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California Real Estate Exam Questions & Prep Guide

Introduction

If you’re aiming to become a licensed real estate salesperson in California, you’ll need to pass the California real estate exam administered by the DRE. The exam is designed to test your knowledge of real estate principles, California-specific laws, and professional practice. With proper preparation, you can confidently sit for the exam and succeed.

California Real Estate Exam Questions and Prep Guide

In this article you’ll discover:

  • The format and content outline of the exam
  • Key topics you must know
  • questions to test yourself
  • Proven study strategies to ace the exam

Exam Format & Key Facts

  • The Salesperson exam consists of 150 multiple-choice questions, and you have 3 hours to complete it.
  • The passing score is approximately 70% (you must answer at least ~105 out of 150 correctly).
  • The exam is split into major topic areas, each with approximate weighting: California Department of Real Estate
Topic AreaApprox. % of Exam
Property Ownership & Land Use Controls & Regulations~15%
Laws of Agency & Fiduciary Duties~17%
Property Valuation & Financial Analysis~14%
Financing~9%
Transfer of Property~8%
Practice of Real Estate & Disclosures~25%
Contracts~12%

Knowing these breakdowns helps you allocate your study time effectively.


What You Must Know – Major Topic Summaries

1. Property Ownership & Land Use Controls & Regulations

Covers types of property (real vs personal), rights, encumbrances (liens, easements), forms of ownership (community property, joint tenancy, tenancy in common), descriptions of land, government and private controls, water rights, environmental hazards.

2. Laws of Agency & Fiduciary Duties

Focuses on the relationships between brokers/agents and their clients, creating and terminating agency relationships, disclosure obligations, agent duties (loyalty, obedience, disclosure, confidentiality), commissions & fees, acting for others’ interest.

3. Property Valuation & Financial Analysis

Teaching you how value is determined (cost approach, sales comparison, income approach), factors that affect value, market analysis, basic financial metrics.

4. Financing

Includes types of loans (FHA, VA, conventional), sources of financing, mortgage/deeds of trust mechanics, credit laws, foreclosure, government programs.

5. Transfer of Property

Deals with deeds, title insurance, escrow, tax aspects, court-supervised transfers, probate, bankruptcy.

6. Practice of Real Estate & Disclosures

This is the largest portion. It covers trust fund handling, ethics, Fair Housing laws, truth in advertising, licensing requirements, record-keeping, property management, specialty areas (income/commercial), and California-specific disclosures (transfer disclosure statement, natural hazard disclosures).

7. Contracts

Deals with listing agreements, buyer-broker agreements, purchase contracts, lease options, advanced fees, contract law in California context.


Sample Practice Questions

Try these to check your readiness. Each question is multiple-choice; the correct answer and explanation follow.

Question 1
Which form of ownership automatically gives the surviving spouse full ownership of the community property upon the death of the other spouse?
A. Joint tenancy
B. Tenancy in common
C. Community property with right of survivorship
D. Tenancy by the entireties
Answer: C – Community property with right of survivorship.
Explanation: In California, this form is distinct and gives the surviving spouse full interest automatically.

Question 2
An agent receives a $10,000 deposit on behalf of a buyer. Under California law, the deposit must:
A. Be immediately deposited in the broker’s operating account
B. Be kept at the selling agent’s personal account until closing
C. Be deposited in the broker’s trust fund account or escrow within 3 business days
D. Be retained by the seller until escrow closes
Answer: C
Explanation: Trust funds must be handled correctly: deposits go into appropriate trust/escrow accounts according to DRE rules.

Question 3
Which of the following is required in California when a broker advertises listed property?
A. The broker’s name must appear in the advertisement
B. The listing agent’s personal social media handle only
C. The seller’s phone number prominently
D. The house square footage only
Answer: A
Explanation: California advertising laws require broker name disclosure to avoid misleading the public.

🏠 California Real Estate Exam Practice Questions 2025 (Part 1: Q1–25)


Section 1: Property Ownership & Land Use Controls

1. Which of the following is considered real property?
A) A leasehold estate
B) A trade fixture
C) Mineral rights
D) A mobile home not affixed to land
Answer: C
👉 Explanation: Mineral rights are part of real property because they are attached to the land, unlike trade fixtures or movable items.


