Real Estate Exam [National] 65, Fair Housing Act Exemptions Explained

0:00Today, we are focusing on the Fair Housing Act Exemptions for the National Real Estate Exam. This is a topic that catches many candidates off guard because the Fair Housing Act is generally presented as absolute. However, for the national portion of the exam, you must understand that certain exemptions do exist under very specific conditions. Though these exemptions never apply to race, let us look at the first major exemption often referred to as the single-family home exemption. This applies when an individual owner sells or rents their own single-family home. For this exemption to hold up on your exam, three strict criteria must be met. First, the owner must not own more than three such single-family homes at one time. Second, a real estate broker or agent cannot be used in the transaction. Third, the owner cannot use any discriminatory advertising. If an owner says they want to sell their home only to a specific religious group, and they put that in a newspaper ad, they have just lost their exemption status.

1:05The exam will often try to trick you by saying an owner is selling their home, and they hired a licensed agent to help with the paperwork, but did not use the multiple listing service. Remember, as soon as a licensee is involved in any capacity, the exemption disappears. This is a critical distinction because the law assumes that as a licensed professional, you are the gatekeeper of fair housing and cannot participate in a transaction where discrimination occurs. This means that even if the owner qualifies for an exemption individually, they lose it the moment they hire you because you, as an agent, are never exempt from the Fair Housing Act. The second key area is the Mrs. Murphy exemption, which covers owner-occupied dwellings with no more than four units. Imagine a scenario where an owner lives in one unit of a fourplex and wants to rent out the other three units. Under federal law, this owner can choose their tenants based on certain protected classes such as familial status or religion, provided they do not use a broker and do not use discriminatory advertising.

2:10However, the exam will frequently test your knowledge of the limits of this exemption. If the building has five units instead of four, the exemption no longer applies. This four-unit limit is a hard line in the sand for the national exam. Another vital area of focus for your test day is the role of religious organizations and private clubs. Religious organizations can limit the sale, rental or occupancy of dwellings they own or operate to persons of the same religion, provided that membership in the religion is not restricted based on race, color, or national origin. Similarly, private clubs that are not open to the public can provide lodgings to their members as long as it is not a commercial venture. The most important rule to memorize for the national exam is that there are absolutely no exemptions when it comes to racial discrimination. This stems from the Civil Rights Act of 1866. Even if an owner meets the criteria for the Mrs. Murphy exemption or the single-family home exemption, they can never discriminate based on race.

3:13This was solidified by the Supreme Court case, Jones vs. Mayor. If you see an exam question where an owner occupant in a duplex refuses to rent to someone because of their race, that is a violation of the law every single time. There are no butts or exceptions when race is involved. To remember the requirements for the single-family exemption, use the phrase, no broker, no ads, no more than three. This reminds you that the owner cannot use a real estate professional, cannot use discriminatory advertising, and cannot own more than three homes. If any of those three conditions are violated, the exemption is void. Watch out for questions that describe an owner who does not use a broker, but places a sign in the yard saying no children allowed. Even though they did not use a broker, the discriminatory sign itself makes the act of violation of the Fair Housing Act. You should also be wary of questions that ask about state-specific laws. While the national exam focuses on these federal exemptions, many states have passed laws that are even stricter and do not allow the Mrs. Murphy exemption at all.

4:21For the national portion, stick to the federal rules we just covered. This understanding of federal exemptions will ensure you do not fall for common traps on test day.