CSLB General Building (B) — All Questions

Which state agency licenses and regulates real estate sales agents and brokers in Texas?

• a.The Texas Real Estate Commission (TREC)✓
• b.The Texas Department of Housing and Community Affairs
• c.The Texas Association of Realtors (TAR)
• d.The Texas Real Estate Research Center

TREC is the state agency created to administer the Real Estate License Act and regulate license holders. Private trade groups such as the Texas Association of Realtors set membership rules but do not issue licenses. Specifics of TREC rules can change over time.

A sales agent in Texas may lawfully perform real estate brokerage activity only when:

• a.Working as an independent contractor for any client
• b.Sponsored by and acting for a licensed Texas broker✓
• c.She holds a college degree in real estate
• d.She is a member of a local Realtor association

In Texas a sales agent's license must be sponsored by an active broker, and the agent works on behalf of that broker. An unsponsored agent may hold a license but cannot perform brokerage activity for compensation.

The bundle of rights associated with real property ownership generally does NOT include the right to:

• a.Possess and occupy the property
• b.Sell or transfer the property
• c.Use the property in violation of valid zoning laws✓
• d.Exclude others from the property

Ownership conveys rights of possession, control, enjoyment, exclusion, and disposition, but these are always subject to lawful government limits such as zoning. No owner has the right to use land in a way that breaks valid public regulations.

Which of the following is generally considered real property rather than personal property?

• a.A built-in kitchen cabinet permanently attached to the wall✓
• b.A freestanding refrigerator plugged into an outlet
• c.A homeowner's area rug
• d.Patio furniture on the deck

Items permanently affixed to the structure, called fixtures, are treated as real property and typically transfer with the land. Movable items that are not attached, such as a rug or freestanding appliance, remain personal property unless the contract states otherwise.

The legal test used to decide whether an item is a fixture or personal property considers all of the following EXCEPT:

• a.The method of attachment to the property
• b.The adaptation of the item to the real estate
• c.The intention of the party who installed it
• d.The original purchase price of the item✓

Courts weigh the method of annexation, adaptation to the property, and the intent of the person who installed the item. The dollar amount originally paid for the item is not part of the standard fixture test.

An encumbrance that gives a lender a security interest in real property as collateral for a debt is a(n):

• a.Easement
• b.Lien✓
• c.Encroachment
• d.Deed restriction

A lien is a financial encumbrance securing payment of a debt, such as a mortgage or tax lien. An easement is a right to use land, and an encroachment is an unauthorized physical intrusion onto another's property.

A right to use another person's land for a specific purpose, such as a shared driveway, is called a(n):

• a.Lien
• b.Estate
• c.Easement✓
• d.Freehold

An easement is a nonpossessory right to use land owned by someone else for a defined purpose. Unlike an estate, it does not give ownership or the right to possess the property.

Which type of easement is created for the benefit of a neighboring parcel and transfers automatically when that parcel is sold?

• a.Easement appurtenant✓
• b.Easement in gross
• c.Prescriptive easement terminated at sale
• d.License

An easement appurtenant benefits an adjoining parcel (the dominant estate) and runs with the land, passing to new owners automatically. An easement in gross benefits a person or company rather than a parcel of land.

The highest and most complete form of ownership interest in real property is:

• a.A life estate
• b.A leasehold estate
• c.An estate for years
• d.A fee simple absolute estate✓

Fee simple absolute is the most complete ownership, lasting indefinitely and freely transferable. A life estate and leasehold interests are more limited in duration or scope.

A life estate is BEST described as an ownership interest that:

• a.Lasts forever and passes to the owner's heirs
• b.Lasts for the duration of a specified person's life✓
• c.Automatically converts to a fee simple after 21 years
• d.Can never be transferred during the holder's lifetime

A life estate lasts only for the life of a named measuring person, after which title passes to a remainderman or reverts to the grantor. The life tenant may use and even lease the property during the measuring life but cannot pass fee ownership to heirs.

When two or more people own property as joint tenants with right of survivorship, what happens when one owner dies?

• a.The deceased owner's share passes to their heirs by will
• b.The property is automatically sold and proceeds split
• c.The surviving joint tenants automatically absorb the deceased owner's interest✓
• d.The state takes the deceased owner's share

Right of survivorship means a deceased joint tenant's interest passes automatically to the surviving joint tenants, not through probate or a will. This is a defining difference from a tenancy in common.

Texas is a community property state, which generally means that property acquired by either spouse during marriage is:

• a.Presumed to be owned equally by both spouses✓
• b.Always owned solely by the spouse who earned the money
• c.Automatically owned by the spouses' children
• d.Exempt from any creditor claims

In a community property state, most assets acquired during marriage are presumed owned equally by both spouses regardless of whose income paid for them. Property owned before marriage or received by gift or inheritance is generally separate property.

Which document is the primary legal instrument used to transfer title to real property from one party to another?

• a.A promissory note
• b.A listing agreement
• c.A title insurance policy
• d.A deed✓

A deed is the written instrument that conveys title from a grantor to a grantee. A promissory note is a promise to repay a loan, and title insurance protects against defects but does not transfer ownership.

Which type of deed offers the grantee the greatest protection because the grantor warrants title against defects arising at any time in the property's history?

• a.Quitclaim deed
• b.General warranty deed✓
• c.Special warranty deed
• d.Deed of trust

A general warranty deed provides the broadest protection, with the grantor guaranteeing title against all defects, even those predating the grantor's ownership. A special warranty deed covers only defects arising during the grantor's ownership, and a quitclaim conveys only whatever interest the grantor may have.

