Tennessee Real Estate Broker Exam — All Questions

A Tennessee firm manages rental property in addition to handling sales. Under Tenn. Comp. R. and Regs. 1260-02-.09, all trust money the firm receives and holds relating to leases must be:

• a.held in the firm's general operating account and reconciled at the end of each calendar month
• b.held in one or more escrow or trustee accounts separate from the sales escrow account✓
• c.forwarded to each property owner within three business days of every receipt
• d.deposited into the Commission's real estate education and recovery account

Tenn. Comp. R. and Regs. 1260-02-.09(12) provides that in addition to the escrow or trustee account referenced in paragraph (2), all trust money received and held which relates to the lease of property must be held in one or more separate escrow or trustee accounts. A firm doing both sales and property management therefore runs at least two trust accounts. Paragraph (13) prohibits commingling of funds contained within firm accounts, which rules out an operating account, and paragraph (1)(b) treats money held as temporary custodian for others as trust money regardless of how quickly it is passed on. The real estate education and recovery account under section 62-13-208 is funded by a one dollar fee at original licensure and by renewal assessments; it is not a depository for client money.

Interest-bearing escrow or trustee accounts in Tennessee are:

• a.neither required nor prohibited, if disclosed to the payor at contract execution and agreed in writing✓
• b.required for every earnest money deposit that exceeds ten thousand dollars in a residential sale transaction
• c.prohibited unless the Commission grants the principal broker a written exemption in advance
• d.required whenever earnest money is held for more than sixty days before the closing date

Tenn. Comp. R. and Regs. 1260-02-.09(14) states that interest-bearing escrow or trustee accounts are neither required nor prohibited by the Commission, and then imposes three conditions if one is used. Subparagraph (a) requires the licensee, at the time of contract execution, to disclose to the payor that the deposit will be placed in an interest-bearing account, and requires the licensee and payor to execute a written agreement indicating the manner of disposition of any interest earned. Subparagraph (b) provides that as a depositor of the trust money the licensee does not own the money or the interest earned on it until properly disbursed to the licensee. Subparagraph (c) requires a detailed and accurate accounting of the precise sum of interest earned for each separate deposit. No dollar threshold, exemption procedure, or holding period appears in the rule.

A Tennessee affiliate broker takes an earnest money check from a buyer. Tenn. Comp. R. and Regs. 1260-02-.09 requires the affiliate broker to:

• a.deposit it into the affiliate broker's own business account until the closing date
• b.pay it over to the principal broker immediately upon receipt✓
• c.deliver it directly to the seller within three business days of receiving it
• d.mail it to the Commission together with a copy of the signed purchase contract

Tenn. Comp. R. and Regs. 1260-02-.09(3) requires an affiliated broker to pay over to the principal broker with whom he is affiliated all trust money immediately upon receipt. The principal broker then holds it under paragraph (2) and remains responsible for it under paragraph (4). Paragraph (11) governs the deposit itself: trust money shall be deposited into an escrow or trustee account promptly upon acceptance of the offer, unless the offer contains a statement such as Trust money to be deposited by, and paragraph (10) bars accepting a postdated check for trust money unless the offer provides otherwise. Placing the check in the licensee's own account is the commingling prohibited by paragraphs (1)(a) and (13), and neither the seller nor the Commission is a proper recipient of an earnest money deposit.

Tenn. Code Ann. section 62-13-312(b)(9) makes it a ground for discipline to use or promote the use of a real estate listing agreement form, sales contract form, or offer to purchase form that fails to specify:

• a.the licensee's license number
• b.a definite termination date✓
• c.the firm's escrow account number
• d.the county tax parcel identifier

Tenn. Code Ann. section 62-13-312(b)(9) makes it a ground for discipline to use or promote the use of any real estate listing agreement form, real estate sales contract form, or offer to purchase real estate form that fails to specify a definite termination date. An open-ended listing leaves the owner bound indefinitely, which is the consumer harm the provision targets. Tenn. Comp. R. and Regs. 1260-02-.07 attacks a second improper listing practice, forbidding a broker or affiliate broker to accept or enter a listing based on a net price, meaning a price excluding the customary commission and expenses associated with the sale. Rule 1260-02-.36 adds the disclosures an exclusive buyer representation agreement must confirm in writing. License numbers, escrow account numbers, and parcel identifiers are not required contents of the forms.

