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

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

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

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 adaptation of the item to the real estate
• b.The intention of the party who installed it
• c.The method of attachment to the property
• 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.Deed restriction
• d.Encroachment

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

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.License
• c.Prescriptive easement terminated at sale
• d.Easement in gross

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.An estate for years
• b.A leasehold estate
• c.A fee simple absolute estate✓
• d.A life 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 state takes the deceased owner's share
• b.The deceased owner's share passes to their heirs by will
• c.The surviving joint tenants automatically absorb the deceased owner's interest✓
• d.The property is automatically sold and proceeds split

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.Exempt from any creditor claims
• c.Automatically owned by the spouses' children
• d.Always owned solely by the spouse who earned the money

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 deed✓
• d.A title insurance policy

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

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

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.Signed by both the grantor and the grantee
• b.In writing, signed by the grantor, and delivered to the grantee✓
• c.Recorded at the county courthouse within 30 days
• 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.Transfer possession of the property
• b.Give constructive (public) notice of the ownership interest✓
• c.Satisfy the buyer's mortgage obligation
• d.Make the deed legally valid between grantor and grantee

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

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.Escheat
• b.Adverse possession
• c.Eminent domain✓
• 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.Escheat✓
• b.Eminent domain
• 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.Right of survivorship
• b.Police power✓
• c.Right of escheat
• d.Power of eminent domain

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

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

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

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

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

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.Appraisal report
• c.Seller's Disclosure Notice
• d.Closing Disclosure

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

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.Written consent from both parties, typically in the listing and buyer agreements✓
• c.An appraisal of the property
• 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.Dual agency with no disclosure
• b.Subagency
• c.Designated brokerage by TREC
• d.Appointment (making appointments)✓

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

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

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.Properly handle and report on money and property entrusted to them, such as earnest money✓
• b.Prepare the client's income tax returns
• 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.Commingling (or conversion if used)✓
• b.Novation
• c.Estoppel
• d.Subrogation

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.Exclusive agency listing✓
• c.Net listing
• d.Exclusive right to sell 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.Only if the seller finds the buyer
• b.Only if the broker personally finds the buyer
• c.Only after the property is rented
• d.Regardless of who procures the buyer during the listing period✓

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

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

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

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.Only offers from pre-approved buyers
• c.All written offers received, even low ones, unless the seller instructs otherwise in writing✓
• 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 an opinion or exaggeration, not a statement of material fact✓
• b.Is a written guarantee of value
• c.Must be disclosed on the seller's disclosure notice
• d.Always constitutes fraud

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.Keep the buyer's confidential information private and negotiate in the buyer's best interest✓
• d.Represent the seller equally

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

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.Only a small administrative fee
• c.A federal antitrust violation only
• d.Breach of fiduciary duty✓

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.Automatically give the funds to the seller
• b.Keep the funds as a fee for the trouble
• c.Release the funds to whichever party asks first
• 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.Legal capacity of the parties
• b.Consideration
• c.Notarization of all buyer signatures✓
• d.Offer and acceptance (mutual assent)

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

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.Give the buyer legal advice about contract interpretation
• b.Add extensive addenda they write themselves
• c.Draft custom contract language for unusual clauses
• 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.