A quitclaim deed is BEST described as an instrument that:

• a.Guarantees clear and marketable title to the grantee
• b.Automatically pays off all existing liens
• c.Conveys only whatever interest the grantor may have, with no warranties✓
• d.Is required for all sales of residential property in Texas

A quitclaim deed transfers only the interest, if any, that the grantor holds and makes no warranties about the quality of title. It is often used to clear clouds on title, such as removing a possible claim, rather than for arm's-length sales.

For a deed to be valid and effective to convey title, it generally must be:

• a.In writing, signed by the grantor, and delivered to the grantee✓
• b.Recorded at the county courthouse within 30 days
• c.Signed by both the grantor and the grantee
• d.Notarized by a licensed real estate broker

A valid deed must be in writing, name a grantee, be signed by the grantor, and be delivered and accepted. Recording gives public notice and protects priority but is not required to make the deed valid between the parties.

The main purpose of recording a deed in the county real property records is to:

• a.Make the deed legally valid between grantor and grantee
• b.Give constructive (public) notice of the ownership interest✓
• c.Transfer possession of the property
• d.Satisfy the buyer's mortgage obligation

Recording provides constructive notice to the world of the interest and establishes priority among competing claims. The deed is already valid between the parties upon delivery; recording protects the grantee against later claims.

Title insurance protects the insured party against:

• a.Future physical damage to the structure
• b.A decline in the property's market value
• c.The cost of routine repairs and maintenance
• d.Losses from defects in title that existed before the policy date✓

Title insurance indemnifies against covered losses from title defects, liens, or encumbrances that existed but were unknown at the time the policy was issued. It does not cover future events like physical damage or market value changes.

The process by which the government can take private property for public use, upon payment of just compensation, is:

• a.Eminent domain✓
• b.Escheat
• c.Adverse possession
• d.Estoppel

Eminent domain is the government's constitutional power to take private property for a public purpose in exchange for just compensation, exercised through condemnation. Escheat is when property passes to the state when an owner dies with no heirs.

When a person dies owning property with no valid will and no locatable heirs, the property may pass to the state through:

• a.Eminent domain
• b.Escheat✓
• c.Police power
• d.Prescription

Escheat transfers ownership to the state when an owner dies intestate with no heirs, preventing property from being ownerless. It is distinct from eminent domain, which involves a taking for public use with compensation.

Zoning ordinances, building codes, and health regulations are all examples of the government's:

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

Police power is the government's authority to regulate land use to protect public health, safety, and welfare, and it underlies zoning and building codes. Unlike eminent domain, exercising police power generally does not require compensating the owner.

A physical intrusion of a structure, such as a fence or roof overhang, onto a neighboring property is a(n):

• a.Easement in gross
• b.Deed restriction
• c.Life estate
• d.Encroachment✓

An encroachment is an unauthorized physical intrusion of an improvement onto adjoining land, and it can cloud title or reduce marketability. A survey is commonly used to detect encroachments before closing.

Private restrictions placed in a deed or subdivision documents that limit how owners may use their lots are commonly called:

• a.Deed restrictions or restrictive covenants✓
• b.Police power regulations
• c.Easements in gross
• d.Mechanic's liens

Deed restrictions, also called restrictive covenants, are private limitations on land use imposed by a developer or prior owner and enforced by other owners or an HOA. They are separate from public zoning, and the more restrictive of the two typically controls.

Which of the following BEST describes the economic characteristic of real estate known as 'scarcity'?

• a.Land can be moved to where demand is highest
• b.All parcels of land are exactly alike
• c.The total supply of land is limited relative to demand✓
• d.Land improvements never wear out

Scarcity refers to the limited supply of land relative to population and demand, which supports its economic value. Physical characteristics of land include immobility, indestructibility, and uniqueness (non-homogeneity).

In an agency relationship, the client who hires and authorizes a broker to act on their behalf is the:

• a.Agent
• b.Principal✓
• c.Customer
• d.Subagent

The principal (client) is the party who employs and delegates authority to the agent. The agent owes fiduciary duties to the principal, while a customer is a party the agent deals with but does not represent.

A broker who represents the seller in a transaction owes the seller fiduciary duties. The customer (buyer) in that same transaction is owed:

• a.The same fiduciary duties as the seller
• b.No duties whatsoever
• c.Honesty, fair dealing, and disclosure of material defects✓
• d.A duty of undivided loyalty

Even when a broker does not represent the buyer, the law still requires honesty, fair dealing, and disclosure of known material defects to the customer. Full fiduciary duties such as loyalty and confidentiality are owed only to the client.

Which of the following is NOT one of the traditional fiduciary duties an agent owes to a principal?

• a.Loyalty
• b.Obedience to lawful instructions
• c.Confidentiality
• d.Guaranteeing the property will appraise at the sales price✓

Fiduciary duties commonly include loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care and diligence. An agent cannot guarantee an appraisal outcome, which depends on an independent appraiser and market data.

In Texas, before a license holder may substantively discuss a real estate transaction, TREC rules generally require providing the consumer with the:

• a.Information About Brokerage Services (IABS) form✓
• b.Seller's Disclosure Notice
• c.Closing Disclosure
• d.Appraisal report

The IABS notice explains the types of representation and the duties license holders owe, and it must generally be provided at first substantive communication. The seller's disclosure and closing documents are provided later and serve different purposes. Exact form and timing requirements can change.

An 'intermediary' relationship in Texas arises when:

• a.A broker refuses to represent either party
• b.One broker's firm represents both the buyer and the seller in the same transaction✓
• c.A buyer works with two competing brokers
• d.The seller lists with an out-of-state broker

In Texas, intermediary status occurs when the same broker (firm) represents both the buyer and the seller in one transaction, with the parties' written consent. The broker may appoint different associated license holders to each party, subject to strict rules.