Tenn. Code Ann. section 4-21-601, in the Tennessee Human Rights Act, names a protected characteristic in housing that the federal Fair Housing Act does not. That characteristic is:

• a.age
• b.marital status
• c.creed✓
• d.source of income

Tenn. Code Ann. section 4-21-601 prohibits discriminatory practices in housing and real estate transactions because of race, color, creed, religion, sex, disability, familial status, or national origin. Creed is the addition: the federal Fair Housing Act lists race, color, religion, sex, familial status, national origin, and handicap, and the Department of Housing and Urban Development's 2021 memorandum applies the sex provision to sexual orientation and gender identity. Age, marital status, and source of income are protected in some other states and municipalities but are not in the Tennessee Human Rights Act's housing provisions. For a licensee, a violation of any federal, state, or municipal law prohibiting discrimination in the sale or rental of real estate because of race, color, religion, sex, or national origin is separately a ground for discipline under Tenn. Code Ann. section 62-13-312(b)(13).

A Tennessee licensee pleads guilty to an offense enumerated in the license act. Under Tenn. Code Ann. section 62-13-312(f), the licensee must notify the Commission and provide certified copies of the conviction within:

• a.sixty (60) days, and the license is then automatically revoked unless a hearing is requested✓
• b.ten (10) days, after which the Commission issues a private reprimand to the licensee
• c.thirty (30) days, after which the license is automatically placed in temporarily retired status
• d.ninety (90) days, after which the firm's license is suspended by the Commission

Tenn. Code Ann. section 62-13-312(f) requires a licensee who pleads guilty to or is convicted of any offense enumerated in the chapter to notify the Commission of the conviction within sixty days and to provide certified copies of it. The same subsection then provides that the license shall automatically be revoked sixty days after the conviction unless the licensee makes a written request to the Commission for a hearing during that sixty-day period, after which the Commission may impose any sanction the chapter permits. The underlying offenses are listed in section 62-13-312(b)(12): forgery, embezzlement, obtaining money under false pretenses, bribery, larceny, extortion, conspiracy to defraud, and similar crimes. Section 62-13-312(g) adds that revoking or suspending a license also revokes any school or instructor approval the licensee holds.

Under Tenn. Code Ann. section 62-13-401, until a Tennessee licensee enters into a specific written agreement establishing an agency relationship, the licensee is considered:

• a.a subagent of the listing broker in the transaction
• b.a facilitator, and not an agent or advocate of any party✓
• c.a dual agent of both the buyer and the seller
• d.an implied agent of the party who called first

Tenn. Code Ann. section 62-13-401 provides that a licensee may provide real estate services to any party with or without an agency relationship, and that until the licensee enters into a specific written agreement to establish an agency relationship the licensee shall be considered a facilitator and shall not be considered an agent or advocate of any party. The section adds that an agency or subagency relationship shall not be assumed, implied, or created without a written bilateral agreement establishing its terms, and that negotiating and executing an exclusive agency listing or an exclusive right to sell listing does establish an agency relationship with the seller. Section 62-13-102(9) confirms that a facilitator may advise either or both parties but cannot be considered a representative or advocate of either. Tennessee therefore has no implied or accidental agency.

A Tennessee licensee is assisting an unrepresented seller. Under Tenn. Code Ann. section 62-13-405, the written confirmation of the licensee's agency status must be made:

• a.at the closing table, together with the signed settlement statement
• b.within three business days after the property first goes under contract
• c.only when the unrepresented seller asks the licensee for it in writing
• d.before execution of a listing agreement or presentation of an offer to purchase, whichever comes first✓

Tenn. Code Ann. section 62-13-405(a) requires a licensee personally assisting an unrepresented buyer or seller to disclose verbally the licensee's facilitator, agent, subagent, or designated agent status before any real estate services are provided. Subsection (b) then fixes the written confirmation: with an unrepresented buyer, prior to the preparation of an offer to purchase; with an unrepresented seller, prior to execution of a listing agreement or presentation of an offer to purchase, whichever comes first. The licensee must obtain a signed receipt containing a statement that the party was informed complaints must be filed within the applicable statute of limitations, along with the Commission's address and telephone number. Subsection (c) warns that the disclosure is not a substitute for a written agency agreement, and subsection (d) requires immediate disclosure of the licensee's role to any other licensee in the transaction.

