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.

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 payment that replaces the down payment entirely
• d.A nonrefundable fee paid to the listing agent

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

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.Extend the closing date indefinitely
• d.Force the seller to make all requested repairs

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.It must always be oral
• c.Both parties exchange mutual promises to perform✓
• d.No consideration is exchanged

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

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

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

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

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

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

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

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.Known conditions and defects of the property✓
• d.The listing agent's commission

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

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.Ownership of the brokerage firm
• c.The assignor's rights under the contract to a third party✓
• d.Title to the real estate immediately

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

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

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.Assignment clause✓
• b.Defeasance clause
• c.Habendum clause
• d.Subordination 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.Warranty deed
• c.Title commitment
• d.Promissory note✓

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

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

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

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

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

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

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

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

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

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.Zoning of residential neighborhoods
• b.Closing (settlement) cost disclosures and prohibits kickbacks✓
• 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.Automatic transfer to the county
• b.A non-judicial trustee's sale✓
• c.A lengthy jury trial
• 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.Equitable right of redemption✓
• b.Statutory acceleration
• c.Right of subrogation
• d.Right of rescission

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.Takes over the seller's existing loan and its terms✓
• c.Is never personally liable for the debt
• d.Pays cash for the full purchase price

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.Property value divided by the loan amount
• b.Loan amount divided by the property's value or price✓
• 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.120%
• c.20%
• d.80%✓

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

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.License real estate agents
• d.Set property tax rates nationwide

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

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.Income approach
• b.Gross income approach
• c.Sales comparison approach
• d.Cost 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.An income-producing apartment building✓
• b.A historic monument
• c.A brand-new custom home
• d.A vacant lot

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

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

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.Directs prospective buyers toward or away from neighborhoods based on a protected class✓
• b.Charges different commissions to different sellers
• c.Refuses to make any loan
• 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.Setting minimum square footage requirements
• b.Requiring flood insurance
• c.Refusing to rent to families with children
• 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.1988
• c.2000
• d.1978✓

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

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

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.Set rents below market to fill vacancies quickly
• c.Personally guarantee rent payments
• d.Favor tenants over the owner

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.Ground lease
• b.Net lease
• c.Percentage lease
• d.Gross 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.Government office buildings only
• c.Vacant agricultural land
• d.Retail stores, where rent is partly based on sales✓

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.Only new construction comply with any rules
• b.Landlords pay for tenants' medical care
• c.All homes be wheelchair accessible
• 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.Appreciation
• b.Physical deterioration
• c.Functional obsolescence✓
• d.Economic (external) obsolescence

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

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

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

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

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

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.350 sq ft
• b.3,500 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.3 acres
• c.2 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.$800
• b.$1,200
• c.$4,800
• d.$2,400✓

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.50%
• b.25%
• c.20%✓
• d.15%

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

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

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

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.$180,500
• b.$200,000✓
• c.$199,500
• 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.$24,000
• c.$2,400,000
• d.$240,000✓

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

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

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

A legal description that identifies a parcel by starting at a point of beginning and following directions and distances around the boundary is known as the:

• a.Lot and block system used in recorded subdivision plats
• b.Rectangular (government) survey system of ranges and townships
• c.Metes and bounds description✓
• d.Street address and tax parcel identification number

Metes and bounds describes land by measured distances (metes) and directional boundaries (bounds), beginning and ending at a defined point of beginning. Texas relies heavily on metes and bounds and original land-grant abstracts rather than the rectangular survey system used in many other states.

A property described as 'Lot 7, Block C, Whispering Oaks Addition' is being identified using the:

• a.A metes and bounds description that traces each boundary by course and distance
• b.Lot and block (recorded plat) system✓
• c.The rectangular survey system that divides land into six-mile-square townships
• d.An informal reference that has no legal standing for conveying title

The lot and block system refers to a lot and block number on a subdivision plat recorded in the county map records. It is the most common method for describing platted urban and suburban lots.

In the rectangular (government) survey system, one section of land contains how many acres?

• a.43,560 acres, the same figure as square feet in an acre
• b.36 acres, one for each section in a township
• c.640 acres✓
• d.160 acres, which equals one quarter-section

A section is one square mile and contains 640 acres, and 36 sections make up a township. Texas mostly uses metes and bounds rather than this system, but the section-acre relationship is commonly tested.

Under the Texas Constitution, an urban homestead for a family is limited to a maximum of:

• a.1 acre, regardless of where the home is located
• b.200 acres of contiguous rural land
• c.10 acres✓
• d.100 acres, the limit that applies only to a single adult

An urban homestead is limited to 10 acres (in one or more contiguous lots) with improvements. A rural family homestead may be up to 200 acres, and a single adult's rural homestead up to 100 acres (Tex. Const. art. XVI, sec. 51).

Under Texas homestead law, a rural homestead for a family may include up to:

• a.640 acres, an amount equal to one section
• b.an unlimited number of acres as long as it is used for agriculture
• c.200 acres✓
• d.10 acres located within a city's limits

A rural homestead for a family may include up to 200 acres; for a single adult the limit is 100 acres. Urban homesteads are capped at 10 acres (Tex. Const. art. XVI).

Texas homestead protection shields a home from forced sale by most creditors, but it does NOT protect against a forced sale for:

• a.unpaid medical bills owed by the homeowner
• b.unpaid property taxes, a purchase-money loan, or a valid home-improvement lien✓
• c.a personal loan borrowed from a family member
• d.an unsecured judgment obtained by a credit card company as a matter of long-standing real estate custom and common-law tradition

Homestead protection has constitutional exceptions, including purchase-money (mortgage) liens, ad valorem property taxes, owelty of partition, valid mechanic's/home-improvement liens, home-equity loans, and reverse mortgages. General unsecured debts cannot force a homestead sale.

The Texas homestead exemption primarily protects a homeowner by:

• a.guaranteeing that the property can never be sold under any circumstances
• b.shielding the home from forced sale by most unsecured creditors✓
• c.providing a state grant that covers the homeowner's monthly mortgage payments
• d.eliminating the homeowner's duty to pay any property taxes on the residence

The homestead exemption protects a primary residence from forced sale by most unsecured creditors and also reduces the home's taxable value. It does not eliminate valid secured debts such as the mortgage or property taxes.

In Texas, property that one spouse owned before marriage or received during marriage by gift or inheritance is classified as:

• a.abandoned property that automatically passes to the state
• b.homestead property that is fully exempt from all taxes
• c.community property that is owned equally by both spouses
• d.separate property✓

Separate property includes what a spouse owned before marriage and anything received during marriage by gift, devise, or inheritance. It remains that spouse's own property and is not split equally like community property.

During a Texas marriage, wages earned by one spouse and deposited into a joint account are generally presumed to be:

• a.the separate property of the non-earning spouse
• b.exempt homestead property owned by neither spouse individually
• c.community property✓
• d.the separate property of the spouse who earned the wages

Texas presumes that property acquired by either spouse during the marriage, including earnings, is community property owned equally. The presumption can be overcome only by clear and convincing evidence that an asset is separate property.

In Texas, for community property to pass automatically to a surviving spouse with a right of survivorship, the spouses generally must:

• a.record a new deed within thirty days of the marriage
• b.obtain a court order before either spouse dies
• c.sign a written community property survivorship agreement✓
• d.do nothing, because survivorship is automatic for every married couple

Unlike joint tenancy, community property in Texas does not carry an automatic right of survivorship. Spouses must sign a written survivorship agreement for community property to pass to the survivor without probate (Texas Estates Code).

Two unrelated investors take title with no survivorship language, and each may leave their share to their own heirs. They most likely hold title as:

• a.tenants in common✓
• b.joint tenants with a right of survivorship
• c.community property owners with survivorship rights
• d.life tenants for the life of the older investor

Tenancy in common lets co-owners hold undivided interests that pass to their own heirs, with no survivorship. It is the default form of co-ownership when survivorship is not expressly created.

The right of an owner whose land borders a flowing river or stream to make reasonable use of that water is called:

• a.riparian rights✓
• b.littoral rights, which apply to land bordering an ocean, sea, or lake
• c.prior appropriation rights that are granted only by federal permit
• d.percolating rights, which are limited strictly to underground water

Riparian rights attach to land bordering a flowing watercourse such as a river or stream. Littoral rights, by contrast, belong to land abutting a static body of water such as a lake or the sea.

An owner whose property borders a lake or the ocean holds which type of water-related rights?

• a.Riparian rights, which are tied to flowing streams and rivers
• b.Prior appropriation rights that must be claimed from the state
• c.Prescriptive water rights acquired through long adverse use
• d.Littoral rights✓

Littoral rights belong to land bordering a static body of water such as a lake, sea, or ocean. Riparian rights, by contrast, apply to land along a flowing watercourse.

In Texas, when the mineral estate has been severed from the surface estate, the mineral estate is generally treated as:

• a.property that is automatically owned by the state of Texas
• b.subordinate to the surface estate in every case
• c.valueless unless the surface owner grants written permission each year
• d.the dominant estate, with an implied right to use the surface to extract minerals✓

In Texas the severed mineral estate is the dominant estate and carries an implied right to make reasonable use of the surface to explore for and produce minerals. This is a distinctive and heavily litigated feature of Texas property law.

A farmer sells standing timber to be cut and removed. Once it is severed from the land, the cut timber becomes:

• a.part of the mineral estate under the surface
• b.personal property✓
• c.a fixture belonging permanently to the buyer of the land
• d.an appurtenance that continues to pass with the real property

Severance converts real property (growing timber, which is part of the land) into personal property once it is detached. The reverse, annexation, can turn personal property into real property when it is permanently attached.

A right or benefit that belongs to and passes with the land, such as an easement benefiting the parcel, is called a(n):

• a.appurtenance✓
• b.trade fixture installed by a tenant to run a business
• c.chattel that the owner may remove from the property at will
• d.emblement, meaning an annually harvested cultivated crop

An appurtenance is a right or improvement that runs with the land and transfers with it, such as an easement appurtenant or water rights. It is distinct from personal property, which does not automatically pass with the real estate.

Annually cultivated crops that a tenant farmer has planted are known as emblements, meaning the tenant generally has the right to:

• a.re-enter and harvest the crop even after the lease ends✓
• b.claim ownership of the underlying farmland itself
• c.convert the crop into a permanent fixture of the real estate
• d.prevent the landlord from ever selling the farm

The doctrine of emblements lets a tenant who planted annual crops return to harvest them even after the tenancy ends, because the crops result from the tenant's labor. It applies to cultivated annual crops (fructus industriales), not to naturally growing vegetation.

Which of the following is a freehold estate?

• a.An estate for years created by a written one-year lease
• b.A fee simple estate✓
• c.A periodic tenancy that renews from month to month
• d.A tenancy at sufferance held by a holdover tenant

Freehold estates, such as fee simple and life estates, involve ownership of indefinite or lifetime duration. Leasehold estates, including estates for years and periodic tenancies, give possession for a limited time but not ownership.

A lease with a definite beginning and ending date, such as a 12-month apartment lease, creates a(n):

• a.tenancy at will that either party may terminate at any moment
• b.periodic tenancy that automatically renews until proper notice is given
• c.estate for years✓
• d.tenancy at sufferance that arises when a tenant wrongfully holds over

An estate for years has a fixed, definite term and ends automatically on the stated date without further notice. It does not have to last a year despite its name; the defining feature is a specified beginning and end.

A tenant whose lease has expired but who remains in possession without the landlord's permission holds a:

• a.tenancy at will that may be ended by mutual agreement
• b.periodic tenancy that renews automatically each month
• c.estate for years that continues under a fixed term
• d.tenancy at sufferance✓

A tenancy at sufferance arises when a tenant who once had lawful possession holds over after the lease ends without the landlord's consent. The landlord may treat the holdover as a trespasser or accept rent and create a new tenancy.

In a life estate, the person who receives full ownership of the property after the life tenant dies is the:

• a.creditor of the life tenant who holds a priority lien
• b.trustee who holds legal title on behalf of a lender
• c.grantor who had reserved a reversion interest for himself
• d.remainderman✓

A remainderman is named to take ownership when the life estate ends. If instead the property returns to the original grantor, that future interest is called a reversion.

A life estate that is measured by the life of someone other than the life tenant is called a life estate:

• a.in reversion that returns to the grantor
• b.in severalty that is owned by one person alone
• c.in remainder that passes to a named third party
• d.pur autre vie✓

A life estate pur autre vie is measured by the life of a person other than the holder. For example, a grant 'to A for the life of B' gives A a life estate that ends when B dies.