2. An estate that continues indefinitely and can be passed to heirs is called:
A) Estate for years
B) Fee simple estate
C) Life estate
D) Estate at will
Answer: B
👉 Explanation: A fee simple estate is the highest ownership interest, lasting forever and transferable by will or inheritance.


3. Which government right allows land to be taken for public use with compensation?
A) Escheat
B) Eminent domain
C) Police power
D) Taxation
Answer: B
👉 Explanation: Eminent domain allows government acquisition of private property for public benefit, with just compensation.


4. Zoning laws are an example of:
A) Private restrictions
B) Police power
C) Escheat
D) Eminent domain
Answer: B
👉 Explanation: Zoning laws are enacted under police power to control land use and promote community welfare.


5. When ownership of property reverts to the state because there are no heirs, it is called:
A) Eminent domain
B) Escheat
C) Foreclosure
D) Condemnation
Answer: B
👉 Explanation: Escheat ensures property never remains ownerless — it transfers to the state when a person dies intestate and without heirs.


6. Which of the following is a physical characteristic of land?
A) Mobility
B) Homogeneity
C) Indestructibility
D) Scarcity
Answer: C
👉 Explanation: Land is indestructible, immobile, and unique — these physical traits distinguish it from personal property.


7. Which document is used to convey title to real property in California?
A) Bill of Sale
B) Quitclaim Deed
C) Warranty Deed
D) Grant Deed
Answer: D
👉 Explanation: California primarily uses a Grant Deed to transfer ownership; it implies the title has not been previously conveyed.


8. A real estate licensee must disclose known material facts:
A) Only if asked by the buyer
B) Only if representing the buyer
C) Always, regardless of representation
D) Only after closing
Answer: C
👉 Explanation: California law requires all licensees to disclose known material facts to all parties involved in the transaction.


9. Private land-use restrictions are usually found in:
A) Zoning ordinances
B) Subdivision CC&Rs
C) General plan
D) Eminent domain rulings
Answer: B
👉 Explanation: CC&Rs (Covenants, Conditions, and Restrictions) are private limits on property use, typically enforced by homeowners’ associations.


10. When a property owner builds a structure that extends onto a neighbor’s land, it’s called:
A) Encumbrance
B) Easement
C) Encroachment
D) Lien
Answer: C
👉 Explanation: An encroachment is a physical intrusion, such as a fence or garage built across a property boundary.


Section 2: Agency & Brokerage

11. An agent owes fiduciary duties primarily to:
A) The buyer
B) The seller
C) Their employing broker
D) The principal who hired them
Answer: D
👉 Explanation: Fiduciary duties like loyalty, care, and confidentiality are owed to the principal, whether buyer or seller.


12. Dual agency in California is legal if:
A) Both parties are informed and consent in writing
B) The broker hides it for client benefit
C) The buyer requests it verbally
D) It involves only residential property
Answer: A
👉 Explanation: Dual agency must be fully disclosed and accepted in writing by both parties to be lawful.


13. A real estate salesperson’s compensation is paid by:
A) The client directly
B) The broker
C) The escrow officer
D) The lender
Answer: B
👉 Explanation: In California, a salesperson is an agent of the broker and can only receive commission from the employing broker.


14. The primary purpose of the Real Estate Commissioner is to:
A) Enforce fair housing laws
B) Protect the public through regulation of licensees
C) Manage escrow funds
D) Represent the DRE in court
Answer: B
👉 Explanation: The Commissioner ensures that real estate licensees follow the law and ethical standards to protect consumers.


15. A broker must keep transaction records for at least:
A) 1 year
B) 2 years
C) 3 years
D) 5 years
Answer: C
👉 Explanation: California DRE requires brokers to retain all transaction records for a minimum of three years.


Section 3: Real Estate Practice & Ethics

16. An unlicensed assistant may legally:
A) Show property to potential buyers
B) Host open houses
C) Schedule appointments for licensees
D) Negotiate offers
Answer: C
👉 Explanation: Unlicensed assistants can perform clerical tasks like scheduling, but not activities requiring a license.


17. Which of the following violates Fair Housing laws?
A) Denying a loan based on income
B) Steering buyers by neighborhood race
C) Checking credit scores
D) Setting uniform rent policies
Answer: B
👉 Explanation: Steering — directing clients based on race or ethnicity — violates federal and California fair housing laws.


