Tennessee Real Estate Affiliate Broker Exam — All Questions

The principle of contribution states that the value of a component or improvement is measured by:

• a.The raw number of square feet of floor area or land area that the improvement happens to occupy
• b.The owner's personal emotional attachment to and sentimental feelings about that improvement
• c.Its original construction or installation cost in every case, dollar for dollar, with no exception
• d.How much it adds to the overall value of the property, not its cost✓

Under contribution, an improvement is worth the amount it adds to the whole property's market value, which may be more or less than its cost. This principle explains why some renovations do not fully return their expense, a key point in over-improvement analysis.

Under Internal Revenue Code Section 121, a qualifying homeowner may generally EXCLUDE from taxable capital gain:

• a.Up to $250,000 of gain if single, or $500,000 if married filing jointly✓
• b.Up to a full one million dollars of gain on any property at all, at any time and any frequency
• c.All gain on any and every investment or rental property the taxpayer happens to own and sell
• d.Absolutely nothing, because gain on the sale of a home is always fully and entirely taxable

Section 121 lets homeowners who owned and used the home as their principal residence for at least two of the prior five years exclude up to $250,000 of gain (single) or $500,000 (married filing jointly). It applies to a primary residence, not to investment property.

Depreciation recapture on the sale of investment real estate means that:

• a.All of the depreciation deductions previously claimed are simply refunded to the investor in cash
• b.The investor is legally required to physically restore and rebuild the depreciated building itself
• c.Gain from prior depreciation may be taxed, often at a special rate✓
• d.No income tax is ever owed at all on the sale of a property that has previously been depreciated

When depreciated property is sold at a gain, the portion of gain due to depreciation deductions is 'recaptured' and taxed under special rules, reflecting the earlier tax benefit. It is a tax concept, not a requirement to rebuild, and it increases, not eliminates, tax on sale.

Which appraisal approach is generally MOST reliable for a special-purpose property, such as a church or public school, that rarely sells and earns no market income?

• a.The sales comparison approach, which depends on recent sales of similar comparable properties
• b.The income approach, which converts a property's market rental income into an indicated value
• c.The gross rent multiplier method, which relies on typical market rents that these lack entirely
• d.The cost approach✓

Special-purpose properties have few or no comparable sales and generate no market rent, so the cost approach (replacement cost new, less depreciation, plus land) is typically most reliable. Sales comparison lacks comparables and the income/GRM methods need market income these properties do not produce.

The four characteristics an item must have to possess value in the market, often remembered as DUST, are:

• a.Debt, Utility, Supply, and Taxes, a mix of unrelated financing and cost terms rather than value
• b.Demand, Utility, Scarcity, and Transferability✓
• c.Depreciation, Use, Sale, and Title, which describe stages of ownership rather than value itself
• d.Demand, Ownership, Scarcity, and Time, which swaps in two terms that are not part of the concept

For something to have market value it must have Demand (buyers who want it), Utility (usefulness), Scarcity (limited supply), and Transferability (the ability to convey it). The DUST acronym captures these four essentials of value.

A form of co-ownership in which two or more owners each hold an undivided interest with the right of survivorship is known as:

• a.Tenancy in common
• b.Ownership in severalty
• c.A leasehold estate
• d.Joint tenancy✓

In a joint tenancy, co-owners hold equal, undivided interests and enjoy the right of survivorship: when one joint tenant dies, that share passes automatically to the surviving joint tenants rather than to heirs. Tenancy in common has no survivorship, and ownership in severalty is ownership by one person alone.

A city's authority to enact zoning ordinances that regulate how land may be used comes primarily from its:

• a.Power of eminent domain
• b.Power of escheat
• c.Power of taxation
• d.Police power✓

Zoning, building codes, and other land-use regulations are exercises of the government's police power: the inherent authority to enact rules that protect public health, safety, and general welfare. Eminent domain is the power to take private property for public use with compensation; escheat returns property to the state when an owner dies without heirs.

Which approach to value is generally the most reliable for appraising a single-family, owner-occupied home?

• a.The income approach
• b.The gross rent multiplier method
• c.The sales comparison approach✓
• d.The cost approach only

The sales comparison approach compares the subject property to recently sold, similar properties and adjusts for differences. Because ample comparable sales usually exist for residential homes, it best reflects what a buyer would pay. The income approach suits rental and investment property, while the cost approach is most useful for new or special-purpose buildings.