A judgment lien that attaches to all of a debtor's real property in a county is an example of a:

• a.voluntary lien that the owner intentionally created
• b.general lien✓
• c.specific lien that attaches only to one identified parcel
• d.mechanic's lien for unpaid construction work on one property

A general lien, such as a judgment or IRS tax lien, attaches to all of a debtor's property rather than one item. A specific lien, such as a mortgage or mechanic's lien, attaches only to a particular parcel.

A contractor who is not paid for labor and materials used to improve a property may file a:

• a.general judgment lien against all of the owner's assets everywhere
• b.deed of trust that conveys title of the property to the contractor
• c.lis pendens that immediately ends the underlying lawsuit
• d.mechanic's (constitutional or statutory) lien against the improved property✓

A mechanic's lien secures payment for labor or materials that improved a specific property. Texas recognizes both a constitutional mechanic's lien and a statutory lien with recording and notice requirements.

Among liens against a property, which generally takes priority regardless of when it was recorded?

• a.A mechanic's lien filed by an unpaid subcontractor
• b.A judgment lien arising from a separate lawsuit
• c.Property (ad valorem) tax liens✓
• d.The first mortgage lien that was recorded on the property

Ad valorem property tax liens are generally superior to other liens no matter when they attached, which is why unpaid taxes must be cleared at closing. Most other liens follow the 'first in time, first in right' recording rule.

A recorded notice that a lawsuit affecting title to a specific property is pending is called a:

• a.writ of execution that orders a sheriff's sale of the property
• b.subordination agreement that changes the priority of liens
• c.satisfaction of mortgage that releases the existing lien
• d.lis pendens✓

A lis pendens ('litigation pending') is a recorded notice warning that a pending lawsuit may affect title to the property. It gives constructive notice so that anyone acquiring an interest takes it subject to the outcome.

A landlocked parcel with no access to a public road may be granted a right of passage over a neighboring parcel through an easement by:

• a.necessity✓
• b.estoppel based on a spoken promise that was later denied
• c.prescription, acquired through open and hostile use over many years
• d.express grant that is recorded in a written deed only

An easement by necessity arises when a parcel would otherwise be landlocked, typically where a single tract was divided leaving one part without access. The law implies the easement so the land can be used.

An easement acquired by using another's land openly, continuously, and without permission for the period set by law is an easement by:

• a.condemnation that is exercised by a public utility company
• b.express reservation that is stated in the deed itself
• c.prescription✓
• d.necessity, which is created when a parcel becomes landlocked

A prescriptive easement is gained through open, notorious, continuous, and hostile (unpermitted) use for the statutory period. It creates a right to use, but not to own, another's land.

Permission to use another's land that is personal, revocable, and does not create an interest in the land is a:

• a.license✓
• b.fee simple determinable estate that may end on a stated event
• c.easement appurtenant that runs with the land to new owners
• d.profit that grants the right to remove resources from the land

A license is mere personal permission to do something on another's land and can be revoked at any time. Unlike an easement, it does not create a lasting interest in the land and does not transfer with the property.

In an easement appurtenant, the parcel that is burdened by and subject to the easement is the:

• a.life estate that is measured by the current owner's life
• b.leasehold estate that is held by a tenant
• c.dominant estate that benefits from the easement
• d.servient estate✓

The servient estate is the parcel burdened by the easement, while the dominant estate is the parcel that benefits from it. An easement appurtenant runs with the land and passes to future owners of both parcels.

The federal Fair Housing Act, as amended, protects seven classes. Which set correctly lists those protected classes?

• a.Sexual orientation, veteran status, and citizenship of the resident unless the parties specifically negotiate a written exception beforehand
• b.Race, color, religion, national origin, sex, disability, and familial status✓
• c.Race, color, religion, age, and marital status of the applicant
• d.Income level, occupation, and political affiliation of the buyer

The federal Fair Housing Act protects race, color, religion, national origin, sex, disability, and familial status. Some state and local laws add further protected classes, and requirements can change over time.

The Fair Housing Act's protection of 'familial status' may be lawfully set aside for:

• a.qualified housing for older persons, such as 55-and-older communities meeting HUD rules✓
• b.duplexes that happen to be located in a resort area
• c.any apartment complex that simply prefers to rent to adults as a matter of long-standing real estate custom and common-law tradition
• d.any single-family home that is sold directly by its owner

Housing that qualifies as 'housing for older persons' under HUD standards (for example, 55-and-older communities) may lawfully restrict families with children. Outside that exemption, discrimination based on familial status is prohibited.

Under fair housing law, a landlord generally must permit a tenant with a disability to make reasonable:

• a.requests to move in without paying any security deposit at all
• b.modifications to the unit, usually at the tenant's own expense✓
• c.reductions in the monthly rent to offset the tenant's medical costs
• d.demands that the landlord buy and install medical equipment for the tenant

Fair housing law requires landlords to allow reasonable physical modifications (generally at the tenant's expense) and to make reasonable accommodations in rules or policies. It does not require rent discounts or free medical equipment.

Which statement in a property advertisement would most likely violate fair housing law?

• a.'Ideal for a Christian family; no children preferred'✓
• b.'Recently renovated kitchen featuring brand-new stainless appliances'
• c.'Great starter home with a large, fully fenced backyard for pets'
• d.'Spacious three-bedroom home located near parks and public schools'

Advertising that expresses a preference or limitation based on religion or familial status (children) violates fair housing law. Describing the property's features is permissible; targeting or excluding protected classes is not.

The Texas Fair Housing Act is best described as a state law that:

• a.adds occupation and income level as protected classes statewide
• b.generally mirrors the federal Fair Housing Act's protected classes and prohibitions✓
• c.replaces and overrides the federal Fair Housing Act inside Texas
• d.applies only to commercial and industrial properties, not homes

The Texas Fair Housing Act closely tracks the federal Fair Housing Act, covering the same core protected classes and prohibited practices. It is enforced by the Texas Workforce Commission's civil rights division.

The Americans with Disabilities Act (ADA) differs from the Fair Housing Act mainly because the ADA focuses on:

• a.only single-family residences that are owner-occupied
• b.accessibility in places of public accommodation and commercial facilities✓
• c.prohibiting discrimination in mortgage lending decisions by banks regardless of the particular county in which the property is located
• d.setting the maximum rent landlords may charge disabled tenants

The ADA addresses access to public accommodations and commercial facilities, such as offices, stores, and hotels. The Fair Housing Act, by contrast, governs discrimination in residential housing, including reasonable accommodations for tenants.

A property owner who wants to build slightly closer to the lot line than the setback allows would typically seek a:

• a.nonconforming use permit that legalizes an already existing violation
• b.rezoning of the entire surrounding neighborhood to a new district
• c.variance✓
• d.restrictive covenant to be recorded against the owner's own property

A variance grants permission to deviate from a specific zoning requirement, such as a setback, because of a hardship unique to the property. It does not change the zoning of the area, only relaxes one requirement.

A lawful use that existed before a new zoning ordinance took effect, and is now allowed to continue, is a:

• a.variance that was granted for planned future construction
• b.spot zoning that benefits only one favored parcel
• c.conditional use permit that requires annual renewal
• d.nonconforming use (a grandfathered use)✓

A nonconforming use lawfully predates the current zoning and is 'grandfathered' so it may continue. Expansion or rebuilding of the use is often restricted, and the right can be lost if the use is abandoned.

A church or school allowed to operate within a residential zone through a special approval process holds a:

• a.nonconforming use that predated the zoning ordinance
• b.special (conditional) use permit✓
• c.deed restriction that was imposed by the original developer
• d.variance that merely excuses a dimensional requirement

A special or conditional use permit allows a use that the zoning ordinance permits only with specific approval, such as a school or place of worship in a residential zone. It is granted subject to conditions protecting the neighborhood.

Rezoning a single parcel in a way that is inconsistent with the surrounding area, often to benefit one owner, is criticized as:

• a.spot zoning✓
• b.a valid special use permit issued under the ordinance
• c.an easement by necessity created for landlocked land
• d.a legitimate variance based on individual hardship

Spot zoning singles out one parcel for treatment different from the surrounding area, usually benefiting the owner rather than the general public. Courts often strike it down when it is not part of a comprehensive plan.

A private deed restriction limits building height to two stories, but the zoning ordinance allows three. Which controls?

• a.The owner may freely choose whichever limit is more convenient
• b.Neither rule applies because the two limits cancel each other out
• c.The zoning ordinance always overrides any private deed restriction
• d.The more restrictive limit generally controls, so the two-story limit applies✓

When private deed restrictions and public zoning both apply, the more restrictive of the two normally governs. Here the two-story deed restriction is stricter than the three-story zoning, so it controls.

Acquiring title to real property by occupying it openly, exclusively, and continuously for the statutory period, without the owner's permission, is called:

• a.escheat to the state after the owner dies without heirs
• b.eminent domain that is exercised by the government
• c.a prescriptive easement that grants only a right to use
• d.adverse possession✓

Adverse possession can transfer ownership to a possessor whose use is open, notorious, exclusive, continuous, and hostile for the statutory period. Texas has several limitation periods (such as 3, 5, 10, and 25 years) with differing requirements.

The four public (governmental) limitations on private ownership are often remembered by the acronym 'PETE.' They are:

• a.possession, encumbrance, transfer, and enjoyment of land
• b.plat, entitlement, title, and encroachment of boundaries
• c.police power, eminent domain, taxation, and escheat✓
• d.prescription, easement, tenancy, and estate interests

PETE stands for police power (regulation such as zoning), eminent domain (taking for public use with compensation), taxation, and escheat (property passing to the state when an owner dies with no heirs). These are the government's inherent limits on private ownership.

Property taxes in Texas are 'ad valorem,' which means they are based on:

• a.the total square footage of the living area only
• b.the assessed value of the property✓
• c.a flat fee that is set equally for every property in the county
• d.the number of people who occupy the home each year

Ad valorem means 'according to value,' so the tax is based on the property's assessed value. Because Texas has no state personal income tax, local governments rely heavily on ad valorem property taxes.

For a Texas residence homestead, the appraised value used for property taxes generally may not increase more than:

• a.any amount, because there is no cap on annual increases
• b.10 percent per year, plus the value of any new improvements✓
• c.5 percent in any single tax year, with no exceptions allowed
• d.25 percent measured over every two-year period

Texas caps the annual increase in a homestead's appraised value for taxation at 10 percent per year (excluding the value of new improvements). This 'homestead cap' does not apply to non-homestead property.

Shelving and display counters a tenant installs to run a retail business, which the tenant may remove before the lease ends, are:

• a.emblements that are treated the same as annually planted crops
• b.trade fixtures that remain the tenant's personal property✓
• c.appurtenances that belong to the landlord after installation
• d.permanent fixtures that automatically transfer with the real estate

Trade fixtures are items a business tenant attaches to conduct business, and the tenant may generally remove them before the lease ends, repairing any damage. They are an exception to the usual rule that attached items become part of the realty.

Which of the following BEST defines an encumbrance?

• a.The physical act of recording a deed at the county courthouse
• b.A government grant transferring public land to a private citizen
• c.A claim, lien, or restriction held by someone other than the owner that affects the property✓
• d.The complete and fully unrestricted ownership of a parcel of land because the governing statute is generally understood to require that result

An encumbrance is any claim, lien, charge, or restriction on property held by a party other than the owner, such as a mortgage, easement, or deed restriction. Encumbrances can affect value or use but do not necessarily prevent transfer.

Ownership of real property by one individual or entity alone, with no co-owners, is called ownership in:

• a.tenancy in common that is held by multiple co-owners
• b.joint tenancy that is shared with a right of survivorship
• c.severalty✓
• d.community property that is shared between two spouses

Ownership in severalty means title is held by a single person or entity, 'severed' from all others. It is distinct from the various forms of co-ownership such as joint tenancy and tenancy in common.

The Texas Real Estate License Act (TRELA), which governs real estate licensing in Texas, is found in the:

• a.Texas Penal Code, in the provisions dealing with fraud
• b.Texas Occupations Code, Chapter 1101✓
• c.Internal Revenue Code, under the real property sections
• d.Texas Family Code, in the chapter on marital property

TRELA is codified in Chapter 1101 of the Texas Occupations Code, and TREC adopts implementing rules in Title 22 of the Texas Administrative Code. Together they govern licensing and conduct of Texas license holders.

The Texas Real Estate Commission (TREC) is composed of:

• a.members appointed by the Texas Association of Realtors
• b.twelve members who are elected directly by license holders regardless of the particular county in which the property is located
• c.nine members appointed by the Governor, including six brokers and three public members✓
• d.three members, all of whom must be licensed attorneys

TREC has nine members appointed by the Governor with Senate consent: six licensed real estate brokers and three members of the public. It administers TRELA and regulates license holders.