18. The Real Estate Recovery Fund compensates:
A) Brokers who lose commission
B) Consumers harmed by licensee fraud
C) Buyers who default
D) Escrow companies
Answer: B
👉 Explanation: The fund reimburses consumers who win a judgment against a licensee for fraudulent acts when the licensee cannot pay.


19. A real estate agent advertising “sold fastest in town” without proof violates:
A) Truth in Lending
B) Fair Housing
C) False Advertising Laws
D) Sherman Antitrust Act
Answer: C
👉 Explanation: Misleading claims without factual evidence constitute false advertising under California law.


20. The Sherman Antitrust Act prohibits:
A) Price fixing and market allocation
B) Dual agency
C) Steering and redlining
D) Real estate auctions
Answer: A
👉 Explanation: Price fixing and market division among brokers are illegal under federal antitrust laws.


Section 4: Financing & Valuation

21. The purpose of an appraisal is to:
A) Determine market price
B) Estimate market value
C) Guarantee loan repayment
D) Set property taxes
Answer: B
👉 Explanation: Appraisals estimate market value — the most probable price a property would sell for in an open market.


22. The lender’s security for a real estate loan is:
A) The borrower’s income
B) The property
C) The promissory note
D) The title company
Answer: B
👉 Explanation: The property itself serves as collateral for the loan, ensuring repayment through foreclosure if needed.


23. A loan-to-value ratio (LTV) of 80% means:
A) The borrower has 80% equity
B) The loan is 80% of the property’s value
C) The loan exceeds property value
D) The lender holds 80% of title
Answer: B
👉 Explanation: LTV shows how much of the property value is financed; 80% LTV means 20% equity remains.


24. When interest rates rise, property values generally:
A) Increase
B) Stay the same
C) Decrease
D) Double
Answer: C
👉 Explanation: Higher interest rates make borrowing expensive, reducing buyer demand and property prices.


25. The “cap rate” in real estate investment measures:
A) Loan interest
B) Property appreciation
C) Return on investment
D) Tax liability
Answer: C
👉 Explanation: Capitalization rate = Net Operating Income ÷ Property Value — shows investor’s return potential.

🏡 California Real Estate Exam Practice Questions (Part 2: Q26–50)


Section 5: Contracts and Agency Law

26. A valid real estate contract must contain all of the following EXCEPT:
A) Consideration
B) Competent parties
C) Legal purpose
D) A witness signature
Answer: D
👉 Explanation: Witness signatures are not required for validity in California; the essential elements are offer, acceptance, consideration, competent parties, and lawful purpose.


27. Which contract allows one party to perform at a later date but binds the other immediately?
A) Executory contract
B) Executed contract
C) Unilateral contract
D) Bilateral contract
Answer: C
👉 Explanation: In a unilateral contract, only one party makes a promise, such as a reward or an open listing.


28. A real estate purchase agreement becomes a binding contract when:
A) The buyer signs
B) The seller accepts and communicates acceptance
C) Earnest money is received
D) The offer is made
Answer: B
👉 Explanation: A contract becomes binding only when the seller’s acceptance is communicated to the buyer or their agent.


29. A contract signed under duress or threat is:
A) Voidable
B) Valid
C) Void
D) Enforceable
Answer: A
👉 Explanation: A contract made under duress, misrepresentation, or fraud is voidable at the injured party’s option.


30. A buyer backs out without legal reason. What happens to the earnest money deposit?
A) Returned to buyer
B) Given to escrow
C) Forfeited to seller as liquidated damages
D) Given to the agent
Answer: C
👉 Explanation: Most California purchase agreements include a liquidated damages clause allowing the seller to keep the deposit.


31. A “time is of the essence” clause means:
A) Time frames in the contract are flexible
B) Deadlines are critical and enforceable
C) Either party may delay
D) The contract renews automatically
Answer: B
👉 Explanation: This clause emphasizes that deadlines must be strictly followed, or a breach of contract may occur.


32. An oral listing agreement in California is:
A) Enforceable
B) Void
C) Valid but not enforceable in court
D) Equal to a written agreement
Answer: C
👉 Explanation: California law requires listing agreements to be in writing to be enforceable under the Statute of Frauds.


