Texas Real Estate Sales Agent — All Questions

A seller instructs the listing agent not to show the home to families with children. The agent should:

• a.quietly comply in order to keep the client satisfied
• b.show the home only to prospective buyers without children
• c.refuse, because complying would violate fair housing law✓
• d.raise the asking price to discourage families from applying

Refusing to show or sell to families with children is discrimination based on familial status. An agent may not follow an unlawful instruction, and doing so would expose both the agent and the seller to liability.

Under Texas law, a death on a property that resulted from natural causes, suicide, or an accident unrelated to the property's condition is generally:

• a.always required to be disclosed on the Seller's Disclosure Notice
• b.not a required disclosure✓
• c.a federal Fair Housing Act violation if it is ever concealed
• d.grounds for automatic revocation of the agent's license if mentioned

Texas law provides that a seller or license holder is not required to disclose a death by natural causes, suicide, or an accident unrelated to the property's condition, nor that a prior occupant had HIV/AIDS. Known material defects, however, must still be disclosed.

Even when representing the seller, a Texas license holder must disclose to a buyer:

• a.known material defects in the property✓
• b.the seller's personal reasons for moving away
• c.the details of the seller's private financial hardship
• d.the seller's lowest acceptable sale price

A license holder must disclose known material defects to a buyer even while representing the seller. The seller's confidential information, such as bottom-line price or motivation, must not be revealed.

When a buyer asks a Texas agent about registered sex offenders in the area, the agent should generally:

• a.refuse to discuss the topic and terminate the relationship
• b.guess based on the agent's personal knowledge of the neighbors so long as the transaction is closed through a licensed brokerage firm
• c.direct the buyer to the publicly available sex-offender registry✓
• d.promise the buyer that there are none nearby to reassure them

Rather than risk inaccurate statements, an agent should refer buyers to the public sex-offender registry so they can research the information themselves. Making unverified assurances could create liability.

An agency relationship between a broker and a client may terminate by all of the following EXCEPT:

• a.the expiration of the term stated in the agreement
• b.the mutual agreement of the broker and the client
• c.the completion of the transaction the agency was created for
• d.the buyer simply attending another agent's open house✓

Agency ends by expiration, mutual agreement, completion of purpose, revocation, or operation of law (such as death). A client's casual visit to an open house does not, by itself, end an existing agency relationship.

A written buyer representation agreement in Texas primarily serves to:

• a.establish the agency relationship and the broker's authority to represent the buyer✓
• b.transfer legal title of a home to the buyer immediately
• c.waive the buyer's right to have the property inspected
• d.guarantee the buyer a specific fixed mortgage interest rate regardless of the particular county in which the property is located

A buyer representation agreement creates the agency relationship, defines the broker's authority and duties, and addresses compensation. It clarifies that the broker represents the buyer's interests.

A sales agent whose license has expired and has not been renewed may:

• a.continue working for six months under the expired license according to the standard practice followed throughout the industry
• b.operate independently without a sponsoring broker at all
• c.sponsor and supervise other newly licensed sales agents
• d.not perform brokerage activities or be paid a commission until it is reinstated✓

An expired license means the agent cannot lawfully perform brokerage activities or be compensated for them until the license is renewed or reinstated. Acting without an active, sponsored license is a violation.

TREC rules on team names generally require that a team advertisement:

• a.omit the broker's name entirely in order to save space
• b.include the sponsoring broker's name and not imply the team is a separate brokerage✓
• c.use the word 'realty' or 'brokerage' within the team name
• d.be registered with the state as its own independent company because the governing statute is generally understood to require that result

A team may advertise under a team name, but the ad must include the sponsoring broker's name and must not mislead the public into thinking the team is a separate brokerage. This keeps responsibility with the broker.