A Texas sales agent's license must be sponsored by:

• a.the county clerk in the county where the agent works
• b.another experienced sales agent in the same office
• c.the Texas Association of Realtors trade group
• d.a licensed Texas broker✓

A sales agent may act only when sponsored by an active Texas broker who is responsible for the agent's conduct. A sales agent cannot be sponsored by, or sponsor, another sales agent.

Which of the following persons generally does NOT need a Texas real estate license to sell real property?

• a.A person who lists other people's properties for a fee
• b.An owner selling their own property✓
• c.A person paid a fee to negotiate the sale of someone else's home
• d.An assistant who shows listed homes to buyers for a commission

Owners selling their own property are generally exempt from the licensing requirement. A license is required when a person, for compensation, brokers real estate transactions for others.

A licensed Texas attorney who handles a real estate transaction as part of providing legal services:

• a.must first obtain a separate broker license from TREC as a matter of long-standing real estate custom and common-law tradition
• b.may never be paid for handling any real estate matter
• c.is generally exempt from the real estate license requirement for that legal work✓
• d.must be sponsored by a broker just like a sales agent

Licensed attorneys acting in the course of their legal practice are exempt from the real estate licensing requirement. An attorney who wants to receive commissions as a broker, however, would still need a license.

To renew a Texas license, a license holder must generally complete 18 hours of continuing education every two years, which must include:

• a.a full college degree earned in a real estate field
• b.a one-time ethics seminar that is never required to repeat regardless of the particular county in which the property is located
• c.the 4-hour Legal Update I and the 4-hour Legal Update II courses✓
• d.40 hours of unrelated general business coursework

The 18-hour CE requirement includes the mandatory 4-hour Legal Update I and 4-hour Legal Update II courses (8 hours total), plus elective hours. Requirements can change, so license holders should confirm current rules with TREC.

A Texas real estate license must be renewed:

• a.annually on the license holder's own birthday
• b.once every six months without exception
• c.every two years✓
• d.only a single time, for a lifetime term

Texas real estate licenses are renewed on a two-year cycle, subject to continuing education and other requirements. Failure to renew on time can require reinstatement before the license holder may practice.

Before renewing a Texas sales agent license for the first time, the agent must complete:

• a.a four-year bachelor's degree in a real estate discipline
• b.four full years of active brokerage transaction experience
• c.nothing beyond the original pre-licensing courses already taken
• d.additional Sales Agent Apprentice Education (SAE) qualifying courses✓

First-time sales agent renewal requires completing Sales Agent Apprentice Education (SAE), additional qualifying courses on top of the original pre-license education. This ensures newer agents build competency early in their careers.

To qualify for a Texas broker license, an applicant must generally have:

• a.ten years of work as an unlicensed brokerage assistant even when the buyer and seller would clearly have preferred a different arrangement
• b.at least four years of active experience as a license holder plus additional education✓
• c.a current membership in a national trade association
• d.no prior experience at all, only a passing exam score

Broker applicants must generally show at least four years of active experience as a license holder (with a required amount of qualifying experience) and complete additional education. Exact point and hour requirements are set by TREC.

A Texas broker who sponsors sales agents is responsible for:

• a.personally attending and closing every one of the agents' transactions
• b.supervising the sponsored agents' real estate activities✓
• c.guaranteeing that every listing will sell within ninety days
• d.paying each agent a fixed monthly salary set directly by TREC

The sponsoring broker is responsible for supervising the real estate activities of sponsored sales agents and ensuring compliance with TRELA and TREC rules. The broker's oversight duty is a cornerstone of consumer protection.

When a business entity (such as an LLC) holds a Texas broker license, it must designate:

• a.an individual broker to act for the entity (the designated broker)✓
• b.a public member of TREC to personally oversee its files
• c.any available licensed sales agent to serve as its manager
• d.a private attorney to review and sign all of its contracts

A licensed business entity must designate an individual broker who meets the requirements to act on the entity's behalf. The designated broker is accountable for the entity's real estate activities.

The Texas Real Estate Recovery Trust Account exists to:

• a.reimburse consumers who win judgments against license holders that cannot otherwise be collected✓
• b.provide low-interest home loans to first-time Texas buyers
• c.pay for license holders' required continuing education courses
• d.fund the salaries and office expenses of TREC's staff

The Recovery Trust Account compensates aggrieved consumers who obtain a valid court judgment against a license holder for certain violations but cannot collect it. Payments are capped, and the license holder must repay the account.

Under TREC advertising rules, a sales agent's advertisement must:

• a.list the agent's home address and personal cell number
• b.include the name of the sponsoring broker✓
• c.be approved in writing by TREC before it is published
• d.state the exact commission the agent expects to earn

TREC rules require that a license holder's advertising include the sponsoring broker's name so consumers know who is responsible for the ad. Advertising must not be false, misleading, or deceptive.

TREC rules prohibit advertising that is:

• a.priced below the county's average listing amount
• b.false, misleading, or deceptive to the public✓
• c.written and displayed in more than one language
• d.placed on more than one website at the same time

TREC prohibits advertising that is misleading or likely to deceive the public, including inaccurate claims about a property or the license holder. Truthful multilingual or multi-platform advertising is permitted.

Which statement about representing both the buyer and the seller in Texas is correct?

• a.A single agent may secretly represent both parties without any disclosure so long as the transaction is closed through a licensed brokerage firm
• b.Only brokers licensed outside of Texas may practice dual agency here
• c.Dual agency is required whenever one firm holds both listings at once
• d.Traditional dual agency is not permitted in Texas; the broker instead acts as an intermediary with written consent✓

Texas abolished traditional dual agency; when one broker represents both parties, the broker acts as an intermediary with the written consent of both. This intermediary concept is a defining, Texas-specific feature of agency law.

When acting as an intermediary, a Texas broker may NOT:

• a.treat both the buyer and the seller honestly and fairly
• b.obtain written consent from both parties before beginning
• c.reveal that the seller will accept a price lower than the asking price without authorization✓
• d.appoint associated license holders to advise each party

An intermediary must remain impartial and may not disclose confidential information, such as a party's willingness to accept a different price, without written authorization. The intermediary must treat both parties fairly.

A Texas broker acting as an intermediary WITHOUT making appointments must:

• a.represent only the seller for the remainder of the transaction
• b.advise each party on how to gain an advantage over the other
• c.share each party's confidential bottom-line price with the other
• d.remain neutral and not favor one party over the other✓

Without appointments, the intermediary and the firm's license holders must stay neutral and not favor either party. With written consent, the broker may appoint different associates to work more closely with each party.

For a Texas intermediary broker to appoint one associate to the buyer and another to the seller, the broker must have:

• a.the transaction appraiser's signed written agreement
• b.written authorization from the parties in the representation agreements✓
• c.a court order that specifically permits the appointments so long as the transaction is closed through a licensed brokerage firm
• d.approval from the local Realtor board of directors

Appointments require the written authorization of the parties, typically obtained in the listing and buyer representation agreements. Appointed license holders may then advise and communicate with the party to whom they are appointed.

The Information About Brokerage Services (IABS) notice must generally be provided:

• a.at the first substantive communication about a specific property✓
• b.after the buyer has already signed a purchase contract
• c.no earlier than thirty days after the sale has closed
• d.only later, at the closing table on the day of funding even when the buyer and seller would clearly have preferred a different arrangement

The IABS notice must generally be given at or before the first substantive discussion about a specific property. It explains the types of representation and duties, helping consumers understand who a license holder represents.

Providing the IABS notice is generally NOT required when:

• a.an agent meets an unrepresented buyer at a showing
• b.a seller signs a listing agreement with a listing broker in essentially every residential and commercial transaction alike
• c.a buyer first calls a listing agent to ask about a home
• d.the transaction is a residential lease for one year or less and no sale is being considered✓

The IABS is not required when the transaction is a residential lease of one year or less with no sale contemplated, or when the other party is already represented by a license holder. Otherwise it must be provided at first substantive communication.

A Texas license holder who buys property for their own account must:

• a.first resign or inactivate their license before making an offer
• b.route the purchase through an unlicensed relative to avoid disclosure
• c.keep their license status secret in order to get a better price
• d.disclose in writing that they are a licensed real estate agent✓

TREC rules require a license holder buying or selling for their own account to disclose their license status in writing to the other party. This prevents license holders from using superior knowledge unfairly.

Paying part of a real estate commission to an unlicensed person for helping find a buyer is:

• a.always allowed as long as the amount paid is small
• b.generally prohibited; commissions may be shared only with licensed persons✓
• c.encouraged by TREC as a good source of new marketing
• d.permitted whenever the seller agrees to it verbally

A broker may share commissions only with licensed persons; paying an unlicensed person a fee for brokerage services is prohibited. This rule protects the public by keeping brokerage activity within the licensing system.

In Texas, an agreement to pay a real estate commission is generally enforceable only if it is:

• a.announced verbally in front of at least two witnesses
• b.approved and stamped by the county appraisal district
• c.posted publicly on the listing broker's own website
• d.in writing and signed by the party to be charged✓

Under the Texas statute of frauds for commissions, a person cannot sue to collect a real estate commission unless the agreement is in writing and signed by the party to be charged. This is why written listing agreements are essential.

An unlicensed assistant working for a Texas brokerage may lawfully:

• a.perform clerical tasks such as scheduling and data entry✓
• b.negotiate the terms of a contract on the agent's behalf
• c.show listed homes and answer buyers' questions about price
• d.host an open house alone and discuss the property to solicit buyers

Unlicensed assistants may handle administrative and clerical work but may not perform activities that require a license, such as negotiating, showing property, or discussing terms with prospects. Crossing that line risks unlicensed activity violations.

Which of the following is a ground for TREC to suspend or revoke a license?

• a.Advertising a listing in a language other than English
• b.Making a material misrepresentation or engaging in fraud✓
• c.Charging a commission that is higher than three percent
• d.Selling more than ten homes within a single calendar year

Fraud, material misrepresentation, dishonest dealing, and other violations of TRELA are grounds for disciplinary action, including suspension or revocation. High sales volume or lawful commission rates are not violations.

If TREC and a license holder cannot resolve a serious complaint informally, a contested case is typically heard by:

• a.the State Office of Administrative Hearings (SOAH)✓
• b.the county tax assessor-collector's office
• c.a federal grand jury convened for the county
• d.the local Realtor association's private ethics panel

Contested disciplinary cases that are not settled are heard by an administrative law judge at the State Office of Administrative Hearings (SOAH). TREC then acts on the judge's proposal for decision.

A Texas broker who deposits a client's earnest money into the broker's personal operating account has committed:

• a.a required step mandated under the statute of frauds
• b.commingling, a violation of TREC rules✓
• c.a lawful and completely standard business practice
• d.an act that is protected by the homestead exemption

Mixing client or trust funds with the broker's own funds is commingling, a serious violation. Trust money such as earnest money must be kept separate from the broker's operating accounts.

In most Texas residential transactions, earnest money is commonly held by:

• a.the buyer's own personal bank account until closing
• b.the listing agent's wallet or desk drawer until closing
• c.the county clerk's office in the county of the sale
• d.the title company (escrow agent) named in the contract✓

In Texas, earnest money is typically deposited with the title company acting as escrow agent under the contract. The escrow agent holds the funds neutrally and disburses them according to the contract and the parties' instructions.

The Texas Deceptive Trade Practices Act (DTPA) protects consumers by:

• a.setting the maximum commission a broker is allowed to charge
• b.providing remedies for false, misleading, or deceptive business practices✓
• c.requiring every home to be professionally inspected before sale regardless of the particular county in which the property is located
• d.licensing and regulating Texas real estate appraisers

The DTPA gives consumers legal remedies against false, misleading, or deceptive acts in trade, which can include misrepresentations in real estate. License holders must be careful that statements to consumers are accurate.

Two competing brokerages agree to charge all sellers the same 6% commission. This is most likely:

• a.illegal price fixing under antitrust law✓
• b.a practice required by TREC to standardize brokerage fees
• c.a lawful and customary professional courtesy between firms
• d.an example of permissible cooperation among competitors

Agreements among competing brokerages to fix commission rates are illegal price fixing under antitrust law. Commissions are always negotiable between a broker and client and must be set independently by each firm.