For a Texas broker to act as an intermediary between a buyer and seller, the broker must obtain:

• a.Approval from TREC for each transaction
• b.An appraisal of the property
• c.Written consent from both parties, typically in the listing and buyer agreements✓
• d.A court order

Intermediary status requires the written consent of both the buyer and seller, usually obtained in advance through the representation agreements. The intermediary must act fairly and may not disclose certain confidential information such as one party's willingness to accept a different price.

When a broker acts as an intermediary and appoints one associated agent to the buyer and another to the seller, this is commonly called:

• a.Appointment (making appointments)✓
• b.Dual agency with no disclosure
• c.Subagency
• d.Designated brokerage by TREC

Under intermediary rules, the broker may, with the parties' written permission, appoint separate associated license holders to communicate with and advise each party. This allows each party to receive more individualized advice while the broker remains the intermediary.

A seller instructs the listing agent to conceal a known foundation problem from prospective buyers. The agent should:

• a.Follow the instruction because of the duty of obedience
• b.Disclose the problem only to buyers who ask directly
• c.Cancel the listing and tell no one
• d.Refuse, because the duty of obedience does not extend to unlawful acts✓

The duty of obedience applies only to lawful instructions; an agent may not follow directions to commit fraud or conceal material defects. Knowingly hiding a known material defect can expose both the agent and seller to liability.

Confidential information the agent learns about the principal, such as the seller's willingness to accept less than list price, must generally be:

• a.Kept confidential even after the agency relationship ends✓
• b.Disclosed to all prospective buyers
• c.Reported to TREC
• d.Shared with the buyer's lender

The duty of confidentiality protects the principal's private information, including motivation and bottom-line price, and it typically survives the end of the relationship. Disclosing such information would harm the principal's negotiating position.

The duty of 'accounting' in an agency relationship requires the agent to:

• a.Prepare the client's income tax returns
• b.Properly handle and report on money and property entrusted to them, such as earnest money✓
• c.Personally guarantee the loan
• d.Set the listing price

Accounting means the agent must safeguard and accurately report all funds and documents belonging to the client or third parties, such as earnest money. Commingling client funds with the broker's own operating account is prohibited.

Placing client or earnest money funds into a broker's personal or general business account instead of a proper trust or escrow account is called:

• a.Novation
• b.Subrogation
• c.Commingling (or conversion if used)✓
• d.Estoppel

Commingling is improperly mixing client funds with the broker's own funds, and using those funds is conversion. Both are serious violations that can lead to license discipline.

A listing agreement that gives one broker the right to sell but allows the seller to sell on their own without owing a commission is a(n):

• a.Open listing
• b.Net listing
• c.Exclusive right to sell listing
• d.Exclusive agency listing✓

Under an exclusive agency listing, one broker is the sole agent, but the seller reserves the right to sell independently without paying a commission. By contrast, an exclusive right to sell earns the broker a commission regardless of who finds the buyer.

Under an 'exclusive right to sell' listing, the broker earns a commission:

• a.Regardless of who procures the buyer during the listing period✓
• b.Only if the broker personally finds the buyer
• c.Only if the seller finds the buyer
• d.Only after the property is rented

An exclusive right to sell listing entitles the broker to a commission if the property sells during the term, no matter who brings the buyer, including the seller. This provides the strongest commission protection for the broker.

A 'net listing,' where the broker keeps any amount above a price set by the seller, is:

• a.Always the best option for sellers
• b.Discouraged and heavily restricted because of conflict-of-interest concerns✓
• c.Required for all commercial listings
• d.The standard listing type in Texas

Net listings create a conflict of interest and potential for the broker to take advantage of the seller, so they are restricted and must be handled carefully where allowed. Most agents avoid them to prevent claims of overreaching.

The concept of 'procuring cause' is most relevant when determining:

• a.Whether a deed is valid
• b.The market value of a home
• c.Which broker is entitled to a commission in a disputed sale✓
• d.The amount of property tax owed

Procuring cause analysis identifies the agent whose efforts actually led to the ready, willing, and able buyer, and it is used to resolve commission disputes. It focuses on an unbroken chain of events leading to the sale.

Which of the following actions by an agent would MOST likely breach the fiduciary duty of loyalty?

• a.Secretly buying the client's property through a relative at a low price✓
• b.Recommending a licensed home inspector
• c.Presenting all written offers to the seller
• d.Advising the client to obtain legal counsel

The duty of loyalty requires the agent to put the client's interests first and avoid undisclosed self-dealing. Secretly acquiring the client's property for personal gain is a classic breach of loyalty.

An agent must present to the seller:

• a.Only offers at or above the list price
• b.All written offers received, even low ones, unless the seller instructs otherwise in writing✓
• c.Only offers from pre-approved buyers
• d.Only the highest offer received

The duty of disclosure and diligence generally requires presenting all written offers to the seller promptly so the seller can decide. A seller may waive this in writing, but the agent cannot unilaterally screen out offers.

'Puffing' differs from misrepresentation because puffing:

• a.Is a written guarantee of value
• b.Always constitutes fraud
• c.Is an opinion or exaggeration, not a statement of material fact✓
• d.Must be disclosed on the seller's disclosure notice

Puffing is a subjective opinion or sales exaggeration, such as calling a home 'the best deal in town,' and is not actionable. Misrepresentation involves a false statement of a material fact that the other party reasonably relies on.

A single agent who represents the buyer in a transaction owes the buyer the duty to:

• a.Disclose the buyer's maximum price to the seller
• b.Always recommend the highest-priced property
• c.Represent the seller equally
• d.Keep the buyer's confidential information private and negotiate in the buyer's best interest✓

A buyer's agent owes the buyer fiduciary duties, including confidentiality and loyalty, and must advocate for the buyer's interests. Revealing the buyer's top price to the seller would breach confidentiality.