A mortgage clause that lets the lender demand full repayment of the loan balance if the borrower sells or transfers the property is a(n):

• a.Defeasance clause
• b.Prepayment clause
• c.Subordination clause
• d.Alienation (due-on-sale) clause✓

An alienation clause, also called a due-on-sale clause, allows the lender to call the entire balance due when the property is transferred, preventing an unqualified buyer from assuming the loan. A defeasance clause requires the lender to release the lien when the debt is paid in full.

Under which legal doctrine must a contract for the sale of real estate be in writing to be enforceable?

• a.The parol evidence rule
• b.The doctrine of laches
• c.The statute of frauds✓
• d.The statute of limitations

The statute of frauds requires certain contracts, including those for the sale of an interest in real estate, to be in writing and signed to be enforceable. The parol evidence rule limits use of outside evidence to change a written contract, and laches concerns unreasonable delay in asserting a right.

A seller receives a buyer's offer and responds by changing the closing date and price. The seller's response is best described as a(n):

• a.Acceptance that forms a binding contract
• b.Option to purchase
• c.Novation of the contract
• d.Counteroffer that terminates the original offer✓

Changing any material term of an offer creates a counteroffer, which rejects and terminates the original offer. The original offeror (the buyer) is then free to accept, reject, or counter again. Only an unqualified acceptance of all terms forms a binding contract.

An agreement that gives a prospective buyer the right, but not the obligation, to purchase a property at a set price within a stated period in exchange for consideration is a(n):

• a.Option contract✓
• b.Assignment
• c.Exclusive listing
• d.Land contract

An option is a unilateral contract in which the optionor (owner) gives the optionee the right to buy within a set time for agreed consideration. The optionee may choose whether to exercise the option; the owner is bound to sell only if the option is exercised.

An agent's fiduciary duty to place the principal's interests above the agent's own and to avoid conflicts of interest is the duty of:

• a.Loyalty✓
• b.Accounting
• c.Disclosure
• d.Reasonable care

Loyalty requires the agent to act solely in the principal's best interest and avoid self-dealing or conflicts of interest. Accounting concerns safeguarding and reporting the principal's money and property; disclosure requires sharing material facts. These are commonly summarized by the acronym OLD CAR.

An agency relationship that is created by the conduct of the parties rather than by a written or spoken agreement is a(n):

• a.Express agency
• b.Designated agency
• c.Implied agency✓
• d.Dual agency

Implied agency arises from the actions and conduct of the parties, even without a formal contract, when a person reasonably relies on another to act as their agent. Express agency, by contrast, is created by a written or oral agreement that states the relationship.

Federal law requires sellers and landlords to disclose known lead-based paint hazards for residential housing built before:

• a.1968
• b.1988
• c.1992
• d.1978✓

The federal Residential Lead-Based Paint Hazard Reduction Act requires disclosure of known lead-based paint and hazards, and delivery of an EPA pamphlet, for target housing built before 1978, the year residential lead paint was banned. Buyers must generally be given a 10-day period to test for lead.

Which type of deed offers the grantee the greatest protection by warranting the title against all defects, even those arising before the grantor owned the property?

• a.Quitclaim deed
• b.Special warranty deed
• c.General warranty deed✓
• d.Bargain and sale deed

A general warranty deed contains the full set of covenants, warranting the title against defects arising at any time in the property's history, and is the strongest deed for the grantee. A special warranty deed covers only the grantor's period of ownership, and a quitclaim conveys only whatever interest the grantor may have, with no warranties.

The federal Fair Housing Act prohibits discrimination in housing based on all of the following EXCEPT:

• a.Religion
• b.National origin
• c.Occupation✓
• d.Familial status

The Fair Housing Act protects seven classes: race, color, religion, sex, national origin, familial status, and disability. Occupation is not a protected class under federal law. Note that many states and localities add protected classes such as age, marital status, or source of income.

Directing prospective buyers toward or away from particular neighborhoods based on their race or other protected class is an illegal practice known as:

• a.Blockbusting, which is legal with disclosure
• b.A permitted marketing strategy
• c.Steering, which is prohibited by fair housing law✓
• d.A RESPA requirement

Steering is guiding buyers toward or away from neighborhoods based on a protected characteristic, limiting their housing choices. It violates the Fair Housing Act. Blockbusting (inducing panic selling) and redlining (denying loans by area) are separately prohibited practices.