A house a Tennessee licensee has listed was the site of a suicide two years ago, and the buyer has not asked about it. Under Tenn. Code Ann. section 66-5-207:

• a.the licensee must disclose it in writing to every prospective purchaser before any showing
• b.no cause of action arises against the owner or the licensee for not disclosing it✓
• c.the licensee must disclose it only to purchasers who ask about the house
• d.the owner must record a notice of the event with the register of deeds

Tenn. Code Ann. section 66-5-207 provides that no cause of action shall arise against an owner or a real estate licensee for failure to disclose that an occupant was afflicted with human immunodeficiency virus or another disease medical evidence shows is highly unlikely to be transmitted through occupancy of a dwelling, or that the real property was the site of an act or occurrence that had no effect on the physical structure, its physical environment, or the improvements, or the site of a homicide, felony, or suicide. The protection is written to override the rest of the residential property disclosure part. It does not touch physical condition: section 62-13-403(2) still requires disclosure of adverse facts of which the licensee has actual notice or knowledge, and section 62-13-102(2) defines adverse facts as conditions that negatively affect value, significantly reduce structural integrity, or present a significant health risk to occupants.

Tenn. Comp. R. and Regs. 1260-02-.11 requires that all Tennessee licensees:

• a.obtain the Commission's written approval before buying any property listed with the firm
• b.identify themselves as a licensee when buying or selling property for themselves✓
• c.use a different firm whenever they sell property that they own themselves
• d.pay a full commission to their firm on every personal purchase they make

Tenn. Comp. R. and Regs. 1260-02-.11(2) requires all licensees to identify themselves as a licensee when buying or selling property for themselves. Paragraph (1) is the broader duty: no broker or affiliate broker shall, directly or indirectly through a third party, purchase for himself or acquire any interest in or option to purchase property listed with him or with his company, or property whose owner has approached him to act as broker, without first making full disclosure of his true position to the owner or to any prospective purchaser for whom he has acted, and he must disclose again to prospective purchasers who tender offers after he acquires the interest. Tenn. Code Ann. section 62-13-312(b)(18) supplies the discipline, and section 62-13-403(7)(A) forbids acting for the licensee's own account or that of an immediate family member without prior disclosure and the written consent of all parties. No Commission approval, separate firm, or commission payment is required.

Under Tenn. Code Ann. section 62-13-404, a Tennessee licensee acting as agent must receive all offers and counteroffers and forward them promptly to the client unless that duty has been:

• a.made inconsistent with the principal broker's written office policy
• b.suspended because the property is already under a binding contract
• c.specifically and individually waived by the client in writing✓
• d.excluded by the multiple listing service's rules of participation

Tenn. Code Ann. section 62-13-404(3)(A) requires a licensee acting as agent, unless the duties are specifically and individually waived in writing by the client, to schedule all property showings on the client's behalf, to receive all offers and counteroffers and forward them promptly to the client, to answer the client's questions in negotiating a purchase agreement within the scope of the licensee's expertise, and to advise the client on the forms, procedures, and steps needed after execution for a successful closing. Subdivision (3)(B) requires that on any waiver the consumer be advised in writing that no other licensee in the transaction can be expected to perform the waived duty. Subdivisions (1) and (2) add the duties to obey lawful instructions within the scope of the agency agreement and to be loyal to the client's interests. Office policy and multiple listing service rules cannot displace a statutory duty.

A Tennessee managing broker appoints one affiliated licensee as designated agent for the buyer and another as designated agent for the seller in the same transaction. Under Tenn. Code Ann. section 62-13-406, the managing broker:

• a.becomes a dual agent who owes both clients the identical statutory duties of loyalty and care
• b.must withdraw the firm from one side of the transaction before any offer can be presented
• c.must obtain a written order from a court of competent jurisdiction approving both appointments
• d.is not considered a dual agent, and knowledge is not imputed among the designated agents✓

Tenn. Code Ann. section 62-13-406(a) lets a managing broker appoint a licensee who has a written agreement to represent a party as that party's designated and individual agent, to the exclusion of all other licensees affiliated with the managing broker, and provides that the managing broker is not considered a dual agent if a designated agent, whether appointed specifically or by written company policy, does not represent the interests of any other party to the same transaction. Subsection (c) is the practical core: there shall be no imputation of knowledge or information among or between clients, the managing broker, and any designated agent or agents in a designated agency situation. Subsection (b) preserves the managing broker's contractual rights in the firm's listing agreements and the broker's duty to ensure that affiliated licensees follow the law. Rule 1260-02-.41(5) reserves the appointment power to the firm's principal broker, so a team may not designate its own members.