An agency relationship between a broker and client is typically created by:

• a.A written representation agreement authorizing the broker to act✓
• b.The buyer simply attending an open house
• c.A verbal comment from a neighbor
• d.Recording a deed

Agency is generally established through an express agreement, such as a written listing or buyer representation agreement, that authorizes the broker to act. Merely showing a property to a customer does not by itself create a client relationship.

If a listing broker fails to disclose to their seller-client a material fact that harms the seller, the broker may be liable for:

• a.Nothing, since disclosure is optional
• b.Breach of fiduciary duty✓
• c.A federal antitrust violation only
• d.Only a small administrative fee

Failing to disclose material facts to a client can constitute a breach of the fiduciary duty of disclosure and may expose the broker to liability and license discipline. Agents must communicate information relevant to the client's decision.

A broker holds earnest money as escrow agent. If a dispute arises between buyer and seller over who is entitled to the funds, the broker should generally:

• a.Release the funds to whichever party asks first
• b.Keep the funds as a fee for the trouble
• c.Automatically give the funds to the seller
• d.Hold the funds until the parties agree in writing or a court directs disbursement✓

An escrow agent holding disputed funds must not favor either side and should retain the money until the parties provide written agreement or a court orders disbursement. Improperly releasing disputed earnest money can create liability for the broker.

Which of the following is NOT one of the essential elements required for a valid, enforceable real estate contract?

• a.Offer and acceptance (mutual assent)
• b.Consideration
• c.Notarization of all buyer signatures✓
• d.Legal capacity of the parties

A valid contract requires offer and acceptance, consideration, legal capacity, legal purpose, and (for real estate) a writing. Notarization is not required to form a valid contract, though it may be needed to record certain documents.

The legal doctrine requiring that contracts for the sale of real estate be in writing to be enforceable is the:

• a.Statute of frauds✓
• b.Statute of limitations
• c.Doctrine of laches
• d.Parol evidence rule

The statute of frauds requires that contracts transferring an interest in real estate be in writing and signed to be enforceable. The parol evidence rule limits use of prior oral statements to change a written contract.

In Texas, residential real estate sales contracts most commonly use forms that are:

• a.Drafted individually by each buyer's attorney
• b.Promulgated (standardized) by TREC for license holders to use✓
• c.Provided only by the buyer's lender
• d.Written by the local Realtor association and mandatory statewide

TREC promulgates standardized contract forms that Texas license holders are generally required to use for common residential transactions. This promotes consistency and protects consumers, though the exact forms are periodically updated.

A license holder who is not a licensed attorney may generally:

• a.Draft custom contract language for unusual clauses
• b.Give the buyer legal advice about contract interpretation
• c.Add extensive addenda they write themselves
• d.Fill in the blanks on a promulgated TREC form✓

License holders may complete the blanks on promulgated forms but may not practice law by drafting custom contract provisions or giving legal advice. Complex or unusual terms should be referred to an attorney.

Earnest money in a real estate contract functions primarily as:

• a.A good-faith deposit showing the buyer's serious intent to purchase✓
• b.The full purchase price paid up front
• c.A nonrefundable fee paid to the listing agent
• d.A payment that replaces the down payment entirely

Earnest money is a deposit that demonstrates the buyer's good faith and is typically credited toward the purchase price or closing costs at closing. If the buyer defaults without a valid contingency, the earnest money may be forfeited to the seller.

A financing contingency in a purchase contract protects the buyer by:

• a.Guaranteeing the seller will lower the price
• b.Requiring the seller to pay all closing costs
• c.Allowing the buyer to cancel and recover earnest money if approved financing cannot be obtained✓
• d.Forcing the lender to approve the loan

A financing contingency lets the buyer terminate the contract and typically recover earnest money if they cannot obtain the specified loan. It shifts the risk of loan denial away from the buyer.

The Texas 'option period' (termination option) in the standard residential contract generally allows the buyer to:

• a.Occupy the home before closing rent-free
• b.Terminate the contract for any reason during the option period in exchange for the option fee✓
• c.Force the seller to make all requested repairs
• d.Extend the closing date indefinitely

For a negotiated option fee, the buyer receives an unrestricted right to terminate the contract within the option period, commonly used to complete inspections. If the buyer does not terminate, the option simply expires and the contract continues.

Which of the following best describes a bilateral contract?

• a.Only one party is obligated to perform
• b.No consideration is exchanged
• c.It must always be oral
• d.Both parties exchange mutual promises to perform✓

In a bilateral contract, both parties make enforceable promises, such as the buyer promising to pay and the seller promising to convey. A unilateral contract, by contrast, is a promise in exchange for an act.

When an offeree responds to an offer by changing a material term, the response is legally a:

• a.Counteroffer that rejects the original offer✓
• b.Binding acceptance of the original offer
• c.Void contract
• d.Unilateral contract

Changing a material term rejects the original offer and creates a counteroffer, which the original offeror may accept or reject. The original offer is no longer available for acceptance once a counteroffer is made.

A contract that is missing an essential element and has no legal effect from the beginning is:

• a.Voidable
• b.Void✓
• c.Enforceable
• d.Executed

A void contract lacks a required element and has no legal effect at all. A voidable contract is valid until one party with the right to do so elects to disaffirm it.

A contract signed by a minor is generally considered:

• a.Void from the start
• b.Automatically enforceable against the minor
• c.Voidable at the option of the minor✓
• d.A criminal offense

Contracts with minors are usually voidable at the minor's option because minors lack full legal capacity. The minor may disaffirm the contract, though the adult party is typically bound.

'Time is of the essence' in a contract means:

• a.The parties may perform whenever convenient
• b.Deadlines are merely suggestions
• c.The contract never expires
• d.Deadlines must be met exactly, and failure to do so is a breach✓

When time is of the essence, the stated dates and deadlines are strictly enforced, and missing them can constitute default. This clause is common in real estate contracts to ensure timely closing.