In which type of lease does the tenant pay a fixed rent while the landlord pays the property taxes, insurance, and maintenance?

• a.Gross lease✓
• b.Net lease
• c.Percentage lease
• d.Ground lease

Under a gross lease the tenant pays a flat rent and the landlord covers the operating expenses such as taxes, insurance, and maintenance. In a net lease the tenant pays some or all of those expenses in addition to base rent, and a percentage lease ties rent partly to the tenant's sales.

A home sells for $300,000 and the total real estate commission is 6% of the sale price. What is the total commission?

• a.$1,800
• b.$15,000
• c.$24,000
• d.$18,000✓

Commission equals sale price multiplied by the rate: $300,000 x 0.06 = $18,000. Be careful to convert the percentage to a decimal (6% = 0.06). This $18,000 is the total paid to the brokerages before any split between the listing and selling sides.

A property has a market value of $250,000 and is assessed at 40% of value. If the tax rate is $2.50 per $100 of assessed value, what is the annual property tax?

• a.$2,500✓
• b.$6,250
• c.$1,000
• d.$10,000

First find assessed value: $250,000 x 0.40 = $100,000. Then divide by 100 to get the number of tax units: $100,000 / 100 = 1,000. Multiply by the rate: 1,000 x $2.50 = $2,500. Always apply the assessment ratio before the tax rate.

Tennessee real estate licensing is administered by the Tennessee Real Estate Commission (TREC) under:

• a.Tennessee Code Annotated Title 62, Chapter 13✓
• b.U.S. Department of Housing and Urban Development regulations
• c.the bylaws of the National Association of REALTORS
• d.local multiple listing service rules

TREC licenses and regulates real estate professionals in Tennessee under Title 62, Chapter 13 of the Tennessee Code Annotated. TREC handles licensing, education standards, and discipline; trade associations and the MLS do not license practitioners.

In Tennessee, the entry-level license held by a new licensee working under a broker is the:

• a.Salesperson
• b.Affiliate broker✓
• c.Associate broker
• d.Managing broker

Tennessee's entry-level license is the 'affiliate broker,' which must be held under a principal broker. With experience and additional education, an affiliate broker may qualify for a broker license. The affiliate broker is Tennessee's equivalent of a salesperson.

Tennessee requires all active real estate licensees to carry:

• a.Only a surety bond
• b.Errors and omissions (E&O) insurance✓
• c.Health insurance
• d.No insurance of any kind

A distinctive Tennessee requirement is that every active real estate licensee must carry errors and omissions (E&O) insurance. TREC offers a group policy option, but licensees may obtain equivalent independent coverage; without current E&O coverage a license cannot be active.

Under Tennessee law, a licensee who does not represent either party but assists them in completing a transaction acts as a:

• a.Designated agent
• b.Facilitator (transaction broker)✓
• c.Dual agent
• d.Subagent

Tennessee recognizes the 'facilitator,' sometimes called a transaction broker, who assists parties in a transaction without representing either as an agent. A facilitator does not owe the full fiduciary duties of an agent but must still be honest and disclose known adverse facts.

When two different affiliate brokers in the same Tennessee firm represent the buyer and the seller in one transaction, the firm may appoint them as:

• a.Dual agents for both parties
• b.Designated agents, each representing one party✓
• c.Facilitators for the whole firm
• d.Subagents of the buyer

Tennessee allows designated agency: the principal broker may designate different affiliate brokers within the firm to represent the buyer and the seller separately, so each client still receives individual representation rather than the firm acting as a dual agent.

Earnest money held by a Tennessee firm must be placed in a separate escrow or trust account and disbursed according to:

• a.The affiliate broker's personal discretion
• b.The terms of the agreement and TREC rules✓
• c.The buyer's verbal request only
• d.Whatever cash is on hand

Tennessee firms must deposit earnest money in a separate escrow or trust account and may disburse it only as the purchase agreement and TREC rules allow. The principal broker is responsible for proper handling; commingling or improper disbursement is a violation.