Competing brokers agreeing to divide a city so each avoids the other's territory is an antitrust violation known as:

• a.procuring cause of a completed sale
• b.market allocation✓
• c.cooperative subagency between brokers
• d.a lawful referral network among firms

Dividing markets or customers among competitors is an illegal 'market allocation' under antitrust law. Like price fixing and group boycotts, it restrains competition and is prohibited.

Several brokerages agree to refuse to cooperate with a new discount brokerage in town. This is an illegal:

• a.net listing that is prohibited by TREC rules
• b.exclusive right-to-sell listing arrangement
• c.group boycott under antitrust law✓
• d.intermediary relationship between the firms

An agreement among competitors to refuse to deal with a particular firm is an illegal group boycott under antitrust law. Each brokerage must independently decide whether to cooperate.

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.

A lender financing a home purchase will typically require the buyer to provide at closing:

• a.a flood certificate for the home regardless of its location
• b.a life insurance policy taken out on the seller
• c.proof of a paid hazard (homeowner's) insurance policy✓
• d.a written warranty covering the seller's used furniture

Lenders require evidence of a paid hazard (homeowner's) insurance policy to protect the collateral against loss. Flood insurance is required only when the property lies in a designated special flood hazard area.

In a Texas purchase with financing, two title policies may be issued. The distinction is that:

• a.title insurance mainly covers future physical damage to the home in essentially every residential and commercial transaction alike
• b.the lender's (mortgagee) policy protects the lender, while the owner's policy protects the buyer's equity✓
• c.the owner's policy actually protects the real estate agent
• d.both policies exclusively protect the seller of the property

A mortgagee (loan) policy protects the lender up to the loan balance, while an owner's policy protects the buyer's interest. Title insurance covers losses from covered pre-existing title defects, not future physical damage.

A Texas homeowner who believes the appraisal district has overvalued their home for tax purposes may:

• a.sue TREC directly to recover money damages for the error
• b.protest the appraised value before the county appraisal review board✓
• c.demand that the seller issue a brand-new corrected deed
• d.refuse to pay any property tax without facing any penalty according to the standard practice followed throughout the industry

Texas property owners may protest their appraised value to the county appraisal review board (ARB) by the statutory deadline. A successful protest can lower the taxable value and the resulting tax bill.

Compared with many other states, Texas funds local government by:

• a.collecting a high state personal income tax on residents
• b.charging a special statewide sales tax on every home sale according to the standard practice followed throughout the industry
• c.assessing a federal land tax on all real property owners
• d.relying heavily on local property (ad valorem) taxes, since Texas has no state personal income tax✓

Because Texas has no state personal income tax, local governments depend heavily on ad valorem property taxes to fund schools and services. This makes property tax rates and exemptions especially important to buyers.

To comply with fair housing law, a Texas property manager screening rental applicants must:

• a.steer families with children toward ground-floor units only
• b.reject applicants based on their national origin or religion
• c.apply the same lawful rental criteria to all applicants regardless of protected class✓
• d.prefer applicants without children to keep the property quieter

Fair housing law requires consistent, nondiscriminatory screening: the same lawful criteria (such as income and credit standards) must apply to everyone, regardless of race, familial status, national origin, or other protected classes.

A core duty of a Texas property manager to the owner is to:

• a.pay for all major repairs out of the manager's own pocket
• b.purchase the property outright if it fails to rent quickly
• c.personally guarantee that the property will never have a vacancy
• d.provide the owner with regular accounting reports of income and expenses✓

As the owner's agent, the property manager must account for funds and provide regular financial reports of income and expenses. The manager operates the property in the owner's best interest but does not guarantee results or pay the owner's expenses personally.

In a net lease, unlike a gross lease:

• a.the landlord pays every single operating expense of the property
• b.the tenant automatically becomes the owner after just one year
• c.no rent whatsoever is charged to the tenant during the term
• d.the tenant pays base rent plus some or all property expenses such as taxes, insurance, and maintenance✓

In a net lease the tenant pays base rent plus certain property expenses (taxes, insurance, and/or maintenance), which in a triple-net lease include all three. In a gross lease, the landlord covers most operating expenses out of the rent.

After applying the sales comparison, cost, and income approaches, an appraiser will:

• a.reconcile the approaches by weighing their reliability to reach a final opinion of value✓
• b.discard all three approaches and rely on the tax value instead
• c.use only the single highest of the three value indications
• d.simply average the three resulting numbers together every time in essentially every residential and commercial transaction alike

Reconciliation is the appraiser's analysis of the strengths and relevance of each approach to arrive at a final opinion of value. It is a weighing of reliability, not a mechanical average of the three figures.

Appraisers in the United States are generally required to follow USPAP, which stands for:

• a.the United States Property Assessment Program run by the IRS
• b.the Uniform Standards of Professional Appraisal Practice, the ethical and performance standards for appraisers✓
• c.the Universal Sales Price Adjustment Protocol used in closings
• d.the Underwriting Standards for Property Appraisal Lending by banks

USPAP sets the recognized ethical and performance standards for appraisers in the United States. Appraisals for federally related transactions must comply with USPAP.

A Texas sales agent prepares a comparative market analysis (CMA) primarily to:

• a.help the seller set a competitive list price using recent comparable sales✓
• b.determine the property's official tax assessment for the county
• c.serve as a legal substitute for the buyer's home inspection
• d.certify the property's value for a federally related mortgage loan unless the parties specifically negotiate a written exception beforehand

A CMA uses recent comparable sales and current market conditions to help an agent and seller choose a competitive list price. It is a pricing tool, not a certified appraisal or a substitute for an inspection.

The TREC One to Four Family Residential Contract (Resale) is the promulgated form generally used for the sale of:

• a.A brand-new home purchased directly from the builder before construction begins
• b.Unimproved farm and ranch acreage that has no residential structures on it
• c.A previously owned single-family home, duplex, triplex, or fourplex✓
• d.Only large multi-tenant apartment complexes and mixed-use commercial towers

This TREC form is used for resale (previously owned) residential property of one to four units. New construction from a builder, unimproved land, and farm and ranch tracts each have their own separate promulgated forms.

A buyer is purchasing a finished home directly from a builder in a completed subdivision. Which TREC promulgated form is generally appropriate?

• a.The Farm and Ranch Contract, because the lot was formerly agricultural land
• b.The New Home Contract (Completed Construction)✓
• c.The One to Four Family Residential Contract (Resale), used for any home sale
• d.The Residential Condominium Contract, used for all newly built dwellings

TREC promulgates a New Home Contract (Completed Construction) for a home already built and sold by the builder. The Resale form is for previously owned property, and condominium and farm and ranch sales use their own dedicated forms.

When a buyer's purchase depends on obtaining a conventional, FHA, or VA loan from a third-party lender, the license holder attaches which TREC document to the contract?

• a.The Non-Realty Items Addendum listing personal property conveyed with the home
• b.The Third Party Financing Addendum✓
• c.The Seller's Temporary Residential Lease authorizing the seller to remain after closing
• d.The Addendum for Sale of Other Property by Buyer used for contingent sales

The Third Party Financing Addendum documents the loan type and gives the buyer the right to terminate if the specified financing is not approved. The other addenda cover unrelated matters such as leasebacks, contingent sales, and personal property.

Under the termination option (option period) in the TREC residential contract, in exchange for the option fee the buyer receives:

• a.The unrestricted right to terminate the contract for any reason within the option period✓
• b.The right to occupy and move into the property immediately without paying rent
• c.An automatic extension of the closing date for as long as the buyer wishes
• d.A guarantee that the seller will complete every repair the buyer requests after inspection

The option fee buys the buyer an unrestricted right to terminate the contract for any reason during the negotiated option period, commonly used to complete inspections. It does not force repairs, grant occupancy, or extend closing.

Under the current TREC residential contract, the buyer must generally deliver the earnest money and the option fee to the escrow agent within how many days after the effective date?

• a.Within 30 days, the same deadline that applies to the buyer's loan application
• b.Within 3 days after the effective date of the contract✓
• c.Within 10 business days, excluding weekends and any federal holidays
• d.There is no deadline, so the buyer may deliver both amounts any time before closing

The current TREC contract requires the buyer to deliver the earnest money and option fee to the escrow agent within 3 days after the effective date. Missing that deadline can be a default; exact timing rules are set by TREC and can change.

The 'effective date' of a TREC residential contract is important because it:

• a.Starts the countdown for time-sensitive periods such as the option period and financing deadlines✓
• b.Determines the date the listing agreement between the seller and broker expires
• c.Marks the day the deed is recorded in the county real property records
• d.Is always the same as the closing date set out in the body of the contract

The effective date is the date of final acceptance and communication of the fully agreed contract, and it starts the clock for the option period, financing, and other performance deadlines. It is distinct from the closing date and the recording of the deed.

A residential listing agreement between a seller and a broker is BEST described as:

• a.A financing instrument that pledges the home as security for the broker's commission
• b.An employment (agency) contract authorizing the broker to market and find a buyer for the property✓
• c.A conveyance that transfers legal title to the broker and holds it until the property is finally sold to a qualified buyer
• d.A unilateral promise by the buyer to purchase the property at a stated price

A listing agreement is an employment contract that creates an agency relationship, authorizing the broker to market the property and earn a commission. It does not transfer title, pledge the property, or bind a buyer.

A buyer representation agreement is used primarily to:

• a.Waive the buyer's right to inspect the property during the option period
• b.Transfer the buyer's earnest money directly to the listing broker at the time of signing
• c.Guarantee in writing that the buyer will qualify for a mortgage loan on any property
• d.Establish an agency relationship in which the broker represents the buyer's interests✓

A buyer representation agreement creates an agency relationship in which the broker owes the buyer fiduciary duties and can negotiate on the buyer's behalf. It does not transfer earnest money, guarantee financing, or waive inspection rights.

For a contract for the sale of Texas real estate to be enforceable under the statute of frauds, it must be:

• a.In writing and signed by the party against whom enforcement is sought✓
• b.Witnessed by two disinterested adults who are present when the parties sign
• c.Notarized by a Texas notary and recorded in the county records within ten days
• d.Reviewed and approved in advance by an attorney representing each party

The statute of frauds requires a contract conveying an interest in real estate to be in writing and signed by the party to be charged. Notarization, recording, attorney review, and witnesses are not required to make the agreement enforceable between the parties.

An 'amendment' to a TREC residential contract is used when the parties want to:

• a.Change an agreed term of the existing contract, such as price or repairs, after it is signed✓
• b.Report the closed sale to the local appraisal district for property tax purposes
• c.Cancel the contract entirely and release the earnest money back to the buyer
• d.Add a completely unrelated second property to the same purchase transaction

The Amendment form lets the buyer and seller modify agreed terms of an existing contract, such as sales price, closing date, or repairs, with both parties' signatures. Termination and release of earnest money are handled by a separate form.

In the TREC residential contract, the buyer's right to terminate if the property does not appraise for at least the sales price is typically addressed in the:

• a.Non-Realty Items Addendum listing which fixtures and personal property convey
• b.Seller's Temporary Residential Lease attached when the seller remains after closing
• c.Homeowners Association Addendum disclosing mandatory membership and assessments
• d.Third Party Financing Addendum, which governs the appraisal condition for a financed purchase✓

In a financed purchase, the appraisal (property approval) condition is part of the Third Party Financing Addendum, which lets the buyer terminate if the lender's required value is not met. The other addenda cover leasebacks, personal property, and HOA matters.

A contract 'contingency' is BEST described as:

• a.A clause that makes the entire contract void from the very moment it is signed
• b.The commission amount the seller agrees to pay the listing and buyer brokerages
• c.A condition that must be satisfied or waived before a party is obligated to close✓
• d.A penalty automatically charged to whichever party is the first to breach the agreement

A contingency is a condition, such as financing, appraisal, or inspection, that must be met or waived for the contract to proceed to closing. If a valid contingency fails, the protected party may usually terminate without penalty.

A buyer's offer to purchase becomes a binding contract at the moment:

• a.The buyer signs and dates the offer, regardless of whether the seller has responded
• b.The listing agent enters the property into the multiple listing service as pending
• c.The title company opens an escrow file and orders the title commitment
• d.The seller accepts the exact terms and that acceptance is communicated back to the buyer✓

A binding contract forms when the offeree accepts the offer's exact terms and that acceptance is communicated to the offeror. Signing an offer, changing the MLS status, or opening escrow does not by itself create the contract.

An offeror generally may revoke an offer to purchase real estate:

• a.Never, because a written real estate offer is irrevocable once it is delivered
• b.Any time before the offeree communicates acceptance, unless the offer is an option supported by consideration✓
• c.Only after waiting a full ten business days from the date the written offer was first delivered to the other party
• d.Only with the written permission of the listing broker handling the transaction

An offer may generally be revoked any time before the offeree accepts and communicates that acceptance. An exception is an option contract, where separate consideration keeps the offer open for the agreed period.

