TEXAS REAL ESTATE EXAM STATE PORTION

STUDY GUIDE (Updated 3/15/16)

I. Commission Duties and Powers (Sale Agent-2, Broker-3 Questions) A. General Powers: Composition, Duties, and Powers; Real Estate Broker-Lawyer Committee B. Investigations and Subpoena Power: Investigations; Subpoena Power Investigations; Subpoena Power Hearings

C. Hearings and Appeals (Broker only) D. Penalties for Violation: Unlicensed Activity; Authority for Disciplinary Actions; Penalties;

Recovery Fund

A. General Powers:

1. Composition, Duties, and Powers:

a. By mandate of the Texas Real Estate (Dealers) License Act, in 1939 it became

illegal to sell real estate in Texas without first obtaining a license.

b. In 1949 TRELA (Texas Real Estate License Act) was passed which created

TREC. It consists of 9 commissioners; 6 are brokers, 3 are members of the

general public; appointed by the Governor for 6 year terms; approved by 2/3 of

the Senate present. Brokers must have a minimum of five years active experience in the business. TRELA was codified as Title 7 of the Occupational Code; Chapter

1101 (relating to the activities of brokers and sales associates). Chapter 1102 relates

to the licensing and laws concerning real estate inspectors.

c. TREC has the authority to make rules and regulations, which have the full force and

effect of law. These rules are construed liberally with a view towards their purpose, which is to protect the public.

d. TREC is authorized to inspect and accredit educational programs or courses of study

in real estate and real estate inspection and to establish standards of accreditation

for such programs conducted in the state.

e. TREC can advise with reference to the laws it administers but questions regarding

other laws should be directed to the appropriate agency or to a private attorney.

f. TREC does NOT mediate disputes between or among licensees concerning

entitlement to sales commissions.

g. TREC does NOT recommend individual licensees to the public.

h. An employee of the commission specifically authorized by it pursuant to the Act, to

conduct hearings and render final decisions in contested cases may suspend or revoke

a license or reprimand or place on probation a licensee for a violation of the Act or a

rule of the commission.

2. Real Estate Broker-Lawyer Committee: Drafts and revises TREC promulgated

contracts. Thirteen members- 6 appointed by the commission- 6 members of the State

Bar-appointed by the President of the State Bar and 1 public member appointed by the

governor. Members will hold office for staggered terms of six years with the terms of two

commission appointees and two State Bar appointees expiring every two years. A

licensee’s use of these forms is not considered an unauthorized practice of law.

B. Investigations and Subpoena Power: 1. Investigations:

a. TREC may, after receiving a written complaint with proper evidence, investigate the actions and records of a broker or sales agent. The complaint must be submitted within four years after the date of the incident. If the person filing the complaint wishes to have the right to have a judgment paid from the recovery fund, the complaint must be filed within two years, or to be actionable under D.T.P.A. the statute of limitations is two years.

b. TREC may authorize a commission employee to file a signed written complaint against a licensee and to conduct an investigation if: (1) A judgment against the licensee has been paid from a recovery fund established under

the Act.

(2) The licensee is convicted of a criminal offense that may constitute grounds for the suspension or revocation of the licensee’s license.

(3) The licensee fails to make good a check issued to the commission.

(4) Licensee fails to complete required continuing education within the prescribed time.

(5) Failing to provide information requested by TREC in connection with an application to

renew a license.

2. Subpoena Power Investigations: TREC has the power of subpoena. TREC may compel by

subpoena the attendance of witnesses for examination under oath and the production for inspection and copying of books, accounts, records, papers, correspondence, documents and other evidence relevant to an investigation. If a licensee fails to comply with a subpoena, TREC can file suit through the attorney general to enforce the subpoena.

3. Subpoena Power Hearings: If the commission proposes to suspend or revoke a license, the

person is entitled to a hearing before the commissioner. If that ruling is adverse to the license, they can appeal to a district court within 30 days.

TREC Complaints: A person may file a written complaint with TREC against a real estate licensee

if the person believes the licensee violated The Real Estate Licensing Act. If TREC has

jurisdiction, it will investigate the allegations by interviewing the persons, witnesses and

relevant information. TREC’s Standards and Enforcement Services (SES) will notify the

licensee if it intends to initiate disciplinary proceedings

Complaint Priorities: TREC is required to maintain a system to act promptly and efficiently on complaints and must maintain a file on each complaint. TRELA requires that TREC assign priorities and investigate complaints using a risk-based approach on the:

Degree of potential harm to the consumer

Potential for immediate harm to the consumer

Overall severity of the allegations and complaint

Number of license holders potentially involved in the complaint

Number of potential violations in the complaint

Refund to Consumer: TREC may order a licensee to pay a refund to a consumer as provided by an agreement resulting from an informal settlement conference or enforcement order

TREC Advisory Letters: TREC may close a complaint file by issuing an advisory letter to the licensee. This is normally in more technical matters. An advisory letter is not a formal disciplinary action. The advisory letter is a notification that there were items revealed in the investigation that do NOT warrant disciplinary action but, if not corrected, could lead to further complaints and, ultimately, disciplinary action.