A Tennessee affiliate broker's license must be held by, and the affiliate must work under, the:

• a.Affiliate broker personally
• b.Principal broker of the firm✓
• c.Tennessee Real Estate Commission
• d.Local multiple listing service

An affiliate broker's license is held by and 'hangs with' the principal broker of the firm. The affiliate may conduct brokerage activity only under that principal broker's supervision, and compensation flows through the firm.

To maintain a Tennessee license, licensees must complete continuing education each renewal cycle, which includes a required:

• a.TREC Core Course✓
• b.national licensing exam
• c.multi-year apprenticeship
• d.no education at all

Tennessee licensees must complete continuing education for each renewal cycle, including the mandatory TREC Core Course that covers current Tennessee law and rules. New affiliate brokers also complete a post-license course. Confirm current hour totals with TREC.

The Tennessee Real Estate Commission finds that a licensee violated a Commission rule. What civil penalty may it assess?

• a.Zero to five hundred dollars for every separate violation
• b.A flat one thousand dollar fine for every separate violation
• c.Zero to one thousand dollars for every separate violation✓
• d.Zero to twenty-five hundred dollars for every separate violation

The rule sets a range of $0–$1,000.00 for each separate violation of a statute, rule or order, assessed in addition to or in lieu of other discipline, and each day of a continued violation may be treated as a separate violation. The penalty is a range, not a fixed fine. Cite: Tenn. Comp. R. & Regs. 1260-02-.32 (amended effective September 23, 2025).

How long must a Tennessee licensee preserve the records relating to a real estate transaction?

• a.Three years after the transaction is consummated✓
• b.Two years after the transaction is consummated
• c.Five years after the transaction closes or is terminated
• d.Seven years after the transaction is consummated

Failing to preserve records relating to a real estate transaction for three years following its consummation is itself a ground for discipline in Tennessee. The Commission's electronic-records rule repeats the same three-year period. Cite: T.C.A. 62-13-312(b); Tenn. Comp. R. & Regs. 1260-02-.40(1).

A Tennessee firm keeps its transaction files electronically. How fast must those records be made available to the Commission?

• a.Immediately, while a Commission representative waits
• b.Within seventy-two hours of a request for inspection
• c.Within ten business days of a request for inspection
• d.Within twenty-four hours of a request for inspection✓

Electronic recordkeeping is permitted, but only if all retained documents are readily accessible in an organized format allowing identification within twenty-four hours of any request for inspection by Commission representatives. The principal broker must also maintain a retention schedule protecting the records' security and readability. Cite: Tenn. Comp. R. & Regs. 1260-02-.40(1)(a)-(b).

What is the most the Tennessee real estate education and recovery account will pay out on a single transaction?

• a.Twenty-five thousand dollars, no matter how many parties were harmed
• b.Fifteen thousand dollars, no matter how many parties were harmed✓
• c.Thirty thousand dollars, no matter how many parties were harmed
• d.Fifty thousand dollars, no matter how many parties were harmed

The account's liability is capped at fifteen thousand dollars per transaction regardless of the number of persons aggrieved or parcels involved. Thirty thousand dollars is a different cap: it is the aggregate at which the account's liability for one licensee's acts terminates. Cite: T.C.A. 62-13-208.

A court orders a payment from the Tennessee education and recovery account on an affiliate broker's behalf. What may happen to that license?

• a.Nothing, because payment from the account settles the matter
• b.It is placed in retired status until the account is repaid
• c.It is automatically revoked, with no hearing made available
• d.It may be suspended or revoked in the Commission's discretion✓

Payment from the account does not end the licensee's exposure: the statute leaves suspension or revocation to the Commission's discretion, and a licensee whose license is revoked cannot reapply until the amount paid from the account has been repaid in full with interest at the account's effective earnings rate. Cite: T.C.A. 62-13-208.

Which of these people is exempt from the Tennessee Real Estate Broker License Act?

• a.An attorney-in-fact acting under a recorded power of attorney✓
• b.An unlicensed assistant paid a share of each commission earned
• c.A resident manager who negotiates the amount of each lease
• d.A scout paid for every buyer referred to the listing broker

The Act exempts a person acting under a duly executed and recorded power of attorney from the owner or lessor. A resident manager is exempt only where duties are limited to supervision, showing units, leasing and collecting deposits and rent, and stops being exempt once amounts or lease terms are negotiated. Cite: T.C.A. 62-13-104(a)(1).