33. A broker may lose their license for:
A) Paying a referral fee to another broker
B) Commingling client funds
C) Sharing commission with a salesperson
D) Disclosing dual agency
Answer: B
👉 Explanation: Commingling — mixing client trust funds with personal funds — is a serious violation leading to suspension or revocation.


34. When an agent exaggerates a property’s features without intent to deceive, it’s called:
A) Fraud
B) Puffing
C) Misrepresentation
D) Concealment
Answer: B
👉 Explanation: Puffing is a legal opinion or sales talk, like saying “best view in town,” and not a factual misrepresentation.


35. A “net listing” is:
A) Legal in California but discouraged
B) Illegal under all circumstances
C) A fixed commission listing
D) A buyer’s exclusive contract
Answer: A
👉 Explanation: Net listings are allowed but risky — the broker keeps anything above the seller’s minimum price, leading to potential ethical issues.


Section 6: Financing & Loans

36. A conventional loan is:
A) Government-insured
B) Backed by FHA
C) Not insured or guaranteed by the government
D) For low-income buyers only
Answer: C
👉 Explanation: Conventional loans are funded by private lenders without FHA or VA backing.


37. The Truth in Lending Act (TILA) requires disclosure of:
A) Property defects
B) Annual Percentage Rate (APR)
C) Buyer credit score
D) Loan officer commission
Answer: B
👉 Explanation: TILA ensures borrowers understand the true cost of credit by disclosing APR and total finance charges.


38. PMI (Private Mortgage Insurance) is required when:
A) Loan-to-value exceeds 80%
B) LTV is below 50%
C) Buyer pays cash
D) Home is refinanced
Answer: A
👉 Explanation: Lenders require PMI to protect against default when borrowers have less than 20% equity.


39. A mortgage where interest rates can change periodically is called:
A) Fixed-rate mortgage
B) Adjustable-rate mortgage (ARM)
C) Interest-only mortgage
D) Reverse mortgage
Answer: B
👉 Explanation: ARMs have variable interest rates tied to an index, causing monthly payments to fluctuate.


40. What is the main purpose of RESPA (Real Estate Settlement Procedures Act)?
A) Limit loan interest
B) Require disclosure of closing costs
C) Prevent redlining
D) Regulate appraisals
Answer: B
👉 Explanation: RESPA ensures borrowers receive detailed information about settlement costs and prevents kickbacks among service providers.


41. A mortgage broker primarily:
A) Lends money directly
B) Arranges loans between borrowers and lenders
C) Sets property value
D) Guarantees repayment
Answer: B
👉 Explanation: Mortgage brokers act as intermediaries who connect borrowers with lenders for a commission.


42. The secondary mortgage market exists to:
A) Originate new loans
B) Buy and sell existing loans
C) Set lending rates
D) Provide down payment aid
Answer: B
👉 Explanation: Institutions like Fannie Mae and Freddie Mac purchase existing loans, providing liquidity to primary lenders.


43. A borrower’s creditworthiness is assessed mainly by:
A) Loan officer’s opinion
B) Credit score and debt-to-income ratio
C) Employer recommendation
D) Property appraised value
Answer: B
👉 Explanation: Lenders evaluate FICO scores and DTI ratios to determine a borrower’s repayment capacity.


44. In a land contract (contract for deed):
A) Buyer receives title immediately
B) Seller keeps title until payments complete
C) Lender holds deed in escrow
D) The deed is transferred to the broker
Answer: B
👉 Explanation: The seller retains legal title until the buyer fulfills all payment obligations under the contract.


45. A “wraparound mortgage” is:
A) A new loan combining the balance of an existing loan with additional financing
B) A short-term bridge loan
C) A reverse annuity mortgage
D) A government-backed refinance
Answer: A
👉 Explanation: In a wraparound, the seller finances a new loan that “wraps” around the existing mortgage balance.


Section 7: Valuation & Appraisal

46. The cost approach is most reliable for:
A) Old commercial properties
B) New construction
C) Apartment buildings
D) Farmland
Answer: B
👉 Explanation: The cost approach estimates value by calculating replacement cost minus depreciation, ideal for new structures.


47. The income approach to valuation is based on:
A) Replacement cost
B) Comparable sales
C) Capitalization of net income
D) Cost of improvements
Answer: C
👉 Explanation: The income approach converts net operating income into value using a capitalization rate (NOI ÷ Cap Rate).