Informal Proceedings: In some cases the Deputy Director of Standard and Enforcement Services (SES) may offer a complainant and respondent an opportunity to participate in an alternative dispute resolution process (ADR). The Deputy Director does not have the authority to compel a complainant or respondent to participate in the process. If an agreement can be reached, it may be some satisfaction to the complainant and save time for the respondent. If the parties cannot reach an agreement or if SES does not pursue the ADR process at the outset, the complaint is investigated to determine if there is sufficient evidence to proceed with a hearing against the licensee.

TREC is required to adopt procedures governing informal disposition of contested cases. The informal contested case must provide the complainant and licensee the opportunity to be heard, which is similar to the ADR process. The contested case ADR requires the presence of a public member of TREC and at least two TREC staff members with experience in the regulatory area that is the subject of the proceeding

Temporary Suspension: TREC’s presiding officer for a case involving a consumer is required to appoint a disciplinary panel, consisting of three TREC members, to determine whether a person’s license to practice should be suspended temporarily. The panel will temporarily suspend the person’s license if they determine that the licensee constitutes a threat to the public or the licensee constitutes a continuing threat to the public welfare.

Citation Program: The Texas Association of Realtors (TAR) may issue a citation related to

certain articles of the National Association of Realtors (NAR). If a citation is issued, the

respondent is advised that he or she has the right to request a full due process hearing rather than

pay the fine. Agreed to citations include fines and education

C. Hearings and Appeals: Questions from this area are most likely to appear on Broker’s Exam but can appear on subsequent Sales exams.

1. Hearings: Same as B. above. The exact timing of the hearing process is in TRELA, Subchapters O and P. Read the license act subchapters that are referenced for additional information.

2. Appeals:

a. Appeal for Refusing to License: If the applicant is disapproved by TREC, the applicant

may make an appeal within 10 days after receipt of the notice of disapproval. If no appeal

is filed within 10 days, the ruling of the Commission stands.

b. Appeal to Courts: A person aggrieved by a ruling, order, or decision of the Commission

has the right to appeal to a district court in the county where the hearing was held within

30 days.

D. Penalties for Violation:

1. Unlicensed Activity: A person acting as a real estate broker or sales agent without first

obtaining a license commits an offense which is a Class A misdemeanor. The penalty for each violation shall be set in an amount not to exceed $4,000 and other penalties

provided by law. Each day a violation continues or occurs may be considered a separate

violation.

2. Authority for Disciplinary Actions: When in the judgment of the Commission a person has

engaged in an act or practice which constitutes a violation of the Act, the county attorney,

district attorney, or the attorney general may maintain an action in the name of the State of Texas in the district court to enforce compliance with the Act.

3. Penalties: A violation of the Act by any person (licensed or unlicensed) is a Class A

misdemeanor. It is punishable by up to a $4,000 fine or imprisonment for a term not

to exceed one year or both. In case a person received money, or the equivalent thereof, as

a fee, commission, compensation, or profit by or in consequence of a violation he shall, in addition, be liable to a penalty of not less than the amount of the sum of money so received

and not more than three times the sum so received.(DTPA)

4. Recovery Fund:

a. Created by TREC to pay aggrieved persons who suffer a monetary loss due to illegal acts of licensees. The fund is set up to protect the public. Brokers are required to display the “Consumer Information Form” to notify consumers of the recovery fund.

b. The fund is administered by TREC. If at the end of the calendar year the fund is below

$1,000,000, the commission is authorized to assess each real estate licensee on

certification of their license during the following calendar year, a fee not to exceed $10.00

or a prorated share of the amount necessary to bring the fund to $1,700,000. If the

fund, on December 31 of any year is more than $3,500,000, or more than the amount

paid out in the 4 previous years, the excess is transferred to the general revenue fund.

If the funds do not fall below the statutory minimum, TREC will invest the funds.

c. Payments for claims arising out of the same transaction shall be limited in the aggregate

to

$50,000, regardless of the number of claimants and payments for claims based on

judgments against any one licensed real estate agent may not exceed in the

aggregate $100,000 until the fund has been repaid with interest at the current rate.

While payment from the fund will not result in an automatic suspension, the license

cannot be renewed until the fund has been repaid.

II. Licensing (Sales agent-2, Broker-4 Questions) A. Activities Requiring License: Scope of Practice; Exemptions; Corporations; Non-Resident Broker; Inspectors and Appraisers B. Licensing Process: General Requirements (age, moral character, residency, sponsor, etc.); Education; Examination; Grounds to Reject Application; Appeals C. License Maintenance and Renewal: Continuing Education; Place of Business; Change of Sales agent Sponsorship; Inactive Status

A. Activities Requiring License:

1. Scope of Practice: a. Property, real property, and real estate all have the same meaning when used in the

license act. The terms broker and sales agent are used to describe those activities for

which licensure is required. The Act makes no distinction as to the type of activity that

each is permitted to practice. The reason for the separate classification is to place the

responsibility for the sales agent’s actions on the broker.

b. Real Estate License Required:

(1). Appraising non-federally related transactions. Licensees are allowed to give opinions of market value to assist the seller in establishing list price. Only licensed appraisers

may give appraisals.

(2). Auctioneer selling real property. The auctioneer does not have to be licensed but

there must be a broker handling the auction of any real property.

(3). Apartment locators. Residential rental locators must display their real estate license

in their place of business. The requirement was dropped for licensees practicing

sales/leasing brokerage.

(4) Anyone who controls the acceptance or deposit of rent, on behalf of

someone else and for compensation, must be licensed

(5) Property managers.