Substituting a new contract for an existing one, or replacing a party with a new party by agreement, is known as:

• a.Novation✓
• b.Assignment without consent
• c.Specific performance
• d.Liquidated damages

Novation replaces an original contract or party with a new one, releasing the original obligor with all parties' consent. It differs from a simple assignment, which transfers rights but may not release the assignor.

If a buyer defaults, a contract clause that pre-sets the seller's damages (often the earnest money) is called a:

• a.Specific performance clause
• b.Liquidated damages clause✓
• c.Subordination clause
• d.Habendum clause

A liquidated damages clause fixes in advance the amount one party recovers if the other defaults, avoiding the need to prove actual damages. In many residential contracts, the earnest money serves this role.

A legal remedy in which a court orders a defaulting seller to actually convey the property as agreed is:

• a.Rescission
• b.Liquidated damages
• c.Specific performance✓
• d.Novation

Specific performance compels a party to perform the contract as promised, and it is available in real estate because each parcel is considered unique. A court may order the seller to deliver the deed rather than merely pay money.

The 'parol evidence rule' generally prevents a party from:

• a.Using prior oral statements to contradict the terms of a complete written contract✓
• b.Recording a deed at the county
• c.Signing a contract electronically
• d.Assigning contract rights

The parol evidence rule bars introducing prior or contemporaneous oral agreements to alter the terms of a fully integrated written contract. It supports the reliability of the written document.

In Texas, the Seller's Disclosure Notice for residential property generally requires the seller to disclose:

• a.The seller's asking price strategy
• b.The buyer's loan terms
• c.The listing agent's commission
• d.Known conditions and defects of the property✓

The Seller's Disclosure Notice requires sellers of most residential properties to disclose known material conditions and defects. It is based on the seller's actual knowledge, and requirements can change over time.

An 'as-is' clause in a purchase contract generally means the buyer agrees to:

• a.Waive the right to inspect the property
• b.Accept the property in its present condition, without the seller being obligated to make repairs✓
• c.Pay above the appraised value
• d.Give up the right to a deed

An as-is clause means the seller is not obligated to make repairs and the buyer accepts the current condition, though buyers typically still inspect. It does not eliminate the seller's duty to disclose known material defects.

An assignment of a contract typically transfers:

• a.Only obligations, never rights
• b.Title to the real estate immediately
• c.The assignor's rights under the contract to a third party✓
• d.Ownership of the brokerage firm

An assignment transfers the assignor's contractual rights to an assignee, who may then enforce them, subject to any anti-assignment terms. Unlike novation, an assignment may not release the original party from liability.

A contract in which all parties have fully performed their obligations is described as:

• a.Executed✓
• b.Executory
• c.Void
• d.Voidable

An executed contract is one that has been fully performed by all parties, such as after a completed closing. An executory contract still has obligations remaining to be performed.

For an acceptance to create a binding contract under the common law 'mirror image' rule, the acceptance must:

• a.Add several new favorable terms for the offeree
• b.Be delivered only in person
• c.Include additional consideration
• d.Match the terms of the offer exactly without material changes✓

Under the mirror image rule, acceptance must agree to the offer's terms exactly; a change in material terms is a counteroffer, not an acceptance. This ensures both parties agree to the same bargain.

A contract provision allowing a buyer to transfer their rights and obligations under the purchase contract to another buyer is a(n):

• a.Habendum clause
• b.Subordination clause
• c.Defeasance clause
• d.Assignment clause✓

An assignment clause permits the buyer to assign the contract to a third party, who then steps into the buyer's position, subject to any limits in the contract. Some contracts restrict or prohibit assignment without the seller's consent.

In a typical mortgage loan, the document that serves as the borrower's written promise to repay the debt is the:

• a.Deed of trust
• b.Promissory note✓
• c.Warranty deed
• d.Title commitment

The promissory note is the borrower's personal promise to repay the loan under stated terms. The deed of trust (or mortgage) is the separate instrument that pledges the property as security for that note.

Texas commonly uses a 'deed of trust' rather than a traditional mortgage. In a deed of trust, the neutral third party who holds legal title until the loan is repaid is the:

• a.Trustee✓
• b.Trustor only
• c.Beneficiary
• d.Grantee

In a deed of trust, the borrower (trustor) conveys title to a trustee who holds it for the lender (beneficiary) until the debt is paid. This structure allows a non-judicial foreclosure process if the borrower defaults.

A loan feature that lets the lender declare the entire remaining balance due upon borrower default is a(n):

• a.Prepayment penalty
• b.Subordination clause
• c.Acceleration clause✓
• d.Defeasance clause

An acceleration clause allows the lender to demand the full unpaid balance immediately if the borrower defaults, which is a prerequisite to foreclosure. A defeasance clause, by contrast, cancels the lien once the debt is fully paid.

A 'due-on-sale' (alienation) clause in a mortgage generally:

• a.Requires the lender to lower the interest rate annually
• b.Forces the buyer to assume the loan
• c.Prohibits any prepayment
• d.Allows the lender to require full repayment if the property is sold or transferred✓

A due-on-sale clause lets the lender call the loan due when the borrower transfers the property, preventing an unapproved buyer from simply taking over the existing loan. It protects the lender's ability to re-price the loan at current rates.

In an amortized loan, the early payments are applied:

• a.Mostly to interest, with a small portion to principal✓
• b.Entirely to principal
• c.Entirely to property taxes
• d.Mostly to principal, with a small portion to interest

In a standard amortizing loan, early payments are weighted heavily toward interest because the outstanding balance is high. As the balance declines, more of each payment goes toward principal.