A Tennessee licensee is convicted of a felony. What does the license law do to the license?

• a.It is revoked automatically thirty days later unless a hearing is requested
• b.It stays active until the Commission votes to discipline the licensee
• c.It is revoked automatically sixty days later unless a hearing is requested✓
• d.It is suspended for one year and then reinstated automatically

Revocation is automatic sixty days after conviction unless the licensee makes a written request to the Commission for a hearing inside that sixty-day window. No Commission vote is needed for the revocation to take effect. Cite: T.C.A. 62-13-312.

What fee does the Commission charge to renew a Tennessee affiliate broker license?

• a.Ninety dollars, the same as the original license fee
• b.Seventy-five dollars, paid each renewal period✓
• c.Ninety-one dollars, the same as the application fee
• d.Fifty dollars, plus one dollar for the recovery account

The Commission's fee rule sets ninety dollars for the issuance of an original license and seventy-five dollars for each renewal. The ninety-one dollar figure on the application is the ninety dollar original license fee plus the one dollar paid into the real estate education and recovery account by original applicants. Cite: Tenn. Comp. R. & Regs. 1260-01-.12(2), (3), (6).

A Tennessee firm's principal broker dies. How long may the firm keep operating without one?

• a.Ten days, which the executive director may extend by ten more
• b.Sixty days, with no extension available from the Commission
• c.Ninety days, after which the Commission closes the firm
• d.Thirty days, which the executive director may extend by thirty✓

The Commission must be notified within ten days of the death, resignation, termination or incapacity of a principal broker, together with a plan for continued operations; it may then allow operation without a principal broker for up to thirty days, and the executive director may grant one thirty-day extension, so a new principal broker must be in place no later than the sixty-first day. Cite: Tenn. Comp. R. & Regs. 1260-02-.38.

An affiliate broker leaves a Tennessee firm. What becomes of the listings she secured through that firm?

• a.They stay with the firm absent written broker authorization✓
• b.They transfer with her as soon as the release form is processed
• c.They transfer with her if the sellers consent in writing
• d.They stay with the firm for ninety days and then transfer

On terminating affiliation a licensee may neither take nor use any property listings or buyer representation agreements secured through the firm unless the principal broker specifically authorizes it in writing. Seller consent does not substitute for that written authorization. Cite: Tenn. Comp. R. & Regs. 1260-02-.02(4).

Under Tennessee law, what is a licensee's status toward a party before any written agency agreement is signed?

• a.A subagent of the listing broker by operation of law
• b.A facilitator who is not an agent or advocate of any party✓
• c.A limited agent of whichever party first contacted the firm
• d.A dual agent until the party elects single agency in writing

Tennessee treats a licensee as a facilitator, not an agent or advocate, until the licensee enters a written bilateral agreement establishing the terms of an agency or subagency relationship. Agency does not arise from contact, showings or custom. Cite: T.C.A. 62-13-401.

Which act by itself establishes an agency relationship with a Tennessee seller?

• a.Showing the seller's house to a prospective buyer
• b.Accepting an earnest money deposit from a buyer
• c.Giving the seller a written analysis of the local market
• d.Executing an exclusive right to sell listing agreement✓

The statute states that negotiating and executing either an exclusive agency listing agreement or an exclusive right to sell listing agreement with a prospective seller establishes an agency relationship with that seller. Services performed before such an agreement are performed as a facilitator. Cite: T.C.A. 62-13-401.

Which duty does a Tennessee licensee owe to every party in a transaction, not just to a client?

• a.Loyalty, placing that party's interests before all others
• b.Obedience to that party's lawful instructions
• c.Disclosure of adverse facts the licensee actually knows✓
• d.Advice on whether the agreed contract price is a fair one

The duties owed to all parties include disclosing adverse facts of which the licensee has actual notice or knowledge, exercising reasonable skill and care, acting with honesty and good faith, and timely accounting for trust funds. Loyalty and obedience are client duties under the separate section. Cite: T.C.A. 62-13-403; T.C.A. 62-13-404.

How long does a Tennessee licensee's duty of confidentiality to a party last?