48. The sales comparison approach relies on:
A) Income data
B) Cost to replace the property
C) Recent sales of similar properties
D) Assessed values
Answer: C
👉 Explanation: Appraisers compare recent sales (comps) of similar properties to estimate the subject property’s value.


49. Functional obsolescence refers to:
A) Physical wear and tear
B) Poor design or outdated features reducing value
C) External factors like location
D) Lack of maintenance
Answer: B
👉 Explanation: Functional obsolescence occurs when a property’s layout or features no longer meet modern standards.


50. Economic obsolescence occurs when:
A) Paint peels
B) Neighborhood declines or zoning changes
C) Roof leaks
D) Structure becomes outdated
Answer: B
👉 Explanation: External or economic obsolescence is caused by outside factors — like a nearby highway or industrial zoning.

🏦 Part 3: Financing & Real Estate Math (Questions 51–75)


Section 8: Financing and Mortgages


51. What is the main purpose of a mortgage?
A. To transfer property ownership
B. To secure a loan with real property
C. To insure the home against loss
D. To collect property taxes

Answer: B
Explanation: A mortgage is a legal agreement where property serves as collateral for a loan. If the borrower defaults, the lender may foreclose.


52. What is the “promissory note”?
A. The document that gives ownership
B. The borrower’s written promise to repay the loan
C. The title insurance policy
D. The appraisal report

Answer: B
Explanation: The promissory note outlines the loan amount, interest rate, and repayment terms, and acts as evidence of the debt.


53. In California, a mortgage is most commonly replaced by which instrument?
A. Trust deed (deed of trust)
B. Bill of sale
C. Quitclaim deed
D. Lease agreement

Answer: A
Explanation: In California, deeds of trust are used instead of traditional mortgages. They involve three parties — borrower, lender, and trustee — making foreclosure faster and simpler.


54. What is the role of the trustee in a deed of trust?
A. Holds legal title until the loan is repaid
B. Pays property taxes
C. Represents the borrower
D. Sets the interest rate

Answer: A
Explanation: The trustee holds the title as a neutral third party and releases it to the borrower once the loan is paid in full.


55. What is a “fully amortized loan”?
A. A loan with equal payments paying both interest and principal
B. A loan with interest-only payments
C. A balloon loan
D. A short-term loan

Answer: A
Explanation: Fully amortized loans are paid off in equal installments that cover both principal and interest, leaving a zero balance at the end of the term.


56. What is “negative amortization”?
A. Payments reduce the principal
B. Payments are less than the interest due, increasing the balance
C. Loan is paid off early
D. Loan has no interest

Answer: B
Explanation: Negative amortization happens when monthly payments don’t cover interest — the unpaid portion gets added to the principal, causing debt to grow over time.


57. Which loan type is guaranteed by the Department of Veterans Affairs (VA)?
A. FHA loan
B. VA loan
C. Conventional loan
D. Adjustable-rate mortgage

Answer: B
Explanation: VA loans are backed by the U.S. Department of Veterans Affairs, available to eligible veterans and active-duty military with no down payment.


58. What is the main benefit of an FHA loan?
A. No interest
B. Lower down payment and easier qualification
C. Shorter term
D. No insurance requirement

Answer: B
Explanation: FHA loans, insured by the Federal Housing Administration, allow low down payments (as low as 3.5%) and are ideal for first-time buyers.


59. What is a “balloon payment”?
A. Regular monthly payment
B. Large final payment due at the end of a loan
C. Interest-only payment
D. Down payment

Answer: B
Explanation: A balloon payment is a lump-sum payment at the end of a loan term — common in short-term financing or commercial loans.


60. What is a “prepayment penalty”?
A. Fee for late payments
B. Fee charged for paying off a loan early
C. Fee for refinancing
D. Tax penalty

Answer: B
Explanation: Some loans include a prepayment penalty, discouraging early payoff because lenders lose expected interest income.


61. What is “loan-to-value ratio (LTV)”?
A. The interest rate
B. The ratio of the loan amount to the property’s value
C. The borrower’s debt ratio
D. The commission rate

Answer: B
Explanation: The LTV ratio shows how much of a property’s value is financed through a loan. Example: $180,000 loan ÷ $200,000 property = 90% LTV.


