadline constitutes a breach of contract.
76. Zoning — Government regulation of land use within specific zones (residential, commercial, industrial, agricultural). A public law restriction.
77. Variance — Permission granted by a zoning board to deviate from a specific zoning requirement. Not the same as a conditional use permit (which allows a specific use outright).
78. Nonconforming use — A use that legally existed before a zoning change and is allowed to continue, but may not be expanded or rebuilt if destroyed.
79. Eminent domain — The government's power to take private property for public use, provided just compensation is paid. The taking process is called condemnation.
80. Escheat — Property reverts to the state when the owner dies without a will and without heirs.
81. Police power — The government's authority to regulate land use to protect public health, safety, and welfare. The basis for zoning, building codes, and environmental regulations.
82. Title insurance — Insurance that protects against losses from title defects, liens, and other issues discovered after closing. Owner's policy protects the buyer; lender's policy protects the lender.
83. Marketable title — Title that is reasonably free of encumbrances and defects such that a reasonable buyer would accept it. Title insurance does not create marketable title — it insures against the risks of defects.
84. Closing Disclosure (CD) — The standard form replacing the HUD-1 settlement statement. Must be provided to the borrower at least 3 business days before closing under TRID.
85. Proration — Dividing ongoing expenses (property taxes, HOA dues, rent) between buyer and seller based on closing date. The party responsible for the day of closing varies by contract — Arizona typically uses 30-day months in the standard AAR contract.
86. ADRE — Arizona Department of Real Estate. The state agency that licenses and regulates real estate brokers, salespersons, and schools. School Code S26-0002 is Click2CE's designation.
87. Article 26 (Arizona Constitution) — Authorizes licensed real estate brokers (not just attorneys) to prepare real estate contracts using ADRE-approved forms. Unique to Arizona.
88. Arizona Recovery Fund — A consumer protection fund maintained by ADRE. Compensates victims of real estate licensee fraud or misrepresentation. Maximum $30,000 per claim, $90,000 aggregate per licensee.
89. AAR (Arizona Association of REALTORS®) — The state association that promulgates the standard real estate forms used in Arizona, including the Residential Resale Real Estate Purchase Contract and BINSR.
90. BINSR (Buyer's Inspection Notice and Seller's Response) — Arizona's standard form used by buyers to respond to inspection results. Buyers may request repairs, accept the property as-is, or cancel the contract. Default inspection period in Arizona is 10 days.
91. SPDS (Seller's Property Disclosure Statement) — Arizona's standard form completed by sellers to disclose known material defects and property conditions. One of the first documents delivered to a buyer in a residential transaction.
92. Trust account — A special bank account maintained by a broker to hold client funds (earnest money, rents, security deposits) separately from the broker's operating funds. Arizona requires deposit within 3 banking days of acceptance.
93. Designated broker — In Arizona, every licensed real estate entity (corporation, LLC, partnership) must designate a licensed broker who is responsible for the entity's real estate activities.
94. Community property with right of survivorship (CPWROS) — Unique Arizona ownership form that combines the tax benefits of community property with the probate-avoidance benefits of joint tenancy. Created by A.R.S. § 33-431.
95. Prior appropriation (Arizona water doctrine) — Arizona allocates water rights by permit, not by land ownership. "First in time, first in right." The Arizona Department of Water Resources (ADWR) manages water rights.
96. Active management area (AMA) — Groundwater management districts in Arizona's most water-stressed areas. Property in an AMA may have restrictions on groundwater use — a material fact requiring disclosure.
97. CC&Rs (Conditions, Covenants, and Restrictions) — Private deed restrictions recorded by developers. Common in master-planned communities. Enforced by HOAs and between property owners.
98. Homeowners Association (HOA) — A legal entity that manages common areas and enforces CC&Rs in a planned community. Arizona law (A.R.S. § 33-1801 et seq. for planned communities) gives HOAs significant authority.
99. Deed fraud — The forging or misrepresentation of real property deeds. Arizona made deed fraud prevention a mandatory CE topic in 2025 following an increase in property theft schemes. Agents must recognize and disclose potential deed fraud.
100. Arizona Firewise — Part of the national NFPA Firewise USA program. Arizona made fire safety in real estate a mandatory 1-hour CE topic in 2025 due to increasing wildfire risk. Agents must understand defensible space, fire risk disclosures, and the Firewise program for clients in high-risk areas.
Don't try to memorize all 100 terms in one sitting. Instead:
The goal isn't recognition — it's being able to apply each term to a scenario you've never seen before. That's what the exam tests.
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