(6) Raw land Sales.

(7) Timeshare sales agents.

(8) A person engaging in brokerage. (Sells, exchanges, purchases, rents, negotiates,

or attempts to negotiate listings, sales, etc., procures prospects for the purpose

of affecting a sale.)

c. Easement or Right-of-Way: A person may not sell, buy, lease, or transfer an

easement or right-of- way for another for compensation, or with the intent or in the

expectation or on the promise of receiving or collecting compensation, for use in

connection with telecommunication, utility, railroad, or pipeline service unless the

person is:

(1) Licensed as a real estate broker or real estate sales agent under this Act.

(2) Exempt from this Act for the purpose of selling, buying, leasing, or transferring

an easement or right-of-way.

(3) Registered with the commission under the subchapter regarding “right of way”

agents.

(4) Must be fingerprinted and undergo a background check

2. Exemptions: The following are exempt from the License Act:

a. Attorneys in the state of Texas (Must be licensed to have agents or collect any type

of commission). They may charge for the practice of law but to practice real estate

they must have a license. Any attorney from another state must be a licensed

broker to practice real estate in Texas

b. Court appointed receivers, trustees, and guardians.

c. Public official in the conduct of their official duties. d. A person calling an auction under the authority of a licensee.

e. Executors and administrators of an estate.

f. On-site apartment managers for one owner.

g. New home sales for one builder.

h. Cemetery lot sales agent.

i. An owner, or his employees, in renting or leasing his/her own real estate.

j. A person dealing in mineral or mining rights which have been severed from the land.

k. Transactions involving the renting, leasing or management of hotels/motels.

l. Residential rental locator who is the owner or an on-site agent for an owner.

3. Corporations: To be eligible for or to renew a license, a corporation must designate one of

its officers to act for it. The designated person must be a licensed real estate broker as

shown in the records of the commission.

4. Non-Resident Broker: The Act permits Texas-licensed brokers to cooperate with and share

earned commission with persons licensed as brokers in other states (foreign brokers), but all negotiations within Texas must be handled by Texas licensees. A broker or salesman

from another state who wants to obtain a license in Texas is subject to the requirements under

TRELA for the type of license applied for.

5. Inspectors and Appraisers:

a. A person may not act as a professional inspector for a buyer or seller of real property

unless the person possesses a professional inspector license.

b. A person may not act as a real estate inspector unless the person possesses a real

estate inspector license and is under the supervision of a professional inspector.

c. A person may not act as an apprentice inspector unless the person is licensed and is

under the direct supervision of a real estate inspector or professional inspector.

d. All home inspectors are required to have liability insurance for a minimum of $100,000 per

occurrence

e. In 1991, the Texas Appraiser Licensing and Certification Act was passed to require

all five classifications of appraiser be licensed. The classifications are: Certified General

Real Estate Appraiser, Certified Residential Real Estate Appraiser, State Licensed Real

Estate Appraiser, Provisional Licensed Real Estate Appraiser, and Appraiser Trainee.

B. Licensing Process:

General Requirements (age, moral character, residency, sponsor, etc.):

a. Be 18 years or older

b. Complete all educational requirements.

c. Be a U.S. citizen or a legally admitted alien.

d. Pass the state exam.

e. Be a legal resident of Texas at the time of application (no time specification for length or residency).

f. Satisfy the commission as to honesty, trust worthiness, integrity, and competency.

Honesty, trust worthiness, and integrity will be established by the background check on initial application.

g. Be sponsored by a licensed broker. The broker is responsible for all occupational acts

of the sales agent he/she sponsors. If the broker desires to terminate sponsorship, he/she must notify the agent and commission in writing and return the sales agent’s license immediately.

Education:

Sales agent: 180 core hours of real estate courses with no less than 30 hours of Principles I, 30 hours of Principles II, 30 of Law of Agency, 30 hours of Law of Contracts, 30 hours of Promulgated Contract Forms and 30 of Real Estate Finance.

Broker: 900 core hours of real estate courses (60 semester hours) and a minimum of four years active licensure. Along with the following requirements:

Take a 30 hour course “Real Estate Brokerage”

The applicant must have the signature of the sponsoring broker or brokers for the relevant

time period

Must accrue 3600 points in four of the last five years

o The sale of a single-family home = 300 points

o A closed purchase or sale of an apartment complex of five or more units = 450

points

o Listing or buyers representation agreements = 10 points o An executed lease for a residential or commercial property = 50 points

Must have one transaction in each year of the four years in which the applicant is claiming

experience

Transaction Document Verification: While the applicant is not required to include copies of the

transaction documents with the broker application, the documents must be provided to TREC upon request

Affidavit in Lien of Documentation: If an applicant is unable to obtain the appropriate

documentation or signature of the sponsoring broker, the applicant must submit the following:

A TREC Affidavit in Lieu of Documentation Two TREC Affidavits in Support of Claimed Experience each affidavit must be signed by a different person familiar with the applicant’s circumstances and attest to the applicant’s efforts to obtain the documents or signature

Both salesman and brokers have 1 year to successfully pass the exam. After 1 year

they must reapply with new fees. If an applicate fails to pass the exam after three

attempts, the applicate must take additional 30 hour courses in each category they failed on their third attempt. Once these courses are completed and reported to

TREC, the applicate will be re-authorized to re-schedule to take the exam(s)

Examination: Competency as referred to in the Act shall be established by an examination

prepared by or contracted for by the commission. It shall be of scope sufficient in the judgment of the commission to determine that a person is competent to act as a real estate broker or sales agent in a manner to protect the interest of the public. The broker’s exam must be more extracting than the sales exam. This is accomplished by adding an additional 10 questions to the Texas Portion of the exam but remaining in the 4 hour time frame for completion both exams. The sales agent must make a 70% overall score while the broker’s exam requires a 75% overall score in order to pass the exams

Grounds to Reject Application: The commission may reject any application for failing to meet

any of the requirements listed above.