62. If a property is worth $250,000 and the buyer pays $50,000 down, what is the LTV ratio?
Answer:
Loan amount = $200,000 → LTV = $200,000 ÷ $250,000 = 80%.
Explanation: The borrower finances 80% of the home’s value — a typical safe threshold for lenders.


Section 9: Real Estate Math


63. A property sold for $360,000 with a 6% commission. How much does the broker earn?
Answer: $360,000 × 6% = $21,600
Explanation: Commission = Sale Price × Rate.
This is one of the most frequent math questions on the exam.


64. If the seller’s broker gets 60% of a 6% commission, and the buyer’s agent gets 40%, how much does the seller’s broker earn?
Answer:
Total commission = $21,600
Seller’s share = 60% × $21,600 = $12,960


65. A home’s assessed value is $300,000 and the property tax rate is 1.25%. Calculate annual taxes.
Answer:
$300,000 × 1.25% = $3,750 per year


66. A property rents for $2,500/month. If the annual gross income is $30,000 and the capitalization rate is 6%, estimate the property’s value.
Answer:
Value = Income ÷ Cap Rate = $30,000 ÷ 0.06 = $500,000


67. What is “proration”?
A. Splitting expenses between buyer and seller
B. Paying the loan early
C. Increasing property tax
D. Withholding rent

Answer: A
Explanation: Proration divides ongoing costs (like taxes or rent) between buyer and seller at closing, based on the number of days each owns the property.


68. A property’s value increased from $400,000 to $460,000 in one year. What is the percentage increase?
Answer:
Increase = $60,000 ÷ $400,000 = 15%


69. If a home loan has a 5% annual interest rate on $200,000, what’s the first year’s interest?
Answer:
Interest = $200,000 × 5% = $10,000


70. What is “equity”?
A. The amount owed to the bank
B. The difference between the property’s market value and the loan balance
C. The buyer’s commission
D. The total purchase price

Answer: B
Explanation: Equity represents ownership value — the portion of property the owner truly owns after deducting any loan balance.


Section 10: California License Laws and Practice


71. Who issues real estate licenses in California?
A. Department of Commerce
B. Department of Real Estate (DRE)
C. Bureau of Land Management
D. Department of Housing

Answer: B
Explanation: The California Department of Real Estate (DRE) regulates and licenses all real estate professionals in the state.


72. How many hours of education are required for a California salesperson license?
A. 30
B. 45
C. 135
D. 150

Answer: C
Explanation: Applicants must complete 135 hours of pre-licensing education covering Real Estate Principles, Practice, and one elective course.


73. How long is a California real estate license valid?
A. 2 years
B. 3 years
C. 4 years
D. 5 years

Answer: C
Explanation: Real estate licenses in California are valid for 4 years and must be renewed before expiration.


74. What is “commingling”?
A. Mixing personal and client funds
B. Splitting commissions
C. Using multiple listings
D. Sharing office space

Answer: A
Explanation: Commingling is illegal — it means mixing clients’ trust funds with the agent’s personal or business accounts.


75. What is the penalty for practicing real estate without a license in California?
A. Warning
B. $100 fine
C. Criminal misdemeanor
D. License suspension

Answer: C
Explanation: Practicing without a valid license is a criminal misdemeanor, punishable by fines and possible imprisonment.

UAE BAR Exam Guide


Study Strategy to Rank and Pass

  1. Know the exam structure – allocate more time to the heavier-weighted sections (Practice of Real Estate & Disclosures, Agency law).
  2. Use practice tests – simulate the 150-question format, timed at 3 hours.
  3. Focus on California-specific laws – many questions test state statutes and disclosures.
  4. Master vocabulary & definitions – e.g., defeasance clause, escrow, joint tenancy, easement.
  5. Review math and finance basics – you’ll face loan/mortgage questions, interest rate calculations.
  6. Stay updated on laws – California real estate statutes change; ensure you study the current version.
  7. Simulate exam day conditions – arrive 30 minutes early, no calculators (unless permitted), bring valid ID. California Department of Real Estate

Conclusion

Passing the California real estate salesperson exam is a major step toward launching your career in real estate. With the right preparation — understanding the content outline, practicing relevant questions, and mastering California-specific laws — you’ll increase your chances of success on your first attempt. Focus on the heavy-weight areas, practice consistently, and ensure you comprehend the “why” behind each concept. Your license awaits.

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