Under Tenn. Code Ann. section 62-13-312(b)(7), a Tennessee licensee may act for more than one party in the same transaction only with:

• a.the verbal consent of whichever party signed a written representation agreement first
• b.the principal broker's written approval placed in the transaction file
• c.the approval of the closing attorney handling the transaction
• d.the knowledge and consent in writing of all parties for whom the licensee acts✓

Tenn. Code Ann. section 62-13-312(b)(7) makes it a ground for discipline to act for more than one party in a transaction without the knowledge and consent in writing of all parties for whom the licensee acts. Section 62-13-102(8) defines dual agency as a situation in which the licensee has agreements to provide services as an agent to more than one party in a specific transaction and in which the interests of the parties are adverse. Tennessee gives licensees two ways to avoid that position: designated agency under section 62-13-406, and the facilitator election in section 62-13-102(9)(B), under which a written agency agreement may provide that the licensee becomes a facilitator rather than a dual agent, so long as notice of the change is given to buyer and seller immediately and confirmed in writing before the contract is executed. Neither the broker nor the closing attorney can supply the parties' consent.

A buyer signs a Tennessee time-share purchase contract without having made an on-site inspection of the project. The rescission notice the Commission requires in that contract gives the buyer a cancellation period of:

• a.five (5) days from the date of the signing
• b.ten (10) days from the date of the signing
• c.fifteen (15) days from the date of the signing✓
• d.thirty (30) days from the date of the contract signing

Tenn. Comp. R. and Regs. 1260-06-.04 requires a boldface, conspicuous statement in every public offering statement and in every contract for the sale of a time-share interval, immediately above the purchaser's signature line, telling the buyer that a contract to purchase a time-share interval may be cancelled within ten days from the date of signing where the buyer has made an on-site inspection of the project before signing, and within fifteen days from the date of signing where the buyer has not made such an inspection. The rule, amended effective November 23, 2023, lets the buyer cancel by hand delivery, by prepaid United States mail postmarked within the period, or by time-stamped electronic mail. Rule 1260-06-.02 separately requires the developer to obtain a signed and dated receipt for the public offering statement and to keep it for four years.

A resident manager employed by a Tennessee broker to run an apartment complex is exempt from licensure only if the manager's duties stop short of:

• a.negotiating the amounts of security deposits or rentals, or negotiating leases✓
• b.showing vacant residential units at the complex to prospective tenants
• c.collecting monthly rent payments from tenants already in occupancy
• d.supervising the on-site maintenance staff employed at the complex

Tenn. Code Ann. section 62-13-104(a)(1)(E) exempts from licensure a resident manager for a broker or an owner, or an employee of a broker, who manages an apartment building, duplex, or residential complex where the person's duties are limited to supervision, exhibition of residential units, leasing, or collection of security deposits and rentals from the property. The subdivision then draws the line: the resident manager or employee shall not negotiate the amounts of security deposits or rentals and shall not negotiate any leases on behalf of the broker. Showing units, collecting rent, and supervising staff are inside the exemption; negotiating terms is licensed activity. A firm holding rental money is also bound by rule 1260-02-.09(12), which requires lease-related trust money to sit in one or more escrow accounts separate from the sales escrow account.

Tenn. Code Ann. section 62-13-405(e) exempts certain transactions from the agency disclosure requirements of sections 62-13-403, 62-13-404, and 62-13-405. Which transaction is exempt?

• a.The sale of a single-family residence
• b.The sale of a residential duplex
• c.The lease of a commercial building✓
• d.The sale of a vacant residential lot

Tenn. Code Ann. section 62-13-405(e) provides that real estate transactions involving the transfer or lease of commercial properties, the transfer of property by public auction, the transfer of residential properties of more than four units, or the lease or rental of residential properties shall not be subject to the disclosure requirements of sections 62-13-403, 62-13-404, and this section. A commercial lease therefore falls outside those duties, as does an apartment building of five units or more. A single-family sale, a duplex sale, and a vacant residential lot sale are all ordinary residential transfers of four units or fewer and remain fully subject to the licensee duties and the written agency confirmation. The residential property condition disclosure in title 66, chapter 5, part 2 runs on its own track and reaches sales of one to four dwelling units.