The four components commonly abbreviated as 'PITI' in a monthly housing payment are:

• a.Principal, insurance, taxes, and inspection
• b.Principal, interest, taxes, and insurance✓
• c.Points, interest, title, and insurance
• d.Principal, interest, transfer, and inspection

PITI stands for principal, interest, taxes, and insurance, the four parts of a typical escrowed mortgage payment. Lenders often collect taxes and insurance in an escrow account and pay them when due.

Private mortgage insurance (PMI) on a conventional loan is generally required when the borrower's down payment is:

• a.More than 50% of the price
• b.Exactly 20% of the price
• c.Less than 20% of the price (LTV above 80%)✓
• d.Any amount, regardless of down payment

PMI protects the lender against default and is typically required on conventional loans when the loan-to-value ratio exceeds 80%, meaning less than 20% down. It can usually be canceled once sufficient equity is reached.

A loan that is insured by the Federal Housing Administration is called a(n):

• a.VA loan
• b.Conventional loan
• c.Jumbo loan
• d.FHA loan✓

An FHA loan is insured by the Federal Housing Administration and typically allows lower down payments and more flexible qualifying. A VA loan is guaranteed by the Department of Veterans Affairs for eligible service members.

A key benefit of a VA-guaranteed loan for eligible veterans is that it:

• a.Often requires no down payment✓
• b.Requires a minimum 20% down payment
• c.Is available to all buyers regardless of service
• d.Charges the highest interest rates by law

VA loans, guaranteed by the Department of Veterans Affairs, often allow eligible veterans to purchase with no down payment. They are limited to qualified veterans, service members, and certain spouses.

In an adjustable-rate mortgage (ARM), the interest rate is periodically adjusted based on a specified:

• a.Appraised value of the home
• b.Financial index plus a margin✓
• c.Broker's commission rate
• d.Property tax rate

An ARM's rate is tied to a published index, and the lender adds a fixed margin to set the new rate at each adjustment. Caps typically limit how much the rate can change per period and over the loan's life.

Discount points paid to a lender at closing are typically used to:

• a.Increase the loan amount
• b.Pay the real estate commission
• c.Buy down (lower) the loan's interest rate✓
• d.Cover the appraisal fee only

Discount points are prepaid interest paid to reduce the loan's interest rate, with one point equal to 1% of the loan amount. Paying points can lower monthly payments over the life of the loan.

The federal law that requires lenders to disclose the annual percentage rate (APR) and total finance charges to consumers is the:

• a.Fair Housing Act
• b.RESPA
• c.Sherman Antitrust Act
• d.Truth in Lending Act (TILA)✓

The Truth in Lending Act requires lenders to disclose credit costs, including the APR and finance charges, so consumers can compare loans. RESPA, by contrast, focuses on settlement (closing) cost disclosures and prohibits kickbacks.

The Real Estate Settlement Procedures Act (RESPA) primarily regulates:

• a.Closing (settlement) cost disclosures and prohibits kickbacks✓
• b.Zoning of residential neighborhoods
• c.The design of TREC contract forms
• d.Property tax assessment methods

RESPA governs the disclosure of settlement costs on federally related mortgage loans and prohibits kickbacks and unearned referral fees. It works alongside TILA, which addresses the cost of credit.

Foreclosure under a Texas deed of trust with a power-of-sale clause is often carried out through:

• a.A lengthy jury trial
• b.A non-judicial trustee's sale✓
• c.Automatic transfer to the county
• d.An IRS auction

The power-of-sale clause in a Texas deed of trust allows a non-judicial foreclosure conducted by the trustee, which is faster than a court process. Statutory notice requirements must still be met, and the rules can change.

A borrower's ability to reclaim the property by paying the full debt before a foreclosure sale is known as the:

• a.Right of rescission
• b.Right of subrogation
• c.Equitable right of redemption✓
• d.Statutory acceleration

The equitable right of redemption lets a defaulting borrower pay the entire debt plus costs to stop the foreclosure and keep the property before the sale. Some states also provide a statutory redemption period after the sale for certain loans.

In a mortgage assumption, the buyer:

• a.Automatically receives a new lower interest rate
• b.Pays cash for the full purchase price
• c.Is never personally liable for the debt
• d.Takes over the seller's existing loan and its terms✓

In an assumption, the buyer takes over the seller's existing loan, including its balance, rate, and terms, subject to lender approval where required. Whether the seller is released from liability depends on the lender and loan documents.

The loan-to-value (LTV) ratio is calculated as the:

• a.Loan amount divided by the property's value or price✓
• b.Property value divided by the loan amount
• c.Interest rate multiplied by the term
• d.Down payment divided by the interest rate

LTV equals the loan amount divided by the lesser of the appraised value or sales price, expressed as a percentage. A lower LTV means more borrower equity and generally lower lender risk.

A buyer purchases a home for $300,000 and makes a $60,000 down payment. What is the loan-to-value ratio?

• a.70%
• b.80%✓
• c.20%
• d.120%

The loan amount is $300,000 minus $60,000, or $240,000, and LTV equals $240,000 divided by $300,000, which is 0.80 or 80%. The $60,000 down payment represents 20% equity.

'Usury' laws are designed to:

• a.Guarantee loan approval for all buyers
• b.Set minimum home prices
• c.Limit the maximum interest rate a lender may lawfully charge✓
• d.Require all loans to be assumable

Usury laws cap the interest rate that lenders may legally charge to protect borrowers from excessive rates. Charging above the legal limit can subject a lender to penalties.

The secondary mortgage market, including entities like Fannie Mae and Freddie Mac, primarily functions to:

• a.Buy loans from lenders, providing liquidity so lenders can make new loans✓
• b.Directly lend money to homebuyers at closing
• c.Set property tax rates nationwide
• d.License real estate agents

The secondary market buys existing mortgages from primary lenders, giving those lenders fresh capital to originate more loans. This improves the flow of mortgage money and helps standardize lending.

