Valuation, Disclosure, Fair Housing, and Property Management
This chapter brings together the practical skills of estimating value, complying with disclosure and fair housing laws, and managing property. Agents use market data to help price listings, must avoid discriminatory practices, and often assist with rentals and investment property. Fair housing and environmental rules carry serious penalties, so compliance is essential. Statutory amounts, protected classes, and disclosure timelines can vary by jurisdiction and change over time, so always confirm current federal, Texas, and TREC requirements.
Approaches to Value
Value is not the same as price or cost, and agents must speak carefully about all three: value is the present worth of future benefits, price is what a property actually sold for, and cost is what it takes to create or replace it. Appraisers, and agents preparing pricing advice, estimate value using three established approaches, each suited to different property types. The sales comparison approach, also called the market data approach, estimates value by comparing the subject property to recent sales of similar nearby properties, then adjusting each comparable up or down for differences in size, condition, location, and features; the adjustments are always made to the comparables, never to the subject, and this approach is the most common and most reliable for single-family homes because active markets provide good data. The cost approach estimates value as the current cost to build a comparable structure new, minus accrued depreciation from all causes, plus the value of the land as if vacant; it is most useful for new construction and for special-purpose properties such as schools, churches, or government buildings where comparable sales are scarce. The income approach converts the income a property produces into an estimate of value; the appraiser calculates the net operating income (income after operating expenses but before debt service) and divides it by a capitalization rate that reflects the return investors require, so value equals NOI divided by the cap rate. This approach is used for rental and commercial property. A licensed appraiser weighing all three approaches will reconcile them into a final opinion of value, giving the most weight to the approach best supported by the data for that property type. Agents must respect an important boundary here: the comparative market analysis, or CMA, that an agent prepares to help a seller set a list price or a buyer frame an offer is an informal estimate based on comparable listings and sales, and it is not a formal appraisal. Only a licensed or certified appraiser may perform an appraisal, which is the independent valuation lenders rely on to decide how much they will lend. Agents should never call a CMA an appraisal or represent themselves as appraisers, and should recommend a professional appraisal when a formal value opinion is needed.
Principles Affecting Value
Beyond the three approaches, appraisers and agents rely on a set of economic principles that explain why properties are worth what they are, and the exam tests these by scenario. The principle of supply and demand holds that value rises when demand outpaces supply and falls when supply outpaces demand. The principle of substitution, which underlies the sales comparison approach, holds that a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute. The principle of highest and best use holds that land is valued according to its most profitable legal use, which is why a well-located house may be worth more as a commercial site. The principle of conformity holds that maximum value is achieved when properties are reasonably similar in size and style, and it gives rise to two closely tested ideas: progression and regression. Under progression, a lower-value home benefits in value from being surrounded by higher-value homes, so the modest house on the block of mansions is pulled upward. Under regression, a higher-value home is dragged down by being surrounded by lower-value homes, so over-improving beyond the neighborhood rarely pays back the cost. Value is also reduced by depreciation, which is any loss in value from any cause, and you should know its three forms. Physical deterioration is loss of value from wear and tear, aging, or damage, such as a worn roof or a cracked driveway, and it may be curable if the repair adds at least as much value as it costs, or incurable if it does not. Functional obsolescence is loss of value from outdated design or undesirable features within the property itself, such as a poor floor plan, too few bathrooms, or a one-car garage in a market that expects two; it too can be curable or incurable. External (economic) obsolescence is loss of value caused by negative factors outside and beyond the boundaries of the property, such as a new highway, a noisy factory, or a declining local economy; because the owner cannot control the off-site cause, external obsolescence is generally considered incurable. Distinguishing which form of depreciation a scenario describes, especially separating internal functional problems from external neighborhood problems, is a common exam skill.
Fair Housing Law
Fair housing law is a core professional and ethical duty, and violations bring severe civil penalties plus TREC license discipline, so agents must know it cold. The federal Fair Housing Act, part of the Civil Rights Act of 1968 and its amendments, prohibits discrimination in the sale, rental, financing, and advertising of housing based on protected classes. The seven federally protected classes are race, color, religion, national origin, sex, disability (handicap), and familial status, which protects families with children under 18 and pregnant persons. Sex has been interpreted to include protection against discrimination based on sexual orientation and gender identity, and Texas and local ordinances may add further protected classes, so agents should confirm the current list for their area. Race discrimination is additionally barred, without the exemptions some other categories allow, by the older Civil Rights Act of 1866. The law prohibits specific practices that agents must be able to identify. Steering is directing prospective buyers or renters toward or away from particular neighborhoods based on a protected class, thereby limiting their housing choices, and it is illegal even when the agent believes it is helpful. Blockbusting, also called panic selling, is inducing owners to sell or rent by suggesting that members of a protected class are moving into the area and will lower property values or change the neighborhood. Redlining is a lender's or insurer's illegal refusal to lend or insure, or the imposition of worse terms, in particular geographic areas based on the racial or ethnic composition of those areas rather than the merits of the individual applicant or property. Other prohibited acts include refusing to make a reasonable accommodation in rules or policies for a person with a disability, refusing to permit reasonable modifications, and discriminatory advertising that states a preference or limitation based on a protected class. There are narrow exemptions, such as certain owner-occupied buildings of four or fewer units and qualified housing for older persons, but these exemptions never apply to a licensed agent's conduct and never permit race discrimination or discriminatory advertising. Because protected classes and enforcement details can change, always follow current federal, Texas, and local fair housing requirements and apply the same professional service to every client.