• a.It survives both the agency relationship and the closing✓
• b.Until the transaction closes and the funds are disbursed
• c.Until the agency agreement is terminated by either party
• d.Three years, matching the transaction record retention rule

The confidentiality duty owed to all parties expressly continues after termination of any agency relationship and after the transaction closes. The three-year figure belongs to the record retention requirement, which is a different obligation. Cite: T.C.A. 62-13-403(3).

Two designated agents in the same Tennessee firm represent the buyer and the seller. What does the statute say about their knowledge?

• a.Each designated agent is deemed to know what the other knows
• b.No knowledge is imputed among the clients, broker and agents✓
• c.The managing broker becomes a dual agent by operation of law
• d.The clients must be told in writing that the firm is a dual agent

Tennessee's designated agency provision states there is no imputation of knowledge or information among or between clients, the managing broker and any designated agent in a designated agency situation, and the managing broker is not treated as a dual agent where each designated agent represents only one party. Cite: T.C.A. 62-13-406.

When must a Tennessee licensee verbally disclose his agency status to a buyer nobody represents?

• a.At the first showing of a property that the buyer requests
• b.When the buyer asks which party the licensee represents
• c.Before the buyer signs the purchase contract at the closing
• d.Before any real estate services are provided to that buyer✓

A licensee who personally assists an unrepresented buyer or seller must verbally disclose his facilitator, agent, subagent or designated agent status before any real estate services are provided. Waiting for the consumer to ask is not compliance. Cite: T.C.A. 62-13-405(a).

By when must that agency-status disclosure be confirmed in writing with an unrepresented buyer?

• a.Before the purchase contract is accepted by the seller
• b.Within three days after the offer to purchase is signed
• c.Before an offer to purchase is prepared for that buyer✓
• d.At the closing, on the settlement statement signed there

With an unrepresented buyer the disclosure must be confirmed in writing prior to the preparation of an offer to purchase; with an unrepresented seller it is confirmed before a listing agreement is executed or an offer is presented, whichever comes first. The licensee must then obtain a signed receipt. Cite: T.C.A. 62-13-405(b).

Which sale is exempt from Tennessee's agency-status disclosure requirement?

• a.A residential building containing five or more dwelling units✓
• b.A duplex occupied by the owner of the building being sold
• c.A vacant residential lot in a newly recorded subdivision
• d.A condominium unit that the buyer intends to rent out to tenants

The disclosure section does not apply to transfers of commercial property, sales at public auction, residential property containing more than four units, or rental transactions. A four-unit or smaller residential sale, including a duplex or a condominium unit, remains covered whatever the buyer plans to do with it. Cite: T.C.A. 62-13-405(e).

Tennessee rules require a licensee signing an exclusive buyer representation agreement to confirm what to the buyer in writing?

• a.That the buyer may cancel the agreement within three days
• b.That the buyer's agent is paid only by the listing broker
• c.That the buyer may work with one other licensee at a time
• d.That the buyer should arrange viewings through the licensee✓

The rule requires written confirmation of three points: that the buyer should make all arrangements to view or inspect property through the licensee and not contact other licensees directly, that the buyer should tell any other licensee he is represented, and whether a commission is owed if the buyer buys without the licensee's assistance. Cite: Tenn. Comp. R. & Regs. 1260-02-.36.

A Tennessee affiliate broker buys a house for herself from a private seller. What do the Commission's rules require?

• a.That her principal broker also sign the purchase contract
• b.That she identify herself as a licensee in the transaction✓
• c.That she pay her firm a commission on her own purchase
• d.That she deposit the earnest money in the firm's escrow

The personal interest rule requires all licensees to identify themselves as a licensee when buying or selling property for themselves, and requires full disclosure of the licensee's true position before acquiring any interest in property listed with the licensee or the firm. Cite: Tenn. Comp. R. & Regs. 1260-02-.11.

Absent a compelling reason, how soon must a Tennessee principal broker act on a written request to disburse earnest money?

• a.Within fourteen calendar days of receiving the request
• b.Within thirty calendar days of receiving the request
• c.Within twenty-one calendar days of receiving the request✓
• d.Within ten business days of receiving the request

Absent a demonstration of a compelling reason, earnest money must be disbursed, interpleaded, or turned over to an attorney with instructions to interplead within twenty-one calendar days from the date the written request for disbursement is received. The rule counts calendar days, not business days. Cite: Tenn. Comp. R. & Regs. 1260-02-.09(9).