Texas Real Estate Sales Agent — All Questions

The Addendum for 'Sale of Other Property by Buyer' is used when:

• a.The buyer's purchase is contingent on first selling the buyer's current home✓
• b.The parties need to list which appliances and personal items convey with the home
• c.The seller wants to remain in the home under a short-term lease after closing
• d.The property is subject to a mandatory homeowners association and dues

This addendum makes the buyer's obligation contingent on the sale of the buyer's other property and lets the seller continue marketing under agreed terms. Leasebacks, personal property, and HOA matters are handled by separate addenda.

The Seller's Temporary Residential Lease in a TREC transaction is used when:

• a.The property will be rented to a third-party tenant for a full one-year term
• b.The seller will remain in the property for a short period after closing as a tenant✓
• c.The buyer needs to move into the property several days before the closing date
• d.The buyer wishes to sublease the property to another buyer before closing

A seller's temporary residential lease lets the seller stay in the home for a short period (typically no more than 90 days) after closing as a tenant of the new owner. A separate buyer's temporary lease covers early buyer possession before closing.

A license holder who is not an attorney fills in the blanks on a promulgated TREC contract. Adding a paragraph the license holder personally drafts to create a new legal right would most likely be:

• a.A minor clerical issue that carries no professional or legal consequences at all
• b.Required by TREC whenever the standard form does not exactly fit the transaction
• c.Perfectly acceptable, since license holders may draft any contract language they wish
• d.The unauthorized practice of law, which license holders are prohibited from doing✓

Drafting original contract provisions that define legal rights is the practice of law and is prohibited for non-attorney license holders, who may only complete blanks on promulgated forms. Unusual terms should be referred to an attorney.

The 'earnest money' and the 'option fee' in a TREC residential contract are:

• a.Both always non-refundable to the buyer under every possible circumstance
• b.Identical payments that are simply given two different names on the same line
• c.Separate amounts serving different purposes, with the option fee buying the right to terminate✓
• d.Both paid directly to the listing agent as an advance on the sales commission

Earnest money is a good-faith deposit generally credited at closing, while the option fee is separate consideration that purchases the buyer's unrestricted right to terminate during the option period. They are distinct amounts with distinct purposes.

A deed must identify the grantee with reasonable certainty because:

• a.The county will not assign the property an address without the grantee's full name
• b.The listing broker must know the grantee's name to release the earnest money
• c.The grantee's name determines the amount of property tax that will be owed
• d.A deed naming no identifiable grantee is generally void and conveys no title✓

A valid deed must name or clearly identify a grantee; a deed with no ascertainable grantee is void and passes no title. Naming the grantee is a fundamental requirement for a valid conveyance.

A 'legal description' in a deed or contract is important because it:

• a.Lists all of the personal property and appliances that will convey with the home
• b.Identifies the exact parcel of land being conveyed, using a legally recognized method✓
• c.Describes the physical condition of the improvements and any needed repairs
• d.States the current market value of the property for the lender's underwriting file

A legal description precisely identifies the parcel using a recognized method such as metes and bounds, lot and block, or the rectangular survey system. A street address alone is generally insufficient for a conveyance.

The lot-and-block (recorded plat) method of legal description is MOST commonly used for:

• a.Large rural ranches described by natural landmarks and directional bearings
• b.Government-owned land parceled out under the rectangular survey system
• c.Condominium air-space units defined by their vertical elevation only
• d.Lots in a recorded subdivision plat filed in the county real property records✓

The lot-and-block method references a subdivision plat recorded in the county records, identifying a parcel by its lot and block numbers. Metes and bounds and the rectangular survey system are used for other situations, such as irregular or rural tracts.

A buyer discovers, after the option period ends, that the seller knew about and concealed a serious foundation defect not disclosed in the Seller's Disclosure Notice. The buyer may have a claim for:

• a.A commission refund from the buyer's own agent for failing to find the defect
• b.Nothing, because the option period has ended and all seller duties have expired
• c.Misrepresentation or fraud, because the seller concealed a known material defect✓
• d.Automatic cancellation of the buyer's mortgage by the lender at no cost

A seller who knowingly conceals a material defect can be liable for misrepresentation or fraud even after the option period, because the duty to disclose known material defects is not erased by an 'as-is' clause. The buyer may seek remedies such as damages or rescission.

A 'bilateral' purchase contract is distinguished from a 'unilateral' contract in that a bilateral contract:

• a.Consists of a mutual exchange of promises that binds both parties to perform✓
• b.Requires only one party to make a promise, which the other accepts by an act
• c.Never requires any consideration to pass between the contracting parties
• d.Must always be recorded in the county records before it becomes effective

A bilateral contract, like a typical purchase agreement, is a promise for a promise binding both parties. A unilateral contract is a promise exchanged for an act, such as an open listing where the broker earns a commission only by producing a buyer.

If a buyer assigns the purchase contract to a third party but the contract contains no release of the original buyer, the original buyer generally:

• a.May remain secondarily liable to the seller if the assignee fails to perform✓
• b.Forfeits the earnest money to the assignee as a fee for taking the contract
• c.Is fully released from all obligations the moment the assignment is signed
• d.Automatically becomes the seller's agent for the remainder of the transaction

A mere assignment transfers the buyer's rights but does not by itself release the original buyer from liability; that release requires a novation. Without a novation, the original buyer can remain secondarily liable if the assignee defaults.