Appeals: If the applicant is disapproved by TREC, the applicant may make an appeal within 10

days after receipt of the notice of disapproval. If no appeal is filed within 10 days, the ruling

of the commission stands. If the applicant doesn’t prevail at the appeal with the commission, then the applicant can appeal to the district court.

C. License Maintenance and Renewal:

1. Continuing Education: Sales agent: 90 hours of core real estate courses for first renewal of

license plus 4 hours in legal update I and 4 hours in legal update, for a total of 278 hours (2

years). Thereafter, 18 hours of Mandatory Continuing Education (MCE) every two years.

Broker: 18 hours of MCE every two years. Of those 18 hours of MCE, at least 8 hours must

be four hours of legal update 1 and four hours of legal update. If the broker or agent supervises agents, 6 hours of the 18 required hours must be a course on broker

responsibility. The remaining MCE hours may be electives of the licensee’s choice

2. Place of Business:

a. Each resident broker shall maintain a fixed office within this state. The address of the

office shall be designated on the broker's license.

b. If a broker maintains more than one place of business within this state, he/she shall

apply for, pay the required fee for, and obtain an additional license to be known as a

branch office license for each additional office he/she maintains.

c. A copy of the license or licenses of the broker and his associated agents are to be

kept under the broker’s custody and control.

d. Each broker engaged in apartment locating or a residential rental locator must

prominently display in his/her place or in one of his/her places of business the license of each real estate sales agent associated with him.

3. Change of Sales agent Sponsorship: When the association of a sales agent with his/her

sponsoring broker is terminated, the broker shall immediately return the sales agent

license to the commission after notifying the sales agent in writing of the

termination. The sales agent license then becomes inactive. If the sales agent wishes to

keep an active license, he/she must obtain sponsorship by another broker with appropriate

application to the commission.

4. Inactive Status: A broker or sales agent that wants to be inactive must apply for

inactive status before expiration of their license. If the broker has agents under

his/her sponsorship, he/she must terminate sponsorship of those agents by giving written

notice to the agents before the 30th

day before the date the broker applies for inactive status. Inactive brokers are still required to pay annual renewal fees and meet SAE

educational requirements. Inactive status means a person may not perform any

activities of a licensee. Inactive sales agents do not accumulate the time requirement

for a broker's license.

5. Late Renewal Periods: Licensees may only late renew within six months of the expiration

date of their license. After six months the person my obtain a new license by submitting to

re-examination and meeting the requirements and procedures for obtaining an original

license

6. Assumed Names: When a person operates a business under a name other than

his/her own, he/she must register that name with the county and the state real estate

licensing authority A broker MUST notify TREC within 30 days of starting or stopping

the use of an assumed name

7. Business-Entity Licensing and Registration: A corporate broker’s license is required to

operate as a corporation. A sole proprietorship will not have to have a license. All Business-Entities will be required to register in Texas with the Secretary of State

8. Business-Entity Insurance Requirements: If the designated broker owns less than 10%

of the business-Entity they are required to maintain E&O insurance of at least $1,000,000

9. Unlicensed Assistants and Unlicensed Office Managers:

Allowable activities:

1) May sit at on open house as a hostess, attendant or Custodian but may not point out

features of the property but may distribute flyers or brochures about property 2) Set appointments to show a listing and may “drive” the purchaser to property.

3) Place “For Sale” signs on the property

4) Office administration and personal matters

5) Bookkeeping

6) Arranging financing under the direction of a licensee

7) Other non-real estate activities

III. Standards of Conduct (Sales Agent-7, Broker-9 Questions)

A. Professional Ethics and Conduct B. Single Act C. Grounds for Suspension and Revocation D. Unlawful Practice of Law E. Trust Accounts F. Splitting Fees

A. Professional Ethics and Conduct: This information comes from Chapter 531 of the Rules of

the Texas Real Estate Commission, Canons of Professional Ethics and Conduct for Real

Estate Licensees.

a. Fidelity: (most important) A real estate broker of sales agent, while acting as an agent

for another, is a fiduciary. Special obligations are imposed when such fiduciary relationships are created.

b. The primary duty of the agent is to represent the interests of the client and the

agent’s position should be clear to all parties in a transaction. The agent, in performing duties to the client, shall treat other parties fairly.

c. The agent must be faithful and observant to trust placed in the agent, and be

scrupulous and meticulous in performing the agent’s functions.

d. The agent must place no personal interest above that of the agent’s client.

2. Integrity: A broker or sales agent has a special obligation to exercise integrity in the discharge

of their responsibilities, including employment of prudence and caution so as to avoid misrepresentation by acts of commission or omission.