The most common method an appraiser uses to value a single-family home is the:

• a.Income capitalization approach
• b.Sales comparison (market) approach✓
• c.Gross rent multiplier only
• d.Assessed value approach

The sales comparison approach values a home by comparing it to recent sales of similar nearby properties, with adjustments for differences. The income approach is used mainly for investment property, and the cost approach for special-purpose or new construction.

The appraisal approach that estimates value based on the cost to rebuild the improvements, minus depreciation, plus land value, is the:

• a.Sales comparison approach
• b.Income approach
• c.Cost approach✓
• d.Gross income approach

The cost approach estimates value as the current cost to construct the improvements new, less accrued depreciation, plus the value of the land. It is most useful for new or special-purpose properties with few comparable sales.

The income capitalization approach is MOST appropriate for valuing:

• a.A vacant lot
• b.A brand-new custom home
• c.A historic monument
• d.An income-producing apartment building✓

The income approach converts a property's expected net operating income into value using a capitalization rate, making it ideal for rental and commercial properties. Owner-occupied homes are usually valued by the sales comparison approach.

The principle of 'progression' in valuation states that a property's value tends to:

• a.Increase when surrounded by higher-value properties✓
• b.Decrease when improvements are added
• c.Stay fixed regardless of the neighborhood
• d.Equal exactly its construction cost

Under progression, a lower-valued home benefits from being located among higher-valued homes. The opposite principle, regression, holds that a higher-valued home may be dragged down by surrounding lower-valued properties.

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

• a.Race and color
• b.The buyer's occupation or income source in general✓
• c.Religion and national origin
• d.Sex, disability, and familial status

The federal Fair Housing Act protects race, color, religion, national origin, sex, disability, and familial status. General occupation is not a federally protected class, though some state or local laws add protections; requirements can change.

'Steering' is a prohibited fair housing practice in which an agent:

• a.Refuses to make any loan
• b.Charges different commissions to different sellers
• c.Directs prospective buyers toward or away from neighborhoods based on a protected class✓
• d.Advertises a property online

Steering unlawfully channels buyers toward or away from particular areas based on race, national origin, or another protected class. It limits housing choice and violates fair housing law.

'Blockbusting' refers to the illegal practice of:

• a.Refusing to rent to families with children
• b.Setting minimum square footage requirements
• c.Requiring flood insurance
• d.Inducing owners to sell by suggesting that people of a certain protected class are moving into the area✓

Blockbusting involves persuading owners to sell, often at a loss, by exploiting fears about the entry of a protected group into the neighborhood. It is prohibited under fair housing laws.

A lender's illegal refusal to make loans in certain neighborhoods based on their racial or ethnic composition is called:

• a.Redlining✓
• b.Steering
• c.Puffing
• d.Subordination

Redlining is the discriminatory denial of loans or insurance in specific areas based on the makeup of the residents rather than the applicant's qualifications. It is a violation of fair housing and fair lending laws.

Under federal law, sellers and landlords of most housing built before which year must provide a lead-based paint disclosure?

• a.1950
• b.1978✓
• c.1988
• d.2000

Federal law requires lead-based paint disclosure for most residential housing built before 1978, when residential lead paint was banned. Sellers must provide a disclosure and pamphlet and allow the buyer an opportunity to test.

A naturally occurring radioactive gas that can seep into homes and is a common environmental concern in real estate is:

• a.Asbestos
• b.Formaldehyde
• c.Radon✓
• d.Lead

Radon is an odorless, radioactive gas that can accumulate in homes and poses a health risk, and testing is common in some regions. Mitigation systems can reduce indoor radon levels.

A homestead exemption in Texas primarily provides a homeowner with:

• a.A guaranteed sale price
• b.Free title insurance
• c.Exemption from all federal taxes
• d.Protection of the home from certain creditors and a reduction in property taxes✓

The Texas homestead exemption shields a primary residence from many creditors and reduces the taxable value for property tax purposes. Specific dollar amounts and rules are set by law and can change.

In property management, the manager's primary fiduciary duty is to:

• a.Protect the owner's investment and maximize its return within the law✓
• b.Favor tenants over the owner
• c.Personally guarantee rent payments
• d.Set rents below market to fill vacancies quickly

A property manager acts as the owner's agent and must protect and enhance the owner's investment while complying with the law. This includes prudent management of income, expenses, and maintenance.

A lease in which the tenant pays a fixed rent and the landlord pays most property expenses such as taxes and insurance is a:

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

In a gross lease, the tenant pays a flat rent and the landlord covers most operating expenses, common in residential rentals. In a net lease, the tenant pays some or all of those expenses in addition to base rent.

A 'percentage lease' is most commonly used for:

• a.Single-family homes
• b.Vacant agricultural land
• c.Retail stores, where rent is partly based on sales✓
• d.Government office buildings only

A percentage lease charges base rent plus a percentage of the tenant's gross sales, aligning the landlord's income with the tenant's business performance. It is typical in shopping centers and retail settings.

The Americans with Disabilities Act (ADA) generally requires that:

• a.All homes be wheelchair accessible
• b.Landlords pay for tenants' medical care
• c.Only new construction comply with any rules
• d.Public accommodations remove barriers and provide reasonable accessibility✓

The ADA requires places of public accommodation, such as commercial and business facilities, to be accessible and to remove barriers where readily achievable. Separate fair housing rules address reasonable accommodations in residential housing.

Depreciation caused by outdated design, poor floor plan, or obsolete features within the property is called:

• a.Functional obsolescence✓
• b.Economic (external) obsolescence
• c.Physical deterioration
• d.Appreciation

Functional obsolescence is a loss in value from features that are outdated or poorly designed, such as a two-bedroom house with one tiny closet. It arises from conditions within the property rather than external forces.