Disclosure and Environmental Concerns
Sellers and their agents must disclose known material information about a property and comply with environmental laws, and Texas has a specific statutory disclosure requirement agents should know by name. Under Texas Property Code Section 5.008, the seller of most residential property of not more than one dwelling unit must give the buyer a written Seller's Disclosure Notice describing the property's condition and any known defects, based on the seller's actual knowledge; the statute contains the form language and lists exceptions, such as certain sales by an executor, trustee, or lender. The seller completes the notice, not the agent, but the agent must ensure it is delivered and must never help conceal or misstate a known defect, because doing so exposes both seller and agent to liability for misrepresentation. Separate from the state form, a critical federal rule governs lead-based paint: for most housing built before 1978, federal law requires the seller or landlord to disclose known lead-based paint and hazards, provide any relevant records and an EPA-approved information pamphlet, and give a purchaser a period (commonly ten days, though the parties may agree otherwise) to conduct a lead inspection or risk assessment; a Lead-Based Paint Addendum documents this in the transaction. Agents should also recognize common environmental hazards even though they are not experts on them. Radon is a naturally occurring, colorless, odorless radioactive gas that can seep from the ground and accumulate to unhealthy levels inside a home, and it can be tested for and mitigated. Asbestos, once used in insulation and building materials, poses a risk when disturbed and its fibers become airborne. Mold can grow where moisture intrudes and may affect health and value. Underground storage tanks, formaldehyde, and contaminated groundwater are other concerns agents may encounter. The prudent practice is to disclose what is known, recommend appropriate inspections, and refer clients to qualified environmental professionals rather than offering opinions beyond one's competence. Finally, Texas homestead protections shield a person's primary residence from forced sale by many types of creditors and reduce the property's taxable value through homestead exemptions; the specific exemption amounts, acreage limits, and creditor exceptions are set by the Texas Constitution and statutes and can change, so verify the current homestead figures rather than relying on a memorized number.
Property Management and Leases
Many agents manage rental property or advise investors, and doing so creates an agency relationship in which the property manager acts as the owner's fiduciary. The manager's core duty is to protect the owner's investment and maximize its return within the bounds of the law, which includes marketing vacancies, screening tenants lawfully, collecting rent, arranging maintenance and repairs, keeping accurate accounting records, and remitting funds to the owner under a written property management agreement. Every management activity must comply with fair housing law, so tenant screening standards must be applied consistently to all applicants and never used as a cover for discrimination. Managers must also understand the different lease types, because they allocate expenses between landlord and tenant in different ways. Under a gross lease, the tenant pays a fixed rent and the landlord pays most of the operating expenses such as taxes, insurance, and maintenance; this is the typical structure for residential apartments. Under a net lease, the tenant pays base rent plus some of the property expenses, and the common commercial variations (single, double, and triple net) shift progressively more of the taxes, insurance, and maintenance onto the tenant, with a triple net lease making the tenant responsible for all three. Under a percentage lease, common in retail, the tenant pays a base rent plus a percentage of gross sales above a set breakpoint, aligning the landlord's income with the tenant's business success. Leaseholds themselves come in recognized forms: an estate for years runs for a fixed term with a definite end date, a periodic tenancy renews automatically period to period until proper notice is given, a tenancy at will continues at the mutual pleasure of the parties, and a tenancy at sufferance arises when a tenant wrongfully holds over after the lease ends. Managers must also follow accessibility law. The Americans with Disabilities Act requires that places of public accommodation remove architectural barriers where readily achievable and provide reasonable access, and fair housing law requires reasonable accommodations and permitting reasonable modifications for residents with disabilities. Texas landlord-tenant law imposes specific duties, including rules on security deposits, such as the requirement to return the deposit (less lawful deductions with an itemized list) within a statutory number of days after the tenant surrenders the unit; because that deadline and other landlord-tenant figures are set by statute and can change, verify the current requirements in the Texas Property Code rather than relying on a memorized number.
Last updated: September 2026
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