3. Competency: It is the obligation of a real estate agent to be knowledgeable as a real estate

brokerage practitioner. The agent should: a. Be informed on market conditions affecting the business and pledged to continue

education in the intricacies involved in marketing real estate for others.

b. Be informed on national, state, and local issues and developments in the real estate

industry.

c. Exercise judgment and skill in the performance of the work.

B. Single Act: A single violation of the TRELA by a person required to be licensed, is a violation of the

Act.

C. Grounds for Suspension and Revocation:

1. Commingling of money. 2. Offering real property for sale or lease without the consent or knowledge of the owner. 3. Failing to specify in a contract a definite termination date that is not subject to prior notice. 4. Acting in the dual capacity of a broker and undisclosed principal in a transaction. 5. Steering (Channeling): Directing a minority person to or away from a particular area to

maintain or change the character of the area. 6. Blockbusting (Panic Peddling): Encouraging owners to sell for particular reason, i.e.,

scare tactics, discrimination. 7. Failing to advise purchaser to have an abstract of title or purchase title insurance prior to closing.

(Notice is in promulgated forms.) May be referred to as the “statutory title notice”. It is also necessary to maintain a claim for commissions on a sale.

8. Not providing upon demand, copies of any documents to one of the persons who have signed it. 9. Making false promises to a potential buyer that may influence, persuade, or induce someone

to enter into a contractual agreement. 10. Guaranteeing that future profits will result from a resale of real property. (Puffing) 11. Advertising without disclosing in the ad that the person advertising is a broker or agent. 12. Placing a sign offering for sale, lease, or rent without prior permission from the owner or their

agent. 13. Threatening to sue for a commission to which you are not entitled. 14. Having knowingly withheld from or inserted in a statement of account or invoice, a statement

that made it inaccurate in a material particular.

D. Unlawful Practice of Law: A licensee, not being licensed to practice law in this state, who, for consideration, drew a deed, note, deed of trust, will, or other written instrument that may transfer or otherwise affect title, unlawfully practiced law in violation of the Act. To advise or counsel a person as to the validity or legal sufficiency of an instrument or as to the validity of title to real estate is also a violation under the Act. This is the only time the license will be automatically revoked is for the unlawful practice of law.

Trust Accounts: Brokers who hold funds for others, must maintain a separate trust account for the temporary placement of those funds. To mix those funds of other people with the broker’s personal funds is referred to as commingling. Likewise, a broker may not use such funds for his/her personal use, an illegal act known as conversion. Earnest money must be deposited by

the close of the second business day or within 48 hours of the agreement becoming binding. Escrow account records must be maintained for four years, according to TREC rules.

E. Splitting Fees: A broker may divide a fee with other brokers licensed in Texas, with sales

agents under the broker’s sponsorship, or with brokers licensed in another state or

country, provided the nonresident broker did not conduct any of the negotiations within Texas.

Texas licensees must handle all negotiations in Texas.

F. Broker Price Opinions: Licensees may do BPO’s as long as they comply with the following

requirements:

Not referred to as an appraisal

Is provided in the ordinary course of the person’s business

Related to the actual or potential management, acquisition, disposition, or

encumbrance of an interest in real property

G. Contact Information Required for All Applicants and Licensees: Must provide their

current mailing address, telephone number and email address, if available. The license

is required to notify TREC of any changes

IV. Agency/Brokerage (Sales agent-8, Broker-10 Questions)

A. Disclosure B. Intermediary Practice C. Duties to Client D. Enforcing Compensation Agreements (Broker only) E. Broker-Sales agent Relationships; Broker’s Responsibility for Acts of Sales agent

A. Disclosure: 1. A licensee under the Act who represents a party in a proposed real estate transaction shall

disclose (can be oral or written) that representation at the time for the licensee’s first contact with another party to the transaction or another licensee who represents another party to the transaction.

2. Information about Brokerage Services: The Real Estate License Act requires that a

licensee shall furnish to a party in a real estate transaction at the first conversation of substance with regard to real property, a written statement that sets forth generalized information relative to seller representation, sub-agency, buyer representation, and the intermediary position. The statement does not require signature, dates, or licensee names and may be printed in any format that uses at least 10-point type. The language must remain unchanged and read from TRELA. The Information about Brokerage Services must be posted at your place of business and on any and all website and Facebook pages.

3. The Consumer Protection Notice must be posted at your place of business and on

any and all websites and Facebook pages

4. The Information About Brokerage Services is not required if: a. The transaction is for a residential lease for not more than one year and no sale is

being considered.

b. The licensee meets with a party who is represented by another licensee.

c. The prospect comes through an open house held for prospective purchasers unless the open house visitor began to ask questions regarding the purchase of that piece of property. (Would the seller take less?)

4. Seller’s Disclosure of Property Condition:

a. Required on all single-family property, regardless if the seller may have not occupied it recently.

b. Also required by “For Sale by Owner” sellers.

c. Must be delivered by seller to buyer prior to the buyer making an offer on the

property.

d. If not delivered when the contract is written, the contract is voidable at the option of the buyer.

e. If it is delivered after the contract is effective, the buyer has seven days to terminate the

contract.

e. Caveat Emptor: Let the buyer beware. In the past caveat emptor applied to all transactions but now sellers and builders are required to disclose the condition of the property

5. Seller’s Disclosure Not Required:

a. For property sold pursuant to a court order. b. By a trustee in a bankruptcy. c. For transfer to a mortgagee by a mortgagor or successor in interest. d. In a foreclosure sale. e. In a decedent’s estate, guardianship, conservatorship, or trust. f. For transfer from one co-owner to one or more co-owners. g. Between spouses for transfer resulting from a divorce. h. For property sold to or from any government entity.

i. For new home construction.