Loss in property value caused by negative factors outside the property, such as a new highway creating noise, is called:

• a.Functional obsolescence
• b.External (economic) obsolescence✓
• c.Physical deterioration curable by repair
• d.Accrued appreciation

External or economic obsolescence is a loss in value from factors outside the property boundaries, such as nearby nuisances or a declining local economy. It is generally considered incurable by the owner because the cause is off-site.

A comparative market analysis (CMA) prepared by a sales agent to help price a listing is:

• a.A legally certified appraisal
• b.A guarantee of the final sales price
• c.An estimate of value based on comparable sales, not a formal appraisal✓
• d.Required by federal law for every sale

A CMA uses recent comparable sales and market data to help an agent and seller set a competitive list price, but it is not a formal appraisal. Only a licensed or certified appraiser can perform an appraisal for lending purposes.

A home sells for $350,000 with a total commission of 6%. How much is the total commission in dollars?

• a.$15,000
• b.$18,000
• c.$21,000✓
• d.$24,000

Multiply the sales price by the commission rate: $350,000 x 0.06 = $21,000. This total is then typically split between the listing and buyer's brokerages.

A property sells for $420,000 with a 6% commission. The listing and selling brokerages split it 50/50, and the listing agent keeps 60% of their brokerage's share. How much does the listing agent earn?

• a.$12,600
• b.$7,560✓
• c.$25,200
• d.$15,120

Total commission is $420,000 x 0.06 = $25,200; each brokerage gets half, or $12,600. The listing agent's 60% share is $12,600 x 0.60 = $7,560.

A buyer pays $280,000 for a home and puts 15% down. How much is the down payment?

• a.$42,000✓
• b.$28,000
• c.$56,000
• d.$4,200

Multiply the price by the down payment percentage: $280,000 x 0.15 = $42,000. The remaining $238,000 would be financed.

A lot measures 150 feet by 200 feet. What is its area in square feet?

• a.3,500 sq ft
• b.350 sq ft
• c.35,000 sq ft
• d.30,000 sq ft✓

Area of a rectangle is length times width: 150 x 200 = 30,000 square feet. To convert to acres, divide by 43,560.

One acre contains 43,560 square feet. How many acres are in a parcel of 87,120 square feet?

• a.1 acre
• b.2 acres✓
• c.3 acres
• d.4 acres

Divide the total square footage by 43,560: 87,120 / 43,560 = 2 acres. Memorizing that an acre is 43,560 square feet is essential for land math.

Annual property taxes of $4,800 are paid in arrears. At a closing on July 1 (with the year split evenly into two halves), what is the seller's share for the first half of the year using a 360-day proration?

• a.$1,200
• b.$4,800
• c.$2,400✓
• d.$800

With taxes paid in arrears, the seller owes for the portion of the year they owned the property. From January 1 to July 1 is half the year, so the seller's share is $4,800 x 6/12 = $2,400.

A home appreciates from $250,000 to $300,000. What is the percentage of increase in value?

• a.20%✓
• b.15%
• c.25%
• d.50%

The increase is $300,000 minus $250,000, or $50,000. Divide the increase by the original value: $50,000 / $250,000 = 0.20 or 20%.

A loan of $200,000 carries a 6% annual interest rate. How much is the interest for the FIRST month (simple interest)?

• a.$12,000
• b.$1,000✓
• c.$1,200
• d.$100

Annual interest is $200,000 x 0.06 = $12,000. Divide by 12 months to get the first month's interest: $12,000 / 12 = $1,000.

A property is assessed at $180,000 and the tax rate is $2.50 per $100 of assessed value. What is the annual property tax?

• a.$450
• b.$1,800
• c.$2,500
• d.$4,500✓

Divide the assessed value by 100 to get the number of taxable units: $180,000 / 100 = 1,800. Multiply by the rate: 1,800 x $2.50 = $4,500.

An investor's rental property produces net operating income (NOI) of $24,000 per year. Using a capitalization rate of 8%, what is the indicated value?

• a.$192,000
• b.$1,920,000
• c.$300,000✓
• d.$32,000

The income approach value equals NOI divided by the cap rate: $24,000 / 0.08 = $300,000. A lower cap rate would produce a higher value for the same income.

A seller wants to net $190,000 after paying a 5% commission (and no other costs). What must the sales price be, rounded to the nearest dollar?

• a.$200,000✓
• b.$199,500
• c.$180,500
• d.$209,000

The seller keeps 95% of the price, so price = $190,000 / 0.95 = $200,000. Checking: $200,000 x 5% = $10,000 commission, leaving $190,000.

A rectangular house has exterior dimensions of 40 feet by 50 feet. If construction costs $120 per square foot, what is the estimated construction cost?

• a.$96,000
• b.$240,000✓
• c.$24,000
• d.$2,400,000

The area is 40 x 50 = 2,000 square feet. Multiply by the cost per square foot: 2,000 x $120 = $240,000.

A buyer obtains a loan with an 80% loan-to-value ratio on a $325,000 purchase. How much is the loan amount?

• a.$65,000
• b.$162,500
• c.$32,500
• d.$260,000✓

Multiply the price by the LTV: $325,000 x 0.80 = $260,000. The remaining 20%, or $65,000, would be the down payment.

Monthly rent is $1,500 and the annual gross rent multiplier (GRM) for comparable properties is 12 times ANNUAL rent. What is the indicated property value?

• a.$18,000
• b.$150,000
• c.$216,000✓
• d.$1,800,000

Annual rent is $1,500 x 12 = $18,000. Multiply annual rent by the GRM: $18,000 x 12 = $216,000.