A title company offers a Texas agent a cash bonus for every client the agent refers to it. Accepting this is:

• a.acceptable as long as the amount is disclosed only to TREC
• b.a standard and completely lawful marketing arrangement
• c.likely a prohibited kickback under RESPA and TREC rules✓
• d.permissible whenever the individual bonus is under five hundred dollars

Paying or receiving a fee simply for referring settlement-service business is a prohibited kickback under RESPA, and TREC rules also restrict such arrangements. Referral relationships must comply with these anti-kickback laws.

The fiduciary duties a Texas agent owes a client are sometimes remembered as 'OLD CAR.' Which set correctly reflects those duties?

• a.Ownership, leasing, deeds, closing, appraisal, and recording unless the parties specifically negotiate a written exception beforehand
• b.Obedience, listing, deed, care, advertising, and referral
• c.Obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care✓
• d.Offer, listing, disclosure, contract, agency, and referral

The common 'OLD CAR' memory aid stands for Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care (diligence). These are the core fiduciary duties an agent owes a principal.

When a Texas license holder lists and sells their own home, they must:

• a.disclose their status as a licensed real estate agent to prospective buyers✓
• b.obtain special written permission from the Governor first
• c.hide the license status in order to obtain a higher sale price
• d.hire an unlicensed friend to handle the entire sale instead

A license holder acting on their own account must disclose in writing that they hold a real estate license. This informs the other party that they are dealing with someone who has professional knowledge.

An advertisement that fails to disclose that the person placing it is a real estate broker or agent is called a:

• a.net listing agreement with the seller
• b.comparative market analysis of the listing
• c.blind ad, which is prohibited✓
• d.procuring-cause notice to other brokers

A 'blind ad' conceals that a license holder placed it, which is prohibited because consumers must know they are dealing with a real estate professional. Ads must identify the broker.

TREC generally requires Texas brokers to keep transaction and trust-account records for at least:

• a.one week following each completed transaction
• b.the entire life of the broker's license only
• c.four years✓
• d.thirty days after each closing occurs

TREC rules require brokers to retain relevant records, including trust account records and transaction files, for at least four years. Proper recordkeeping supports audits and dispute resolution.

A Texas agent's social media post states, 'Buy now, this neighborhood is guaranteed to double in value in two years.' This claim is:

• a.a required disclosure under the Truth in Lending Act
• b.improper because it is a misleading, unsubstantiated guarantee✓
• c.acceptable sales puffing that has no limits at all
• d.protected commercial speech that TREC has no power to address

Guaranteeing future value increases is a misleading, unsubstantiated claim that violates TREC's prohibition on false or deceptive advertising. Agents must not promise investment results they cannot support.

The Texas Seller's Disclosure Notice is required by:

• a.the federal Fair Housing Act's advertising provisions according to the standard practice followed throughout the industry
• b.TREC rules that apply only to commercial buildings
• c.the buyer's mortgage lender at the closing table
• d.Texas Property Code Section 5.008, for most sales of residential property with not more than one dwelling unit✓

Section 5.008 of the Texas Property Code requires sellers of most residential real property with not more than one dwelling unit to give the buyer a written notice of the property's condition. Certain transfers are exempt.

The Seller's Disclosure Notice in Texas is:

• a.a binding guarantee that the property has no defects of any kind
• b.an optional form that sellers may skip in every residential transaction
• c.a document that must be prepared and certified by a licensed appraiser
• d.based on the seller's actual knowledge and is not a warranty or a substitute for inspections✓

The disclosure reflects the seller's actual knowledge of the property's condition; it is not a warranty and does not replace the buyer's own inspections. Buyers should still hire inspectors before closing.

If a Texas seller fails to provide the required Seller's Disclosure Notice on or before the effective date of the contract:

• a.the seller owes an automatic ten-thousand-dollar fine to TREC
• b.the buyer may terminate the contract for any reason within seven days after receiving the notice✓
• c.the buyer must still close on the property with no remedy at all according to the standard practice followed throughout the industry
• d.the sale automatically becomes void and cannot be revived

Under Section 5.008, if the notice is delivered late, the buyer may terminate the contract for any reason within seven days after receiving it. This protects buyers who did not have the disclosure before contracting.