The 'consideration' element of a valid purchase contract refers to:

• a.Something of legal value that each party gives or promises, such as money for the property✓
• b.The careful thought the buyer gives before deciding to submit an offer
• c.The appraiser's professional opinion of the property's current fair market value, based on comparable recent sales
• d.The polite and professional way each party treats the other during negotiations

Consideration is the bargained-for exchange of legal value, such as the buyer's promise to pay money and the seller's promise to convey title. It is a required element for an enforceable contract.

A contract induced by one party's intentional false statement of a material fact that the other party reasonably relies on may be:

• a.Automatically enforced against both parties because it was signed voluntarily
• b.Converted into an option contract for the benefit of the innocent party
• c.Voidable by the innocent party because of fraud in the inducement✓
• d.Treated as fully executed the moment the misrepresentation is discovered

Fraud in the inducement makes a contract voidable at the option of the innocent party, who may rescind and seek damages. A contract based on fraud is not automatically enforced against the defrauded party.

The TREC residential contract's default paragraph generally gives the non-defaulting SELLER, when the buyer defaults, the right to:

• a.Force the buyer's lender to fund the loan despite the buyer's refusal to close
• b.Terminate and receive the earnest money as liquidated damages, or seek to enforce specific performance✓
• c.Require the buyer's real estate agent to personally pay the seller's lost profit
• d.Automatically keep the buyer's earnest money and also collect triple that amount as a penalty

On buyer default, the seller may typically terminate and receive the earnest money as liquidated damages or pursue specific performance, as provided in the contract's default paragraph. The remedies do not include treble penalties or forcing a lender to fund.

'Specific performance' is a particularly meaningful remedy in real estate contracts because:

• a.Each parcel of land is considered unique, so money damages may not fully compensate the buyer✓
• b.It allows the defaulting party to walk away by simply forfeiting the earnest money deposit
• c.It automatically doubles the amount of monetary damages the injured party can recover
• d.It requires the losing party to pay all of the winning party's attorney fees and court costs in every single case

Because real property is legally treated as unique, courts may order specific performance so the buyer actually receives the bargained-for parcel rather than mere money damages. It is an equitable remedy compelling the party to perform as promised.

When a seller accepts a buyer's offer but changes the closing date and returns it signed, the seller has made:

• a.An assignment of the contract to the buyer's lender for funding
• b.A valid acceptance, because changing the closing date is never considered a material term
• c.A counteroffer, which the buyer may accept, reject, or counter in turn✓
• d.A binding option contract that keeps the original offer open for thirty days

Changing a material term such as the closing date rejects the original offer and creates a counteroffer. No binding contract exists until one party accepts the other's terms without material change.

A general warranty deed differs from a special warranty deed in that the general warranty deed:

• a.Is used exclusively to move property between spouses as part of a divorce or estate-planning settlement arrangement
• b.Warrants title against defects arising at any time, even before the grantor owned the property✓
• c.Must always be signed by both the grantor and the grantee to be valid
• d.Transfers only the interest the grantor happens to own, with no promises about title

A general warranty deed warrants title against all defects, including those predating the grantor's ownership, giving the grantee the broadest protection. A special warranty deed covers only defects arising during the grantor's period of ownership.

The clause in a deed that defines the extent of the ownership interest being conveyed, such as 'to have and to hold,' is the:

• a.Defeasance clause, which cancels a lien once the underlying debt is paid
• b.Acceleration clause, which lets a lender demand the full balance on default
• c.Habendum clause✓
• d.Subordination clause, which changes the priority order of competing liens

The habendum clause, beginning 'to have and to hold,' describes the extent and type of ownership interest granted. Acceleration, defeasance, and subordination clauses are features of financing instruments, not the granting portion of a deed.

For a deed to transfer title, 'delivery and acceptance' generally means the deed must be:

• a.Delivered by the grantor with intent to convey and accepted by the grantee during the grantor's life✓
• b.Signed by the grantee and returned to the grantor to confirm the grantee agrees
• c.Physically handed to the grantee's attorney rather than to the grantee in person
• d.Mailed to the county clerk and stamped as officially recorded before it has any effect

Title passes when the grantor delivers the deed intending to convey and the grantee accepts it, typically while the grantor is alive. Recording is not required for a valid transfer between the parties, and the grantee need not sign the deed.

A title commitment issued by a title company before closing primarily tells the buyer:

• a.The monthly principal and interest payment the buyer will owe after closing
• b.The conditions under which the title company will insure title, including exceptions and required items✓
• c.The exact price the seller originally paid when the seller first acquired the property
• d.A guaranteed appraised value that the lender will accept for loan approval

A title commitment sets out the terms and exceptions under which the title company will issue a policy, disclosing liens, easements, and requirements that must be resolved. It is not a purchase-price history, an appraisal, or a loan payment schedule.

A 'cloud on title' refers to:

• a.A temporary weather-related delay that postpones the scheduled closing date
• b.A claim, lien, or defect that may impair or call into question the owner's title✓
• c.An appraisal that comes in below the agreed sales price of the property
• d.The lender's requirement that the buyer purchase private mortgage insurance

A cloud on title is any claim, encumbrance, or apparent defect, such as an old lien or a break in the chain of title, that could impair marketable title. It is often resolved through a release, correction, or a quitclaim deed.

'Marketable title' is BEST described as title that is:

• a.Guaranteed by the seller to be completely free of every possible easement forever
• b.Certified personally by the real estate sales agent handling the transaction
• c.Automatically transferred to the buyer as soon as the offer is accepted
• d.Reasonably free from doubt and defects so that a prudent buyer would accept it✓

Marketable title is title reasonably free from doubt, defects, or the threat of litigation, such that a well-informed buyer would accept it. It need not be perfect, but it must not expose the buyer to unreasonable risk.

In the TREC contract, if the buyer terminates during the option period, the earnest money is generally:

• a.Forfeited to the seller as liquidated damages for the failed transaction
• b.Refunded to the buyer, while the seller keeps the separately negotiated option fee✓
• c.Split evenly between the buyer and the seller regardless of who terminated
• d.Paid entirely to the listing broker to compensate for lost marketing time

A timely termination during the option period entitles the buyer to a refund of the earnest money, while the option fee is generally retained by the seller as consideration for the option. The option gives the buyer the right to walk away for any reason.

An 'executory contract' is one in which:

• a.One or more obligations remain to be performed, such as before closing occurs✓
• b.The seller has executed the deed but the buyer has refused to accept it
• c.Both parties have already fully performed every obligation, and nothing remains to be done
• d.The contract has been declared void by a court and has no further legal effect

An executory contract still has performance remaining by one or both parties, as in the period between signing and closing. Once all obligations are performed, the contract is described as executed.

A seller and buyer sign a contract, then later mutually agree in writing to cancel it and return the parties to their pre-contract positions. This is:

• a.Subrogation, substituting one party's legal claim in place of another's
• b.Specific performance, in which a court compels the parties to complete the sale
• c.Assignment, transferring the buyer's rights to a third party who will close instead
• d.Rescission, unwinding the contract by mutual agreement of the parties✓

Rescission cancels the contract and, by mutual agreement, restores the parties to their positions before they contracted. It differs from assignment, specific performance, and subrogation, which serve entirely different purposes.

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.

Under the TRID rules, a lender must generally deliver the Loan Estimate to the applicant within how long after receiving a completed loan application?

• a.At the closing table, together with all of the other final loan documents
• b.Within 1 hour, so the borrower can immediately compare competing lenders
• c.Within 30 calendar days, the same period allowed to schedule the appraisal
• d.Within 3 business days after the lender receives the application✓

TRID requires the lender to provide the Loan Estimate within 3 business days of receiving a completed application, giving the borrower an early, standardized disclosure of loan terms and costs. Exact regulatory timing can change.

Under TRID, the Closing Disclosure must generally be provided to the borrower:

• a.On the same day as closing, so the figures are as current as possible
• b.Within 30 days after closing, once the final numbers have all settled
• c.At least 3 business days before consummation of the loan✓
• d.Only if the borrower specifically asks the lender to prepare one

TRID requires the borrower to receive the Closing Disclosure at least 3 business days before consummation, giving time to review final terms and costs. This waiting period helps prevent last-minute surprises; the rules can change.

The TRID (TILA-RESPA Integrated Disclosure) rule combined disclosures required under which two federal laws?

• a.The Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA)✓
• b.The Sherman Antitrust Act and the Equal Credit Opportunity Act
• c.The Community Reinvestment Act and the Home Mortgage Disclosure Act
• d.The Fair Housing Act and the Americans with Disabilities Act

TRID integrated the disclosure requirements of TILA and RESPA into the Loan Estimate and Closing Disclosure forms. It streamlined the older forms into two consumer-friendly documents.

Regulation Z is the federal regulation that implements which consumer-protection statute?

• a.The National Flood Insurance Act, governing flood zone coverage
• b.The Real Estate Settlement Procedures Act, governing closing costs
• c.The Fair Housing Act, prohibiting discrimination in housing
• d.The Truth in Lending Act, governing the disclosure of credit terms✓

Regulation Z implements the Truth in Lending Act and governs disclosure of credit costs such as the APR and finance charges. RESPA is implemented by Regulation X, a separate rule.

The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating against a credit applicant based on:

• a.The size of the down payment the applicant is able and willing to make
• b.Race, color, religion, national origin, sex, marital status, age, or public assistance income✓
• c.The applicant's verifiable income, current debts, and overall credit history
• d.The appraised value and physical condition of the property being financed

ECOA prohibits credit discrimination based on protected characteristics such as race, color, religion, national origin, sex, marital status, age, and receipt of public assistance. Lenders may still evaluate legitimate factors like income, debts, and credit history.

The Truth in Lending Act's three-day right of rescission generally applies to:

• a.The initial loan a builder uses to construct a brand-new subdivision
• b.Every purchase of a primary residence financed with any type of mortgage loan
• c.The purchase of investment property held solely for rental income
• d.Certain refinances and home equity loans on a borrower's principal residence✓

The right of rescission lets a borrower cancel certain non-purchase loans, such as many refinances and home equity loans on a principal residence, within three business days. It does not apply to loans used to purchase the borrower's home.

A key difference between FHA mortgage insurance and conventional private mortgage insurance (PMI) is that FHA loans:

• a.Generally require a mortgage insurance premium even with the minimum down payment✓
• b.Are guaranteed by the Department of Veterans Affairs instead of being insured
• c.Require mortgage insurance only when the borrower puts down more than 20 percent
• d.Never require any form of mortgage insurance, regardless of the down payment

FHA loans generally carry a mortgage insurance premium (MIP) regardless of the down payment amount, unlike conventional PMI, which applies when the down payment is under 20 percent. FHA insures the loan through HUD, not the VA.

A 'conventional' mortgage loan is BEST defined as a loan that is:

• a.Always insured by the Federal Housing Administration through HUD
• b.Guaranteed exclusively for veterans by the Department of Veterans Affairs
• c.Not insured by the FHA or guaranteed by the VA or other government agency✓
• d.Made only by the federal government directly to qualified first-time buyers

A conventional loan is one that is neither insured by the FHA nor guaranteed by the VA or other government program. It relies on the borrower's creditworthiness and, when the down payment is under 20 percent, private mortgage insurance.

A 'conforming' loan is one that:

• a.Requires no credit check because it conforms to a simplified approval process
• b.Meets the underwriting standards and loan limits set by Fannie Mae and Freddie Mac✓
• c.Exceeds the maximum loan limits set for purchase by Fannie Mae and Freddie Mac
• d.Is available only to borrowers purchasing government-owned foreclosed properties

A conforming loan meets the size limits and underwriting guidelines set by Fannie Mae and Freddie Mac, making it eligible for purchase in the secondary market. Loans exceeding those limits are called jumbo (non-conforming) loans.

A 'jumbo' loan is one that:

• a.Exceeds the conforming loan limits set by Fannie Mae and Freddie Mac✓
• b.Must always be repaid within a maximum term of exactly ten years
• c.Carries the lowest interest rate available because it is fully guaranteed
• d.Is insured by the FHA and designed specifically for lower-income borrowers

A jumbo loan exceeds the conforming loan limits and therefore cannot be sold to Fannie Mae or Freddie Mac, often requiring stronger borrower qualifications. It is a type of non-conforming loan.