6. AIDS, HIV Related Illness: An agent has NO duty to inquire about, make a disclosure of, or release information related to whether a previous or current occupant had or has such illness.

7. Death on the Property: Murder or death caused by the property’s condition must be

disclosed to any potential buyer.

8. Sex Offenders: Neither the owner (Seller) nor the real estate agent have a duty to disclose

that a nearby resident is a registered sex offender to any purchaser of a single-family home

9. Water Penetration: The seller is not required to inform the purchaser of prior water penetration if the issue has been corrected and is no longer a defect. If the water penetration has not been corrected, then disclosure is required

10. Prior Inspection Reports: There is no statute or other law that specifically states the prior

inspection report must be provided to a purchaser of a property. Any known material fact

noted in the prior inspection report must be disclosed to any purchaser to avoid any

allegations of nondisclosure

B. Intermediary Practice: It is suggested that the portion of TRELA relating to intermediary

brokerage be read in depth. There are many questions that focus on the practice of intermediary brokerage within a firm. 1. A broker may act as an intermediary between the parties if the broker complies with the Act

and obtains the written consent of each party to the transaction. This is to accomplish an “in-house” sale, a buyer buying a property that the firm has listed. The broker may designate a licensee to work with the buyer and another to work with the seller (appointees). A broker must agree to act as an intermediary if the broker agrees to represent in a transaction a buyer or tenant and a seller or landlord. (See Flow Chart at end of Study Guide)

2. A broker acting as an intermediary:

a. Shall treat all parties honestly.

b. May not disclose that the owner will accept a price less than the asking price unless authorized in writing to do so by the owner.

c. May not disclose that the buyer will pay a price greater than the offering price unless authorized in writing to do so by the buyer.

d. May not disclose any confidential information or any information that a party specifically instructs the broker in writing not to disclose unless authorized in writing to disclose the information or required to do so by the Act or a court order or if the information materially relates to the condition of the property.

e. Shall comply with the Texas Real Estate License Act.

C. If appointments are made:

There must be a written authorization from both parties. This is usually included in the Listing Agreement and the Buyers Representation agreement

The intermediary may not appoint himself or herself to either party The intermediary cannot make appointments to one party without also making

appointments to the other party

The intermediary must give written notice to each principal that appointments have been made and identify the respective appointees to the principals

The appointees must keep confidential information confidential D. Duties to Client: The creation of the agency relationship creates a duty between a licensee and

a principal called a fiduciary duty. The fiduciary duty is a relationship of trust and confidence

between principal and agent. The law imposes on the agent duties of obedience, loyalty,

disclosure, confidentiality, accounting, and reasonable care. (OLD CAR) A real estate agent

owes complete fiduciary duties to the principal and must act in the best interests of the

principal (the client).

E. Minimum Services: According to TRELA the broker who represents a party in a real estate

transaction or who list real estate for sale under an exclusive agreement for a party is that party’s

agent. The broker must inform the party if the broker receives material information related to a

transaction to list, buy, sell or lease the party’s real estate. The broker at a minimum must answer

the party’s questions and present all offers to or from the party.

F. Enforcing Compensation Agreements: More likely on Broker’s Exam

1. A person may not bring an action for the collection of compensation for the performance in this

state for real estate activity authorized by the Act without alleging and proving that the person

was a licensed broker or sales agent at the time the services were commenced, or was a

licensed attorney in this state or in any other state. Both parties must give their informed

consent to dual compensation.

2. An action may not be brought in a court in this state for the recovery of a commission for

the sale or purchase of real estate unless the promise agreement on which the action is

brought is in writing and signed by the party to be charged.

3. When an offer to purchase real estate is signed, the broker or sales agent shall advise the

purchaser in writing to have the abstract covering the property examined by an attorney

of their choice, or be furnished with a policy of title insurance. Failure to do so could preclude

the payment of or recovery of any commission agreed to be paid on the sale and is cause for

suspension and revocation of the agent’s license.

G. Broker-Sales Agent Relationships; Broker’s Responsibility for Acts of Sales Agent:

1. Each real estate broker licensed pursuant to the Act is responsible to the commission,

members of the public, and the broker’s clients for all acts and conduct preformed under the

Act by the broker or by a sales agent associated with or acting for the broker.

2. No real estate sales agent shall accept compensation for real estate activities from any

person other than the sponsoring broker.

3. No real estate sales agent shall pay a commission to any person except through the

sponsoring broker.

Vicarious Liability: The 1995 legislature made an attempt to limit some of the licensee's

liability through an amendment to the Texas Real Estate License Act (TRELA §15F). The Act

now provides the licensee is not liable for misrepresentation or concealment of material facts

made by a party in a real estate transaction, or made by his subagent in a real estate transaction

unless the licensee knew of the falsity of the misrepresentation or concealment and failed to

disclose the licensee's knowledge of the falsity or the misrepresentation or concealment.