Which transfer is generally EXEMPT from the Texas Seller's Disclosure Notice requirement?

• a.A typical resale of an occupied three-bedroom suburban home
• b.A sale by a trustee in a foreclosure or by an executor administering a deceased owner's estate✓
• c.A standard sale between two unrelated private individuals
• d.A sale of a previously lived-in condominium unit

Section 5.008 exempts certain transfers, including foreclosure/trustee sales, transfers by an executor or administrator of an estate, transfers between co-owners or spouses, and new residences never previously occupied. Ordinary resales of used homes are not exempt.

Federal law requires that buyers of most housing built before 1978 receive:

• a.a radon mitigation completion certificate signed by a contractor in essentially every residential and commercial transaction alike
• b.a written asbestos removal guarantee from the seller
• c.the EPA/HUD pamphlet 'Protect Your Family From Lead in Your Home'✓
• d.a FEMA flood elevation certificate for the structure

The federal lead-based paint rule requires sellers and landlords of most pre-1978 housing to give buyers the lead pamphlet, a disclosure form, and any known information about lead hazards. Lead paint was banned for residential use in 1978.

Under the federal lead-based paint rule, buyers of most pre-1978 homes must be given:

• a.a written guarantee that no lead is present in the home
• b.a 10-day period (unless waived) to conduct a lead-based paint inspection or risk assessment✓
• c.a thirty-day free warranty covering all painted surfaces
• d.a three-day right to rescind any signed purchase contract in essentially every residential and commercial transaction alike

The rule gives buyers a 10-day opportunity (which may be shortened or waived by mutual agreement) to conduct a lead-based paint inspection or risk assessment before becoming obligated. It does not guarantee the home is lead-free.

Asbestos is best described as:

• a.a naturally occurring radioactive gas that seeps in from soil
• b.lead-based paint that was applied to walls before 1978
• c.a material once used in insulation and flooring that poses a health risk when its fibers become airborne✓
• d.a type of mold that grows on damp basement surfaces

Asbestos was widely used in insulation, floor and ceiling tiles, and other building materials, and it can cause serious lung disease when disturbed fibers become airborne. Intact, undisturbed asbestos is often managed in place rather than removed.

Indoor mold growth in a home is most commonly caused by:

• a.excess moisture and water intrusion✓
• b.chipping and peeling of old lead-based paint
• c.leaking underground storage tanks on the site
• d.the presence of naturally occurring radon gas

Mold needs moisture to grow, so leaks, flooding, and high humidity are the usual causes. Controlling water intrusion and drying affected areas are the keys to preventing and remediating mold.

A potential source of soil and groundwater contamination that buyers of a former gas station or farm should investigate is:

• a.the residence homestead tax exemption
• b.an appurtenant easement benefiting the parcel
• c.a shared party wall between two buildings
• d.an underground storage tank (UST)✓

Underground storage tanks, common at former fuel stations and farms, can leak and contaminate soil and groundwater, creating cleanup liability. Buyers of such sites often conduct environmental assessments to check for tanks.

The federal 'Superfund' law, known as CERCLA:

• a.governs the content and format of TREC contract forms
• b.can impose liability for hazardous-substance cleanup on current and past property owners✓
• c.sets the maximum real estate commissions that brokers may charge even when the buyer and seller would clearly have preferred a different arrangement
• d.requires flood insurance on every home in the United States

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) can impose strict, and sometimes retroactive, cleanup liability on current and former owners and operators of contaminated property. This makes environmental due diligence important.

Recent additions to the Texas Seller's Disclosure Notice require sellers to disclose:

• a.the exact commission rate the listing agent will earn
• b.the amount of the buyer's mortgage loan pre-approval
• c.the seller's personal credit score and debt balances
• d.whether the property is located in a 100-year floodplain or has previously flooded✓

Texas has expanded the Seller's Disclosure Notice to require flood-related disclosures, such as whether the property is in a floodplain or has flooded before. These help buyers understand flood risk and insurance needs.