The defining feature of a fixed-rate, fully amortizing mortgage is that:

• a.The monthly payment rises steadily each year for the full loan term
• b.The interest rate resets every year based on a published financial index
• c.The interest rate and the principal-and-interest payment stay the same for the whole term✓
• d.Only interest is paid, and the entire principal is due as a lump sum at maturity

In a fixed-rate, fully amortizing loan, the interest rate and the principal-and-interest payment remain constant, and the balance is paid off by the end of the term. Adjustable-rate and interest-only loans behave differently.

In an adjustable-rate mortgage, a 'lifetime cap' limits:

• a.The maximum size of the down payment the borrower is allowed to make
• b.The dollar amount the lender may charge for the loan origination fee
• c.The number of times the borrower is permitted to make an extra principal payment
• d.The total amount the interest rate can increase over the entire life of the loan✓

A lifetime cap sets the maximum the interest rate can rise above the initial rate over the loan's life, protecting the borrower from unlimited increases. Periodic caps separately limit changes at each adjustment.

In an adjustable-rate mortgage, the 'index' is:

• a.The one-time fee the borrower pays the lender to originate the loan
• b.The fixed percentage the lender adds on top of the base rate as its profit
• c.A published benchmark interest rate, such as SOFR, that moves with the market✓
• d.The maximum interest rate the loan can ever reach over its full term

The index is a published market benchmark, such as SOFR, to which the ARM's rate is tied. The lender adds a fixed margin to the index to determine the fully indexed rate at each adjustment.

In an adjustable-rate mortgage, the 'margin' is:

• a.A published economic benchmark that fluctuates up and down with market conditions
• b.The portion of each monthly payment that is applied to reduce the principal
• c.The fixed percentage the lender adds to the index to set the interest rate✓
• d.The maximum number of percentage points the rate may change at each adjustment

The margin is the fixed number of percentage points the lender adds to the moving index to compute the fully indexed rate. Unlike the index, the margin normally stays constant for the life of the loan.

One 'discount point' paid to a lender at closing is equal to:

• a.One-tenth of one percent of the total sales price of the property
• b.One percent of the property's appraised value as determined by the appraiser
• c.One percent of the loan amount, paid to reduce the interest rate✓
• d.A flat fee of exactly one hundred dollars regardless of the loan amount

One discount point equals one percent of the loan amount and is prepaid interest used to buy down the interest rate. Points are calculated on the loan amount, not the sales price or appraised value.

How does a loan origination fee differ from discount points?

• a.An origination fee lowers the interest rate, while discount points cover the appraisal
• b.An origination fee compensates the lender for processing the loan, while discount points buy down the rate✓
• c.An origination fee is paid by the seller, while discount points are always paid by the agent
• d.There is no difference; the two terms describe exactly the same charge

An origination fee covers the lender's cost of processing and originating the loan, whereas discount points are prepaid interest paid specifically to reduce the interest rate. Both are typically expressed as a percentage of the loan amount.

In a Texas deed of trust, the lender who is owed the debt is referred to as the:

• a.Trustor, the borrower who pledges the property as security for the loan
• b.Trustee, the neutral third party who holds title until the loan is repaid
• c.Beneficiary, the party for whose benefit the security instrument is held✓
• d.Grantee, the party who receives full legal title free of any liens

In a deed of trust, the borrower (trustor) conveys title to a trustee who holds it for the lender, called the beneficiary. If the borrower defaults, the trustee may sell the property under the power-of-sale clause for the beneficiary.

In a typical Texas home loan, which document actually creates the lien that secures repayment against the property?

• a.The general warranty deed the seller delivers to the buyer at closing
• b.The promissory note, which is the borrower's personal promise to repay the debt
• c.The deed of trust, which pledges the property as security for the note✓
• d.The title insurance policy that protects the lender against title defects

The deed of trust creates the lien that secures the loan against the property, while the promissory note is the borrower's separate promise to repay. Together the two documents make up the secured loan.

'Hypothecation' in real estate finance refers to:

• a.Converting an adjustable-rate loan into a fixed-rate loan at the borrower's request
• b.Pledging property as security for a debt while the borrower keeps possession of it✓
• c.Combining several parcels under a single blanket mortgage covering all of them
• d.Selling a mortgage loan from the original lender to an investor in the secondary market

Hypothecation is pledging property as collateral for a loan without giving up possession, which is exactly how a mortgage or deed of trust works. The borrower continues to use the property while it secures the debt.

A non-judicial foreclosure sale under a Texas deed of trust is generally conducted:

• a.Only after a full jury trial in district court decides that the borrower is in default
• b.By the county tax office as part of the annual delinquent property tax sale
• c.On the first Tuesday of the month, after statutory notice, by the trustee at public auction✓
• d.Privately by the lender, with no public notice or auction required at any point

Texas allows non-judicial foreclosure under the deed of trust's power-of-sale clause, with the trustee conducting a public auction on the first Tuesday of the month after required notices. This is faster than a court-supervised judicial foreclosure; rules can change.

A 'deficiency judgment' may arise when:

• a.The borrower makes an extra principal payment that exceeds the scheduled amount
• b.The lender waives all remaining interest as a courtesy to the borrower
• c.The property appraises for more than the loan balance at the time of the sale
• d.A foreclosure sale brings less than the debt owed, and the lender seeks the shortfall from the borrower✓

A deficiency judgment is a court judgment for the remaining debt when a foreclosure sale does not fully satisfy the loan. Whether and how a lender may pursue it is governed by state law, which can limit or regulate deficiencies.

A 'deed in lieu of foreclosure' is a transaction in which:

• a.The lender sells the loan to another lender before the borrower ever defaults
• b.A court forces the borrower to sign over the property after a completed trial
• c.The borrower refinances the existing loan into a new loan at a lower rate
• d.The borrower voluntarily conveys the property to the lender to avoid foreclosure✓

In a deed in lieu of foreclosure, the borrower voluntarily deeds the property to the lender to satisfy the debt and avoid the foreclosure process. Lenders may accept it to save time and cost, though other liens can complicate it.

A 'short sale' of a home occurs when:

• a.The seller sells to a relative for far less than the property's market value
• b.The buyer closes on the purchase in an unusually short amount of time
• c.The seller lists the property for a very short period, usually less than one week
• d.The property is sold for less than the amount owed, with the lender's approval✓

A short sale is a sale for less than the outstanding mortgage balance, which requires the lender's approval to accept the reduced payoff. It is an alternative to foreclosure that can lessen the impact on the seller.

The Texas Constitution places special limits on home equity loans, including a general rule that the total of all mortgage debt against a homestead may not exceed:

• a.50 percent of the original purchase price of the homestead
• b.100 percent of the fair market value of the homestead
• c.80 percent of the fair market value of the homestead✓
• d.125 percent of the county-appraised taxable value of the homestead

Texas constitutional home equity rules generally cap combined loans against a homestead at 80 percent of its fair market value, among other borrower protections. These homestead lending protections are a distinctive feature of Texas law and can change.

Under the federal Homeowners Protection Act, private mortgage insurance (PMI) on many conventional loans must automatically terminate when the loan balance reaches what percentage of the original value?

• a.Automatically at 78 percent of the original value, if payments are current✓
• b.Automatically at 90 percent, halfway through the standard loan term
• c.It never terminates automatically and must always be canceled by request
• d.Automatically at 50 percent, once the borrower has substantial equity

The Homeowners Protection Act generally requires automatic PMI termination when the balance reaches 78 percent of the original value and the borrower is current. Borrowers may also request cancellation earlier, at around 80 percent.

A 'prepayment penalty' clause in a loan:

• a.Charges the borrower a fee for paying off the loan early, where legally permitted✓
• b.Increases the interest rate automatically every time the borrower is late
• c.Forces the borrower to pay off the entire loan within the first year
• d.Requires the lender to accept early payoff without charging the borrower anything

A prepayment penalty charges the borrower a fee for paying off the loan ahead of schedule, compensating the lender for lost interest, where such penalties are legally allowed. Many consumer loans limit or prohibit them.

In loan qualifying, the 'front-end' (housing) ratio measures:

• a.The borrower's total assets compared with the borrower's total liabilities
• b.The proposed monthly housing payment (PITI) compared with monthly gross income✓
• c.The loan amount compared with the appraised value of the property
• d.Total monthly debt payments compared with the borrower's monthly gross income

The front-end ratio compares the proposed housing payment (principal, interest, taxes, and insurance) to gross monthly income. The back-end ratio, by contrast, compares total monthly debt payments to gross income.

A borrower's gross monthly income is $7,000. Using a 28% front-end (housing) qualifying ratio, the maximum monthly PITI payment would be:

• a.$700
• b.$1,960✓
• c.$1,400
• d.$2,520

Multiply gross monthly income by the ratio: $7,000 x 0.28 = $1,960. This is the maximum housing payment (principal, interest, taxes, and insurance) under a 28 percent front-end guideline.

A borrower takes a $250,000 loan at a 4.8% annual interest rate. Using simple interest, how much interest accrues in the FIRST month?

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

Annual interest is $250,000 x 0.048 = $12,000. Divide by 12 to get one month: $12,000 / 12 = $1,000.

A buyer finances a home appraised and priced at $400,000 with a loan of $340,000. What is the loan-to-value (LTV) ratio?

• a.60%
• b.15%
• c.85%✓
• d.100%

LTV equals the loan amount divided by value: $340,000 / $400,000 = 0.85, or 85%. The remaining 15 percent, $60,000, is the borrower's equity from the down payment.

A buyer purchases a $315,000 home using a loan with an 80% loan-to-value ratio. How large is the required down payment?

• a.$25,200
• b.$252,000
• c.$47,250
• d.$63,000✓

An 80 percent LTV means the loan is $315,000 x 0.80 = $252,000, so the down payment is the remaining 20 percent: $315,000 x 0.20 = $63,000.

On a fully amortizing loan, why does the interest portion of each monthly payment DECREASE over time while the principal portion increases?

• a.Interest is charged on the declining outstanding balance, which shrinks as principal is repaid✓
• b.The borrower's payment amount rises each year, adding more to principal
• c.Property taxes escrowed in the payment are gradually shifted over to principal
• d.The lender voluntarily lowers the interest rate a little bit each and every month

Each payment's interest is calculated on the remaining balance, so as principal is paid down, less interest accrues and more of the level payment goes to principal. The total payment stays constant on a fixed-rate loan.

A '2-1 buydown' on a mortgage means that:

• a.The borrower must make two payments in the first month and one in the second
• b.The lender doubles the rate in the first year and halves it in the second
• c.The loan term is shortened by two years in exchange for a one-time fee
• d.The interest rate is reduced by 2% in year one and 1% in year two, then rises to the note rate✓

A 2-1 buydown temporarily lowers the rate by 2 percentage points in the first year and 1 point in the second, after which the loan returns to the full note rate. It is typically funded by an upfront payment from the seller, builder, or buyer.

A 'wraparound' mortgage is a financing arrangement in which:

• a.The lender advances funds in stages as a new home is being constructed
• b.The borrower pays only interest for a set period, then a large balloon payment
• c.A single loan is secured by several different parcels of property at the same time
• d.A new loan is made that includes and 'wraps around' the existing underlying loan✓

A wraparound mortgage is a new, larger loan that includes the balance of an existing loan, which the seller continues to pay. It is a form of seller financing that must be structured carefully, especially where a due-on-sale clause exists.

A 'blanket' mortgage is one that:

• a.Charges no interest as long as the borrower keeps the property insured
• b.Requires the borrower to carry additional flood and hazard coverage
• c.Covers more than one parcel of real estate under a single loan✓
• d.Automatically converts to a fixed rate after a set number of years

A blanket mortgage covers multiple parcels or lots under one loan, and it is often used by developers. A partial release clause typically allows individual lots to be freed from the lien as they are sold.

A 'construction loan' typically:

• a.Requires no repayment until the borrower sells the finished home years later
• b.Is available only to buyers purchasing existing, previously owned homes
• c.Provides permanent 30-year financing at a fixed rate from the very first day
• d.Advances funds in stages (draws) as building progresses and is usually short-term✓

A construction loan disburses money in draws as work is completed and is generally a short-term loan replaced by permanent financing when the project is done. It carries higher risk to the lender, so terms differ from a standard purchase loan.

A 'bridge' (swing) loan is generally used to:

• a.Permanently finance a rental property held for long-term investment income
• b.Refinance an existing mortgage into a lower fixed interest rate for 30 years
• c.Provide short-term funds so a buyer can purchase a new home before selling the current one✓
• d.Pay a builder in installments as each phase of construction is completed

A bridge loan provides temporary financing that 'bridges' the gap when a buyer needs to purchase a new home before the sale of the existing one closes. It is short-term and typically repaid when the old property sells.