Termination of Agency Representation Agreements: At any time, the agency relationship may be

terminated by either party; however, an early termination without cause might expose the

terminating party to liability under the representation agreement. Upon early termination of an agency agreement might be due compensation but may not take

action to prohibit the principal from engaging the services of another broker. If a principal

approaches a licensee and informs the licensee that the principal is in an exclusive

agency agreement with another broker, the licensee should not provide any services until

confirmation that the prior agency relationship has been terminated

V. Contracts (Sales Agent-7, Broker-8 Questions)

A. Use of Standard Contract Forms B. Statute of Frauds

A. Use of Standard Contract Forms:

Forms promulgated by TREC are required to be used by licensees

specifically for the type of real estate transaction the form is prepared for. These standardized contracts must be used by all licensees except when the

services of a lawyer are used to prepare the contract and the principle

requires it, the government may use its own contract, or an owner may draw up

his/her own contract of sale. A licensee functioning solely as a principle in the

transaction may prepare his or her own contract.

Approved contract forms are made for optional use by licensees. See

requirements for All TREC promulgated contracts call for title to be delivered by a general warranty deed.

TREC PROMULGATED CONTRACTS: Must be used by all licensees to which the forms are

applicable with the exceptions stated above. It is not necessary to know the number of each

contract but is essential that you have read and understand the provisions of each. See

your contract textbook or Chapter 12 of the Principles textbook.

Promulgated Contract Forms:

One to Four Family Residential Contract

(Resale) Unimproved Property Contract

New Home Contract, Incomplete

Construction New Home

Contract, Complete Construction

Farm and Ranch Contract Residential Condominium Contract ( Resale)

Special Conditions Addenda and Forms:

Sale of other property by buyer Addendum (creates a contingency contract)

Backup Contract Addenda: To be used when negotiating a backup contract when the property is

already under contract to another buyer. The seller is free to consider all subsequent offers

even after signing a contract. These offers are only to be considered as back up contracts so

if the current contract for some reason does not close, then the seller can sell to the backup

buyer. The backup contract is negotiated just as if it is the original offer because the seller would

be bound by the terms if the original contract fails to close. The escrow money is escrowed into

the title company in the same way as the original contract; however, the time periods would not

begin until the buyer of the backup contract had been notified that their offer has moved into

first place. The notification date becomes the effective date of the backup contract.

Seller Financing Addendum: to be used if the seller is financing the buyer into the property either in

full or in part.

Environmental Assessment Addendum

Condominium Resale Certificate: Must be obtained from seller before closing

Coastal Area Property Addendum

Property Located Seaward Addendum: notifies of potential flooding

Property Subject to Membership in an Owner’s Association Addendum: Must be used if the

property is in a mandatory HOA

Subdivision Information, including Resale Certificate for Property subject to Mandatory

Membership in an Owner’s Association (if the resale certificate is required)

Notice of Termination of Contract (to be used to terminate the contract during the option period; could

be used in other areas for contract termination)

Amendment to Contract (to be used to change anything already agreed to or to be used by the

buyer after inspections to request changes such as repairs, price change, closings date etc…)

Loan Assumption Addendum (to be used when the buyer assumes the seller’s existing mortgage)

Third Party Financing Addendum Unless the buyer is paying cash, this addendum must accompany

the offer explaining to the seller how the buyer intends to finance the purchase of the property. It

contains the type of loan, what the interest rate is and the period of time the loan will be paid back.

It is customary for the seller to ask the buyer to bring a pre-approval letter from a lender

demonstrating that the type of financing described in the Third Party Financing Addendum has been

offer to that buyer and that they qualify for the loan.

Temporary Residential Lease Forms: They are intended to be used to lease the property to the

buyer before closing or to lease the property back to the seller after closing. They are intended for

short term use ONLY, and only for these two specific situations. Rent is pro-rated in terms of

days and the rent is paid upfront at the funding of the sale of the property. Failure to surrender

possession on the termination date constitutes a tenancy at sufferance. Seller’s Lease

Buyer’s Lease

Representation Contracts

TREC doesn’t promulgate any employment contracts between agents and principles. Listing

Agreements and Buyer/Tenant Representation Agreements can be obtained from trade organizations

such as the Austin Board of Realtors or the Texas Association of Realtors. Brokers and salesmen

must be members to use these documents. Otherwise it will be necessary for a broker to hire an

attorney licensed in the state to prepare these documents for the broker to use in his practice. These

have been provided in your agency textbook and knowing what they contain is essential to passing

the state exam. Be sure you have read through each of these documents so you can answer

any questions about their content.

It is essential to read all of the various TREC contracts and know what they contain in order to be

prepared to pass the exam. Pay particular attention to the specific paragraphs in the 1-

4 Family Residential Contract (Resale). There will be questions on the exam as to the content

of these documents!

Non-Promulgated Contracts

Like representation agreements, there are many different contracts that licensee use in business.

These can also be obtained from your local trade organization such as the Texas Association of

Realtors. If it has ever occurred in real estate, TAR has a contract, form, or addenda for that

particular occurrence. Your brokers will train you in the use of these forms, he’s responsible for

your training so you know what to do in the field. The same rules apply to these type of contracts.

TAR contracts were prepared by an attorney licensed in Texas and approved by that attorney for

use in those transactions. Principles could write their own contracts, but might have a problem

getting the lender to accept it. Effective Date of a Contract: Is to be completed by the broker/agent that completes the final agreed

upon terms of the contract by all parties. Once all parties have signed and initials and the acceptance

has been communicated back to the other party or their agent, this is the effective date of the contract.