'Liquidated damages' in a real estate contract are:

• a.An amount the parties agree in advance will be the damages if a party defaults✓
• b.The actual out-of-pocket losses proven in court after a lengthy trial
• c.The interest a lender charges when a borrower makes a payment late
• d.A cash bonus voluntarily paid to the listing broker as a reward for closing the transaction unusually quickly

Liquidated damages are a sum the parties fix in advance as the measure of damages for a breach, often the earnest money in residential contracts. They avoid the need to prove actual damages in court.

Which of the following would MOST likely make a real estate contract void rather than merely voidable?

• a.One party signed while under significant but lawful economic pressure
• b.One party was induced to sign by the other party's fraudulent statements
• c.The stated purpose of the contract is an illegal activity prohibited by law✓
• d.One party was a minor at the time both parties signed the agreement

A contract with an illegal purpose is void from the outset because courts will not enforce an unlawful agreement. Contracts involving a minor, fraud, or duress are typically voidable at the option of the protected party, not automatically void.

The parol evidence rule generally prevents a party from using:

• a.An electronic signature to accept the terms of a written offer to purchase
• b.A recorded deed as evidence of the true ownership of the property
• c.Prior oral agreements to contradict the terms of a complete, written contract✓
• d.A professional survey to establish the exact recorded boundaries of the parcel of land being sold

The parol evidence rule bars using prior or contemporaneous oral statements to contradict a fully integrated written contract. It protects the reliability of the signed writing that the parties agreed represents their final bargain.

A buyer and seller orally agree on the sale of a home, shake hands, but never sign anything. Under the statute of frauds, the agreement is generally:

• a.Fully enforceable, because a handshake is a legally binding acceptance of the offer
• b.Enforceable only against the buyer, but never enforceable against the seller
• c.Unenforceable, because contracts conveying real estate must be in writing and signed✓
• d.Automatically converted into a 90-day option contract in the buyer's favor

Because the statute of frauds requires real estate sale contracts to be in writing and signed, a purely oral agreement is generally unenforceable. A handshake does not satisfy the writing requirement.

An 'as-is' provision in the TREC contract means the buyer accepts the property in its present condition, but it does NOT:

• a.Prevent the buyer from negotiating repairs before the contract is signed
• b.Relieve the seller of the duty to disclose known material defects of the property✓
• c.Change the fact that the buyer bears the cost of the inspections that are ordered
• d.Allow the buyer to conduct inspections during the negotiated option period

An as-is clause means the seller need not make repairs, but it does not eliminate the seller's separate legal duty to disclose known material defects. Buyers may still inspect and may negotiate repairs before signing.

A quitclaim deed is often used to:

• a.Remove a possible cloud on title by releasing whatever interest a party may hold✓
• b.Provide the buyer the strongest possible warranties of clear and marketable title
• c.Guarantee that the grantor will defend the grantee against all future claims
• d.Serve as the standard deed for arm's-length residential resale transactions

A quitclaim deed conveys only whatever interest the grantor may have, with no warranties, and is commonly used to clear clouds on title or release a possible claim. It is generally not used for arm's-length sales because it offers no title protection.

'Equitable title' passes to the buyer when a valid purchase contract is signed. This means the buyer:

• a.Immediately receives full legal title and may record a deed in the buyer's name
• b.Holds an ownership interest and the right to obtain legal title at closing✓
• c.May occupy and permanently possess the property before closing occurs
• d.No longer has any obligation to pay the remaining purchase price at closing

Upon a valid contract, the buyer gains equitable title, an ownership interest and the right to receive legal title at closing once obligations are met. Legal title itself does not transfer until the deed is delivered at closing.

A contract signed by a person who has been legally declared mentally incompetent is generally:

• a.Automatically converted into a lease for the benefit of that person
• b.Binding only on the competent party for a period of exactly one year
• c.Fully enforceable because the signature appears on the document
• d.Void or voidable because that party lacked the legal capacity to contract✓

Legal capacity is a required element of a valid contract, so an agreement signed by a person adjudicated incompetent is generally void or voidable. The law protects parties who lack the capacity to understand the transaction.

In the TREC residential contract, if a buyer fails to deliver the required earnest money on time, the seller may:

• a.Terminate the contract or exercise the remedies the contract provides for that failure✓
• b.Report the buyer to TREC to have the buyer's driver's license suspended
• c.Automatically keep the buyer's option fee as damages plus double the sales price
• d.Force the buyer's lender to close the loan despite the missing earnest money

The contract treats the timely delivery of earnest money as an obligation, and a failure to deliver it can allow the seller to terminate or pursue the contract's stated remedies. It does not create penalties or license consequences unrelated to the contract.

The 'closing' (settlement) of a residential real estate transaction is BEST described as the point at which:

• a.Documents are signed, funds are disbursed, and the deed is delivered to transfer ownership✓
• b.The buyer submits the initial written offer to the seller for review and possible acceptance through the listing agent
• c.The property is first listed for sale in the multiple listing service
• d.The buyer's loan application is first received and reviewed by the lender

Closing is the culmination of the transaction, when documents are executed, funds are disbursed, and the deed is delivered, transferring ownership to the buyer. Making an offer, applying for a loan, and listing the property all occur earlier.