Which statement correctly distinguishes the roles of these secondary-market entities?

• a.All three of them lend money directly to homebuyers at the closing table
• b.Freddie Mac sets nationwide property tax rates, while Fannie Mae licenses agents
• c.Ginnie Mae is a private company, while Fannie Mae is a federal government agency
• d.Fannie Mae and Freddie Mac buy loans to provide liquidity, while Ginnie Mae guarantees securities backed by government loans✓

Fannie Mae and Freddie Mac purchase loans from lenders to provide liquidity in the secondary market, while Ginnie Mae guarantees mortgage-backed securities backed by government-insured loans such as FHA and VA. None of them lend directly to consumers.

'Predatory lending' practices that consumer-protection laws target include:

• a.Verifying the borrower's income and ability to repay before making the loan
• b.Clearly disclosing all loan costs and offering a competitive market interest rate
• c.Providing the borrower the required Loan Estimate within three business days
• d.Steering borrowers into needlessly costly loans and charging excessive, hidden fees✓

Predatory lending includes abusive practices such as excessive fees, deceptive terms, and pushing borrowers into unaffordable or unnecessarily costly loans. Laws such as HOEPA and the ability-to-repay rule aim to curb these abuses.

A buyer purchases a $360,000 home with a $54,000 down payment. Because the loan-to-value exceeds 80%, the lender will most likely require:

• a.The seller to pay all of the buyer's closing costs at settlement
• b.A second full appraisal from a different appraiser before closing
• c.No mortgage insurance at all, because the loan is clearly well secured
• d.Private mortgage insurance (PMI), since the down payment is only 15%✓

The down payment is $54,000 / $360,000 = 15%, so the LTV is 85%, above the 80% threshold. Conventional loans with LTV above 80 percent typically require PMI to protect the lender.

In a 'term' (straight) loan, as opposed to an amortizing loan:

• a.No interest is ever charged, and the borrower repays only the original principal
• b.The interest rate adjusts every year based on a published financial index
• c.The borrower pays only interest during the term and the full principal at maturity✓
• d.Each level payment includes both principal and interest until the balance reaches zero

A term or straight loan requires interest-only payments during the term, with the entire principal due in a lump sum at maturity. An amortizing loan instead spreads principal and interest across level payments that retire the debt.

A 'balloon' payment in a mortgage is:

• a.The very first payment, which is larger than all of the payments that follow it
• b.The extra amount a borrower pays each month to be held in an escrow account
• c.A large final payment due at maturity because the loan was not fully amortized✓
• d.A payment that automatically increases by a fixed percentage every single year

A balloon payment is a large lump sum due at the end of a loan that was not fully amortized over its term. Borrowers often plan to refinance or sell before the balloon comes due.

The difference between buying 'subject to' an existing loan and 'assuming' the loan is that, in a subject-to purchase, the buyer:

• a.Must pay the entire loan balance in cash immediately at the closing table
• b.Is always formally released by the lender from any responsibility for the debt
• c.Takes title and makes payments but does not become personally liable on the note✓
• d.Automatically receives a brand-new loan from the seller's lender at a lower rate

In a subject-to purchase the buyer takes title and makes payments but does not become personally liable on the note, so the seller remains liable. In an assumption, the buyer formally takes on personal liability, typically with lender approval.

A 'payoff statement' (or estoppel/payoff letter) from a lender tells the closing agent:

• a.The interest rate the buyer will receive on a brand-new purchase loan
• b.The exact amount required to fully satisfy and release the existing loan as of a given date✓
• c.The commission the listing broker will earn at the closing
• d.The appraised market value the lender assigns to the property

A payoff statement states the exact amount, including principal, interest, and fees, needed to satisfy the existing loan and release the lien as of a specified date. The closing agent uses it to pay off the seller's loan at closing.

An adjustable-rate mortgage is tied to an index currently at 4.0% with a margin of 2.5%. Ignoring any caps, what is the fully indexed interest rate?

• a.6.5%✓
• b.10.0%
• c.1.5%
• d.4.0%

The fully indexed rate equals the index plus the margin: 4.0% + 2.5% = 6.5%. Any periodic or lifetime caps could limit the rate actually charged at an adjustment.

Section 8 of RESPA specifically prohibits:

• a.Charging any interest at all on a federally related mortgage loan
• b.Providing the borrower with a Loan Estimate within three business days
• c.Kickbacks and unearned referral fees among settlement service providers✓
• d.Requiring the borrower to purchase a lender's title insurance policy

RESPA Section 8 prohibits kickbacks, fee-splitting, and unearned referral fees for the referral of settlement service business. It is intended to keep settlement costs from being inflated by improper payments.

A home sells for $525,000 with a total real estate commission of 6%. What is the total commission in dollars?

• a.$26,250
• b.$52,500
• c.$3,150
• d.$31,500✓

Multiply the sales price by the commission rate: $525,000 x 0.06 = $31,500. This total is typically divided between the listing and buyer brokerages.

A property sells for $600,000 with a 7% commission. The listing and selling brokerages split it 50/50, and the listing agent keeps 70% of that brokerage's share. How much does the listing agent earn?

• a.$6,300
• b.$14,700✓
• c.$29,400
• d.$21,000

Total commission is $600,000 x 0.07 = $42,000; each brokerage receives half, or $21,000. The listing agent's 70% share is $21,000 x 0.70 = $14,700.

A buyer purchases a home for $360,000 and makes a 10% down payment. How much is the down payment?

• a.$36,000✓
• b.$18,000
• c.$72,000
• d.$3,600

Multiply the price by the down payment percentage: $360,000 x 0.10 = $36,000. The remaining $324,000 would be financed.

A rectangular lot measures 90 feet by 120 feet. What is its area in square feet?

• a.108,000 sq ft
• b.1,080 sq ft
• c.10,800 sq ft✓
• d.210 sq ft

Area of a rectangle is length times width: 90 x 120 = 10,800 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 130,680 square feet?

• a.3 acres✓
• b.2 acres
• c.4 acres
• d.5 acres

Divide the total square footage by 43,560: 130,680 / 43,560 = 3 acres. Remembering that one acre equals 43,560 square feet is essential for land math.

A parcel of land measures exactly one-half acre. Using 43,560 square feet per acre, how many square feet does it contain?

• a.43,560 sq ft
• b.21,780 sq ft✓
• c.87,120 sq ft
• d.10,890 sq ft

Multiply the acreage by 43,560: 0.5 x 43,560 = 21,780 square feet. A quarter-acre, by contrast, would be 10,890 square feet.

Annual property taxes are $3,600, paid in arrears. Using a 360-day (12 equal months) proration and a closing on September 1, what is the seller's share for the portion of the year already owned (January 1 through September 1)?

• a.$1,200 for the seller, covering the final four months of the tax year
• b.$3,600
• c.$300
• d.$2,400✓

From January 1 to September 1 is 8 months. The seller's share is $3,600 x 8/12 = $2,400, the amount the seller owed while owning the property in a taxes-in-arrears state.

A home appreciates in value from $400,000 to $460,000. What is the percentage increase in value?

• a.13% based on dividing the gain by the new, higher value of the home
• b.6%
• c.15%✓
• d.60% based on the raw dollar amount of the total increase in value

The increase is $460,000 minus $400,000, or $60,000. Divide the gain by the original value: $60,000 / $400,000 = 0.15, or 15%.

A property declines in value from $500,000 to $425,000. What is the percentage decrease in value?

• a.7.5% based on dividing the loss by ten times the amount of the decline
• b.15%✓
• c.18% based on dividing the loss by the new, lower value of the property
• d.75% based on the raw dollar amount of the total decline in value

The decrease is $500,000 minus $425,000, or $75,000. Divide the loss by the original value: $75,000 / $500,000 = 0.15, or 15%.

A loan of $180,000 carries a 5% annual interest rate. Using simple interest, how much interest accrues in the FIRST month?

• a.$75
• b.$750✓
• c.$9,000
• d.$900

Annual interest is $180,000 x 0.05 = $9,000. Divide by 12 months: $9,000 / 12 = $750 for the first month.

A property is assessed at $240,000 and the tax rate is $1.80 per $100 of assessed value. What is the annual property tax?

• a.$43,200
• b.$432
• c.$4,320✓
• d.$1,800 based on applying the rate to one-tenth of the assessed value

Divide the assessed value by 100: $240,000 / 100 = 2,400 units. Multiply by the rate: 2,400 x $1.80 = $4,320.

An income property produces net operating income (NOI) of $36,000 per year. Using a capitalization rate of 9%, what is the indicated value?

• a.$3,240 based on multiplying the income by the capitalization rate
• b.$324,000 based on multiplying the income by ten times the cap rate
• c.$40,000
• d.$400,000✓

The income approach value equals NOI divided by the cap rate: $36,000 / 0.09 = $400,000. A lower cap rate would indicate a higher value for the same income stream.

A seller wants to net $285,000 after paying a 5% commission and no other costs. What must the sales price be?

• a.$270,750 by subtracting 5% of the desired net from the net figure
• b.$285,000 because the commission is deducted from the buyer's funds instead
• c.$299,250 by simply adding 5% of the desired net back onto the net figure
• d.$300,000✓

The seller keeps 95% of the price, so price = $285,000 / 0.95 = $300,000. Checking: $300,000 x 5% = $15,000 commission, leaving exactly $285,000.

A rectangular house measures 60 feet by 45 feet. If construction costs $150 per square foot, what is the estimated construction cost?

• a.$405,000✓
• b.$40,500
• c.$27,000
• d.$4,050,000

The area is 60 x 45 = 2,700 square feet. Multiply by the cost per square foot: 2,700 x $150 = $405,000.

A buyer obtains a loan with a 90% loan-to-value ratio on a $250,000 purchase. How much is the loan amount?

• a.$275,000 based on adding ten percent to the purchase price
• b.$125,000 based on financing exactly half of the purchase price
• c.$225,000✓
• d.$25,000 based on financing only the ten percent above the down payment

Multiply the price by the LTV: $250,000 x 0.90 = $225,000. The remaining 10 percent, or $25,000, would be the down payment.

Comparable properties sell at a gross rent multiplier (GRM) of 11 times ANNUAL rent. If a property rents for $2,000 per month, what is the indicated value using the GRM?

• a.$264,000✓
• b.$22,000 based on multiplying one month of rent by the multiplier
• c.$24,000
• d.$132,000 based on multiplying six months of rent by the multiplier

Annual rent is $2,000 x 12 = $24,000. Multiply annual rent by the GRM: $24,000 x 11 = $264,000.

A borrower pays 2 discount points on a loan amount of $300,000. How much do the points cost at closing?

• a.$60,000 based on charging ten percent of the loan for the two points
• b.$600 based on charging one-tenth of one percent for each of the two points
• c.$6,000✓
• d.$3,000 based on charging one-half of one percent per point

Each discount point equals 1% of the loan amount, so 2 points equal 2% of $300,000: $300,000 x 0.02 = $6,000.

A buyer finances $180,000 on a home valued at $225,000. What is the loan-to-value (LTV) ratio?

• a.20% based on dividing the down payment by the value of the home
• b.80%✓
• c.125% based on dividing the value by the loan amount instead
• d.45% based on dividing the difference by the value of the home

LTV equals the loan divided by value: $180,000 / $225,000 = 0.80, or 80%. The borrower's equity is the remaining 20 percent, or $45,000.

An investor buys a property for $200,000 and later sells it for $250,000, with no other costs. What is the percentage of profit based on the original cost?

• a.12.5% based on dividing the profit by twice the original cost
• b.25%✓
• c.20% based on dividing the profit by the higher selling price instead
• d.50% based on treating the raw dollar profit as the percentage

The profit is $250,000 minus $200,000, or $50,000. Divide by the original cost: $50,000 / $200,000 = 0.25, or 25%.

An owner buys a home for $320,000 and later sells it for $272,000, with no other costs. What is the percentage of loss based on the original cost?

• a.48% based on treating the raw dollar loss as the percentage figure
• b.15%✓
• c.17.6% based on dividing the loss by the lower selling price instead
• d.7.5% based on dividing the loss by twice the original purchase price

The loss is $320,000 minus $272,000, or $48,000. Divide by the original cost: $48,000 / $320,000 = 0.15, or 15%.

Monthly rent of $1,800 was collected in full by the seller for the closing month. Closing occurs on the 21st, and the buyer owns the property from the 21st through the 30th (10 days, using a 30-day month). How much rent should be credited to the buyer?