In appraisal, 'highest and best use' refers to:

• a.the most expensive improvement an owner could build regardless of zoning
• b.whichever use the current seller happens to prefer at the time
• c.the legally permitted, physically possible, and financially feasible use that yields the highest value✓
• d.whatever the property is currently being used for in every case

Highest and best use is the reasonably probable use that is legally permissible, physically possible, financially feasible, and maximally productive. It sets the framework an appraiser uses to estimate value.

The appraisal principle of substitution holds that:

• a.a buyer will pay no more for a property than the cost of an equally desirable substitute✓
• b.land can never be valued separately from its improvements
• c.a property's value must always equal its original construction cost
• d.older homes are always worth more than newly built homes

The principle of substitution states that a prudent buyer will not pay more than the cost of acquiring an equally desirable substitute property. It underlies the sales comparison approach to value.

The principle of conformity suggests that:

• a.unique, one-of-a-kind homes always command the highest possible price
• b.value decreases as a neighborhood becomes more uniform over time
• c.conformity among nearby properties has no effect on market value
• d.a property reaches maximum value when it conforms in size and style to surrounding properties✓

Under the principle of conformity, properties tend to achieve maximum value when they are similar in style, size, and use to those around them. Homes that are very different from their neighbors may be harder to value or sell.

The principle of contribution explains why:

• a.the principle applies only to commercial and not residential property
• b.every dollar spent on remodeling adds exactly one dollar of value
• c.an improvement adds value based on its contribution to the whole, which may differ from its cost✓
• d.land always contributes more value than any improvements do

The principle of contribution holds that a component's value is measured by how much it adds to the total property value, not by what it cost. Over-improvements may cost more than the value they contribute.

The appraisal principle of anticipation states that value is influenced by:

• a.the seller's personal emotional attachment to the home
• b.the expectation of future benefits from owning the property✓
• c.the original purchase price the seller paid decades earlier
• d.the total number of prior owners the property has had

Anticipation holds that value is created by the expectation of future benefits, such as income, appreciation, or amenities. Buyers pay for what they expect to receive going forward.

Under the principle of supply and demand, property prices tend to:

• a.depend only on the construction cost of the improvements
• b.stay completely constant regardless of market conditions
• c.rise when demand exceeds available supply and fall when supply exceeds demand✓
• d.be set entirely by the local government's tax office

Supply and demand strongly influence real estate prices: scarce supply with strong demand pushes prices up, while excess supply with weak demand pushes prices down. Real estate markets are also local and cyclical.

Depreciation caused by ordinary wear and tear, weathering, and the aging of the structure is called:

• a.physical deterioration✓
• b.functional obsolescence caused by outdated design
• c.economic appreciation resulting from market growth
• d.external obsolescence caused by off-site factors

Physical deterioration is loss in value from wear and tear, aging, and the elements. It may be curable (such as repainting) or incurable (such as major structural aging), depending on cost versus value added.

Depreciation is considered 'curable' when:

• a.the defect can never be repaired under any circumstances
• b.the cost to repair the item is less than the value the repair adds✓
• c.the property being appraised is brand-new construction
• d.the cause of the loss is located entirely off the property regardless of the particular county in which the property is located

A curable item is one where the cost to fix it is justified by the value it restores or adds. If repair costs exceed the added value, the depreciation is considered incurable.

A gross rent multiplier (GRM) is calculated by:

• a.subtracting operating expenses from the property's gross income
• b.multiplying the tax rate by the property's assessed value
• c.dividing a property's sales price by its rental income✓
• d.dividing net operating income by the market capitalization rate

The GRM equals sales price divided by rent (monthly or annual, applied consistently). It is a quick screening tool for income property, though the income capitalization approach using net operating income is more precise.