• a.$600✓
• b.$900 for the buyer, splitting the month's collected rent evenly in half
• c.$1,260 for the buyer, covering the first twenty-one days of that month
• d.$180 for the buyer, covering only a single day of the closing month

Daily rent is $1,800 / 30 = $60. The buyer owns 10 days, so the credit is $60 x 10 = $600, reimbursing the buyer for rent the seller already collected for the buyer's ownership days.

A loan of $180,000 generated $10,800 in interest during its first year. What is the annual interest rate?

• a.6%✓
• b.60% based on treating the interest as a share of a smaller balance
• c.0.6% based on dividing the interest by ten times the loan amount
• d.16.7% based on dividing the loan amount by the interest instead

Rate equals interest divided by principal: $10,800 / $180,000 = 0.06, or 6%. This is the annual simple-interest rate on the loan.

A loan charges $625 of interest in its first month at a 5% annual simple-interest rate. What is the original loan (principal) amount?

• a.$7,500 based on stopping at the annualized interest without dividing by the rate
• b.$150,000✓
• c.$125,000 based on using a 6% rate instead of the stated 5% rate
• d.$12,500 based on dividing the monthly interest by the monthly rate incorrectly

Monthly interest of $625 equals $7,500 per year ($625 x 12). Divide annual interest by the rate: $7,500 / 0.05 = $150,000 principal.

A room measures 15 feet by 18 feet. Carpet is sold by the square yard. How many square yards are needed to cover the floor? (9 square feet = 1 square yard.)

• a.30 square yards✓
• b.270 square yards, using the square-foot area without converting to yards
• c.90 square yards, dividing the area by three instead of by nine
• d.27 square yards, using only the perimeter of the room in the calculation

Area is 15 x 18 = 270 square feet. Divide by 9 to convert to square yards: 270 / 9 = 30 square yards.

A property sold for $450,000, and the total commission paid was $27,000. What commission rate was charged?

• a.6%✓
• b.16.7% based on dividing the sales price by the commission instead
• c.3% based on dividing the commission by twice the actual sales price
• d.7% based on rounding the ratio up to the next whole percentage point

Rate equals commission divided by sales price: $27,000 / $450,000 = 0.06, or 6%. Multiplying back confirms $450,000 x 6% = $27,000.

A property is assessed at $150,000 with a tax rate of 25 mills. (One mill is $1 per $1,000 of assessed value.) What is the annual property tax?

• a.$37,500 based on treating each mill as ten dollars per thousand dollars
• b.$1,500 based on using a rate of ten mills instead of twenty-five
• c.$3,750✓
• d.$375 based on treating each mill as ten cents per thousand dollars

25 mills equals $25 per $1,000, or 0.025 as a decimal. Multiply by the assessed value: $150,000 x 0.025 = $3,750.

A rental property has a gross annual income of $60,000, a vacancy loss of 5%, and annual operating expenses of $18,000. What is the net operating income (NOI)?

• a.$57,000, subtracting only the vacancy loss and ignoring operating expenses
• b.$39,000✓
• c.$42,000, subtracting only the operating expenses and ignoring the vacancy loss
• d.$36,000, subtracting a full ten percent vacancy rather than five percent

Vacancy loss is $60,000 x 5% = $3,000, leaving effective gross income of $57,000. Subtract operating expenses: $57,000 - $18,000 = $39,000 NOI.

An income property has a net operating income (NOI) of $40,000 and recently sold for $500,000. What capitalization rate does that sale indicate?

• a.8%✓
• b.12.5% based on dividing the sale price by the income instead
• c.16% based on doubling the correctly calculated capitalization rate
• d.4% based on dividing the income by twice the actual sale price

Cap rate equals NOI divided by value: $40,000 / $500,000 = 0.08, or 8%. This rate can then be applied to value similar income properties.

A one-year hazard insurance policy costs $1,200 and was paid in advance by the seller. If the seller closes exactly 3 months into the policy year, how much should the buyer reimburse the seller for the unused coverage?

• a.$300, reimbursing only the three months the seller had already used
• b.$900✓
• c.$600, splitting the annual premium evenly between the parties
• d.$1,200, reimbursing the seller for the entire annual premium amount

Monthly premium is $1,200 / 12 = $100. Nine unused months remain, so the buyer reimburses the seller $100 x 9 = $900 for coverage the buyer will benefit from.

A property worth $200,000 appreciates 10% in the first year and another 10% on the new value in the second year. What is its value after two years?

• a.$264,000, incorrectly compounding at twenty percent for one of the years
• b.$240,000, adding a flat twenty percent of the original value across both years
• c.$220,000, applying only a single year of ten percent appreciation
• d.$242,000✓

After year one: $200,000 x 1.10 = $220,000. After year two: $220,000 x 1.10 = $242,000. Compounding produces $2,000 more than a flat 20 percent would.

A triangular lot has a base of 100 feet and a height of 80 feet. What is its area in square feet? (Area of a triangle = 1/2 x base x height.)

• a.2,000 square feet, dividing the correct area in half a second time
• b.180 square feet, adding the base and height rather than multiplying them
• c.4,000 square feet✓
• d.8,000 square feet, multiplying the base and height without halving the result

Area of a triangle is one-half base times height: 0.5 x 100 x 80 = 4,000 square feet. Forgetting the one-half factor would incorrectly give 8,000.

A home has 2,400 square feet of living area and is priced at $360,000. What is the price per square foot?

• a.$180 per square foot, dividing the price by two-thirds of the actual area
• b.$150 per square foot✓
• c.$100 per square foot, dividing by an area figure of 3,600 instead of 2,400
• d.$240 per square foot, dividing the price by a smaller 1,500-foot area

Divide the price by the square footage: $360,000 / 2,400 = $150 per square foot. Price per square foot is a common way to compare similar homes.

A 5-acre tract is being developed. 20% of the land is used for streets and drainage, and the remaining usable land is divided into 0.25-acre lots. How many lots can be created?

• a.16 lots✓
• b.10 lots, incorrectly setting aside half of the tract for streets and drainage
• c.20 lots, dividing the full five acres by the lot size with no land set aside
• d.25 lots, treating each usable acre as producing five lots of equal size

Usable land is 5 x (1 - 0.20) = 4 acres. Dividing by the lot size: 4 / 0.25 = 16 lots. Equivalently, 174,240 usable square feet divided by 10,890 square feet per lot is 16.

A mortgage has a remaining balance of $120,000 at a 4.5% annual interest rate. How much interest accrues in ONE month?

• a.$540, applying a 5.4% rate rather than the stated 4.5% rate
• b.$45, dividing the annual interest by 120 instead of by 12
• c.$450✓
• d.$5,400, using the full year of interest instead of a single month

Annual interest is $120,000 x 0.045 = $5,400. Divide by 12 months: $5,400 / 12 = $450 for one month.

A borrower has a $150,000 loan at 6% annual interest, with a monthly principal-and-interest payment of $899.33. In the first payment, how much is applied to PRINCIPAL?

• a.$149.33✓
• b.$750.00, the portion of the payment that is applied to interest, not principal
• c.$899.33, the entire payment, none of which is treated as interest here
• d.$0.00, because early payments on an amortized loan reduce no principal at all

First-month interest is $150,000 x 0.06 / 12 = $750. Subtract from the payment: $899.33 - $750 = $149.33 applied to principal.

One section of land contains 640 acres. How many acres are in one-half of a section?

• a.80 acres, the size of a one-eighth portion of a section of land
• b.640 acres, the size of a full section rather than one-half of it
• c.160 acres, the size of a quarter section rather than a half section
• d.320 acres✓

A section is 640 acres, so half a section is 640 / 2 = 320 acres. A quarter section would be 160 acres.

An investor buys a property for $180,000 and spends $20,000 on repairs, then sells it for $230,000. What is the percentage of profit based on total cost?

• a.25% based on ignoring the repair costs when figuring total cost
• b.13% based on dividing the profit by the higher final selling price
• c.27.8% based on dividing profit by only the original purchase price
• d.15%✓

Total cost is $180,000 + $20,000 = $200,000, and profit is $230,000 - $200,000 = $30,000. Divide profit by total cost: $30,000 / $200,000 = 0.15, or 15%.

Annual property taxes are $3,650, and a 365-day year is used for proration. The seller owned the property for 90 days of the tax year before a closing, with taxes paid in arrears. What is the seller's prorated share?

• a.$3,650, charging the seller for the entire year regardless of days owned
• b.$90, charging the seller for only a single day of the tax year
• c.$1,825, charging the seller for exactly half of the annual tax bill
• d.$900✓

Daily tax is $3,650 / 365 = $10. The seller owned 90 days, so the seller's share is $10 x 90 = $900 in a taxes-in-arrears proration.

A retail tenant pays base rent of $2,000 per month plus 5% of annual gross sales over $500,000. If annual sales are $700,000, what is the total annual rent under this percentage lease?

• a.$34,000✓
• b.$10,000, counting only the percentage rent and omitting the base rent
• c.$24,000, counting only the base rent and omitting the percentage rent
• d.$59,000, applying the 5% to all sales rather than only sales over the breakpoint

Percentage rent is 5% of ($700,000 - $500,000) = 5% x $200,000 = $10,000. Add annual base rent of $2,000 x 12 = $24,000, for total rent of $34,000.

A home purchased for $250,000 is now worth $325,000. What is the percentage increase in value?

• a.30%✓
• b.13% based on dividing the gain by twice the original purchase price
• c.75% based on treating the raw dollar gain as the percentage figure
• d.23% based on dividing the gain by the new, higher value of the home

The gain is $325,000 minus $250,000, or $75,000. Divide by the original value: $75,000 / $250,000 = 0.30, or 30%.

A buyer pays 1.5 points on a loan of $320,000. How much do the points cost?

• a.$4,800✓
• b.$480 based on treating each point as one-tenth of one percent of the loan
• c.$3,200 based on treating the charge as a single point on the loan
• d.$48,000 based on treating the points as fifteen percent of the loan amount

Each point is 1% of the loan, so 1.5 points equal 1.5% of $320,000: $320,000 x 0.015 = $4,800.

A total commission of $28,800 was paid on a $480,000 sale and split 50/50 between the two brokerages. How much did the listing brokerage receive?

• a.$7,200, giving the listing brokerage only a quarter of the commission
• b.$9,600, splitting the commission three ways instead of two
• c.$14,400✓
• d.$28,800, giving the entire commission to the listing brokerage alone

The total commission of $28,800 (which is $480,000 x 6%) is split evenly, so each brokerage receives $28,800 / 2 = $14,400.

A buyer purchases a $280,000 home with 20% down and pays closing costs equal to 3% of the loan amount. What is the total cash the buyer needs at closing?

• a.$8,400, counting only the closing costs and omitting the down payment
• b.$62,720✓
• c.$56,000, counting only the down payment and omitting the closing costs
• d.$64,400, calculating the closing costs on the price rather than the loan

The down payment is $280,000 x 20% = $56,000, and the loan is $224,000. Closing costs are $224,000 x 3% = $6,720, so total cash needed is $56,000 + $6,720 = $62,720.

A borrower's gross monthly income is $6,000. Using a 28% front-end (housing) qualifying ratio, what is the maximum monthly housing payment (PITI)?

• a.$2,160, applying a 36% back-end ratio rather than the 28% housing ratio
• b.$600, applying a 10% ratio rather than the stated 28% housing ratio
• c.$840, applying a 14% ratio rather than the stated 28% housing ratio
• d.$1,680✓

Multiply gross monthly income by the ratio: $6,000 x 0.28 = $1,680, the maximum monthly PITI under a 28 percent front-end guideline.

A parcel measures 200 feet by 435.6 feet. How many acres does it contain? (One acre = 43,560 square feet.)

• a.1 acre, ignoring one of the two dimensions when computing the area
• b.0.2 acres, dividing the square footage by ten times the acre conversion
• c.20 acres, dividing the square footage by a figure one hundred times too small
• d.2 acres✓

The area is 200 x 435.6 = 87,120 square feet. Divide by 43,560 square feet per acre: 87,120 / 43,560 = 2 acres.

A buyer makes a $48,000 down payment, which is 15% of the purchase price. What is the purchase price of the home?

• a.$276,000, subtracting fifteen percent from an assumed higher price
• b.$55,200, adding fifteen percent onto the down payment amount
• c.$320,000✓
• d.$7,200, treating the down payment as the answer's fifteen percent instead

If $48,000 is 15% of the price, then price = $48,000 / 0.15 = $320,000. Checking: $320,000 x 15% = $48,000.