Which statement about valuation tools is correct?

• a.A broker price opinion (BPO) is the same thing as a certified appraisal even when the buyer and seller would clearly have preferred a different arrangement
• b.A CMA and a formal appraisal are legally identical documents
• c.Only a licensed or certified appraiser may perform an appraisal used for a federally related mortgage loan✓
• d.Any sales agent may perform an appraisal for a bank's loan file

Appraisals used for federally related mortgage loans must be prepared by a licensed or certified appraiser following USPAP. A CMA or BPO by a real estate agent helps with pricing but is not a formal appraisal.

In the sales comparison approach, if a comparable property has a feature superior to the subject (such as an extra garage), the appraiser will:

• a.ignore the difference between the two properties entirely
• b.subtract value from the comparable's sale price✓
• c.adjust the value of the subject property upward to match
• d.add value to the comparable's sale price instead

Appraisers adjust the comparables, not the subject. When a comparable is superior, its price is adjusted downward (subtracted) so it better reflects the subject; when a comparable is inferior, its price is adjusted upward.

The 'assessed value' of a property is:

• a.the amount that a lender will always agree to finance
• b.always exactly equal to the property's most recent sales price according to the standard practice followed throughout the industry
• c.a figure set informally by the property's listing agent
• d.the value used for property tax purposes, which may differ from market value✓

Assessed value is the value assigned by the taxing authority (the appraisal district in Texas) for calculating property taxes. It can differ from market value or the appraised value used for lending.

Before a Texas property manager begins managing an owner's rental, the parties should sign:

• a.a listing agreement whose purpose is to sell the property
• b.a lease that names the property manager as the tenant
• c.a property management agreement that establishes the manager as the owner's agent✓
• d.a deed that transfers title of the property to the manager

A property management agreement creates the agency relationship, defines the manager's authority and compensation, and sets out duties. The manager acts as the owner's fiduciary in operating the property.

Rents and security deposits a Texas property manager collects on the owner's behalf must generally be kept:

• a.in a separate trust or escrow account, not commingled with the manager's own funds✓
• b.mixed together with the brokerage's general operating money
• c.as loose cash stored in a safe at the management office
• d.in the manager's personal checking account for everyday convenience

Client funds such as rents and deposits must be held in a proper trust or escrow account separate from the manager's own money. Commingling trust funds with personal or business funds is a violation.

Under the Texas Property Code, a landlord must generally refund a residential security deposit (less lawful deductions):

• a.within just seven days of the tenant's move-out date
• b.within six months after the lease was first signed
• c.within 30 days after the tenant surrenders the premises✓
• d.only if the tenant files a lawsuit to demand it

A Texas landlord must refund the security deposit, minus any lawful deductions, within 30 days after the tenant surrenders the premises, typically when a forwarding address is provided. Wrongful retention can expose the landlord to penalties.

Under the Texas Property Code, a residential landlord generally must:

• a.make a diligent effort to repair conditions that materially affect health or safety after proper notice✓
• b.renovate the entire unit every single year regardless of condition unless the parties specifically negotiate a written exception beforehand
• c.pay all of the tenant's monthly utility bills for them
• d.provide free cable television service to every tenant

Texas landlords have a statutory duty to make a diligent effort to repair conditions that materially affect the physical health or safety of an ordinary tenant, once the tenant gives proper notice and is not delinquent in rent.

The difference between an assignment and a sublease of a lease is that:

• a.a sublease transfers ownership of the entire building to another
• b.a sublease transfers part of the tenant's interest, while an assignment transfers the entire remaining term✓
• c.the two terms mean exactly the same thing in practice
• d.only an assignment requires the tenant to continue paying rent

In an assignment, the tenant transfers the whole remaining leasehold interest to another party; in a sublease, the tenant transfers only part of it and retains a reversionary interest. Leases often restrict both without the landlord's consent.

Under Texas law, a landlord generally may NOT:

• a.retaliate against a tenant for making a good-faith complaint about needed repairs✓
• b.enforce a valid no-pets clause that is written in the lease
• c.collect a lawful security deposit at the start of the lease
• d.require that rent be paid on the first day of each month

Texas prohibits retaliation, such as raising rent, decreasing services, or evicting, against a tenant who in good faith exercises a legal right like requesting repairs. Legitimate lease terms and deposits remain enforceable.

To lawfully remove a Texas tenant who has defaulted, a landlord must generally:

• a.change the locks and remove the tenant's belongings immediately as a matter of long-standing real estate custom and common-law tradition
• b.file a forcible detainer (eviction) suit in justice court after giving proper notice to vacate✓
• c.personally escort the tenant off of the property by force
• d.shut off the tenant's utilities to force them to leave

Texas requires landlords to use the legal eviction process, starting with a written notice to vacate and, if needed, a forcible detainer suit in justice court. 'Self-help' evictions such as lockouts or utility shutoffs are unlawful in most cases.

In a typical Texas closing, the title company:

• a.represents the buyer in the transaction as their attorney
• b.guarantees to the buyer that their loan will be approved
• c.acts as a neutral escrow agent that holds funds and documents and issues the title policy✓
• d.personally sets the final sales price of the property

In Texas, the title company commonly serves as the neutral escrow and settlement agent, holding earnest money and closing funds, preparing settlement statements, and issuing title insurance. It does not represent either party as an advocate.

Under the TILA-RESPA Integrated Disclosure (TRID) rule, the lender must deliver the Closing Disclosure to the borrower:

• a.only if the borrower specifically requests to see it
• b.on the day of closing, right at the settlement table
• c.at least three business days before consummation (closing) of the loan✓
• d.no sooner than thirty days after the closing has occurred because the governing statute is generally understood to require that result

TRID requires that the borrower receive the Closing Disclosure at least three business days before consummation, giving time to review final loan terms and costs. Certain significant changes can restart the three-day period.

At closing, 'proration' refers to:

• a.dividing shared expenses such as property taxes fairly between buyer and seller as of the closing date✓
• b.the process of recording the new deed at the courthouse
• c.the lender's final approval of the buyer's mortgage loan
• d.the buyer's final walkthrough inspection before closing

Proration allocates ongoing costs like property taxes, HOA dues, and prepaid items between buyer and seller based on the closing date. Because Texas taxes are paid in arrears, the seller typically credits the buyer for taxes accrued during the seller's ownership.

A title commitment issued before a Texas closing is:

• a.a document showing the current state of title and the conditions under which the title company will insure it✓
• b.the deed that actually transfers ownership to the buyer
• c.a survey drawing that maps the property's boundary lines
• d.the buyer's loan application submitted to the mortgage lender

A title commitment (or commitment for title insurance) discloses the current condition of title, including liens, easements, and exceptions, and states the requirements to issue the policy. Buyers should review it carefully before closing.

After a Texas closing, the deed is typically:

• a.returned to the seller for the seller's own records
• b.filed with TREC rather than the county clerk's office according to the standard practice followed throughout the industry
• c.recorded in the county real property records to give public (constructive) notice of the new ownership✓
• d.kept secret and hidden away by the new buyer

Recording the deed in the county real property records provides constructive notice of the transfer and protects the buyer's priority against later claims. Recording is not required to make the deed valid between the parties, but it is strongly advisable.

When the buyer becomes entitled to take possession of the property is:

• a.specified in the contract, commonly upon funding and closing unless the parties agree otherwise✓
• b.a matter that is never addressed in the sales contract so long as the transaction is closed through a licensed brokerage firm
• c.whenever the buyer personally decides to move in
• d.always exactly thirty days after the closing date

Possession is a contract term; in Texas it is commonly delivered upon funding and closing, but the parties may agree to a temporary lease (leaseback or buyer possession before closing). The contract's possession provision controls.