This could be a weekend day or even a holiday.

Multiple Offers: A listing agent should discuss multiple offers with their client (seller) to see how they

would like to handle the situation. The licensee and seller may take two courses of action:

Tell NO other agent there are multiple offers

Tell ALL other agents there are multiple offers The seller is not required to:

Accept any offer even if full price

Respond to any offer

Respond to any offer based on when they received the offer The seller may:

Accept one offer and ignore the others

Reject all offers

Reject one offer and make a counteroffer to that buyer

Statute of Frauds:

1. The Texas Statute of Frauds requires that certain types of contracts be in writing to be

enforceable. The reason for this statute is to prevent fraudulent proof of a fictitious oral

contract.

2. The Texas Statute of Frauds also requires that a lease for a term of one year or more

be written to be enforceable.

3. Any document that transfers any interest in real property is required to be in writing per

Statute of Frauds.

4. All listing agreements and buyer representation agreements must be in writing and signed

5. Listing Agreements Must:

a. Have a definite termination date not subject to prior notice.

b. Have an adequate description, such as property address. The legal description is not required.

c. Include a fair housing statement.

d. Have an asking price.

e. Have a definable broker fee.

f. Be signed by the seller.

VI. Special Topics (Sales Agent-4, Broker-6 Questions)

A. Community Property B. Homestead C. Deceptive Trade Practices Act D. Assumed Names (Broker only) E. Descent and Distribution F. Intestate Succession G. Seller Disclosure Requirements H. Landlord-Tenant Issues I. Foreclosures

J. Recording Statutes K. Mechanic’s and Materialman’s Liens

Community Property: Property acquired after marriage. The concept is that the husband and

wife contribute jointly and equally to their marriage and should share equally in any property

purchased during marriage

Separate Property: Property acquired before the marriage or property acquired by gift, devise, or

descent after marriage

Homestead: If the owner of the property also resides on the property (owner occupied) the property

is considered homestead property. No filing of any official documents are required. This

protects the owner from the forced sale of their property due to outside debt unrelated to

the property

Deceptive Trade Practice Act (DTPA): In Texas a consumer is protected by the DTPA. The act

is designed to protect the consumer against false, misleading, or deceptive acts or

practices when selling or leasing real estate. The consumer has two years from the date

of discovery of the deception to file a complaint. The consumer may recover up to triple

damages

Decent and Distribution and Intestate Succession: If a person dies testate (having a will)

the property is distributed according to the will. If a person dies intestate (not having

a will) the property passes to his heirs. All community property passes to the surviving

spouse if (1) there are no children, or (2) all the surviving children are common to the

marriage. If there are other children outside of this marriage and are not the children of

the surviving spouse then; one half passes to all of the children and one half to the

surviving spouse. If they died unmarried the property goes as follows: (1) All to any

surviving children. (2) If no children to parents. (3) If no children or surviving parents to

siblings (brothers and sister). (4) If none of this exist the property goes to other relatives

according to the closeness of the relationship to the deceased

Seller Disclosure Requirements: The seller of a property must disclose all material facts relating

to the property and the title to the property.

Landlord-Tenant Issues: The Texas Property Code contains many laws relating to landlords

and tenants including: 1) Interruption and exclusion by the landlord to lockout a tenant from the premises. A landlord

may lockout a tenant only after proper notice (7 days) for non-payment of rent. The landlord

must however post a note on the outside of the door informing the tenant where they

can call to be let back into their premises. The landlord must allow the tenant back into

the dwelling. This is not an effective way to assure payment of the rent but does force the tenant to make contact with the landlord.

2) Security deposits must be returned within 30 days (60 days for commercial) or a

written explanation showing why the deposit was not returned

3) A tenant may terminate his/her lease if they are a victim of family violence. The tenant

must provide the landlord with a copy of the court order protecting the tenant and must

move out of the unit 4) A landlord must provide a habitable premise for the tenant

5) A landlord is required to install security devices for the tenant

6) A landlord may deduct the cost to re-key a property if the tenant breach a written lease

Foreclosures and Short Sales:

Foreclosure: A legal process by which the mortgagee’s right to redeem a mortgage property

usually because of non-payment of the mortgage payments. The property is foreclosed in

the county where the property is located. The mortgagee must give a 30 day notice of

default to the mortgagor and allow them to cure the default. If the debt is not cured within

that time frame the mortgagee may accelerate the note. The mortgagor must be given a 21

days’ notice of the foreclosure. The proposed foreclosure sale must be post at the

courthouse door at least 21 days before the foreclosure date and filed at the county

clerk’s office. The foreclosure will take place on the first Tuesday of each month between the

hours of 10am and 4pm after proper notice has been given

Short Sale: A transaction in which the seller’s lender agrees to accept a payoff of less than the

balance due on the loan. The lender may agree to this if the seller owes more on the property

than the property is worth

Recording Statues: All documents are recorded in the county clerk’s office in the county where

the property is located. All documents must be acknowledged before a notary public. No

document can be recorded unless it is first acknowledged. Recording gives legal priority to

documents as they are recorded.

Mechanic’s and Materialman’s Liens: Are liens that are placed on a property by persons or companies that have furnished labor and/or materials for the demolition or improvements of a property. In order to be entitled to a lien the contractor (provider of the service) must have had a contract, either expressed or implied, with the owner of the property or the owner’s representative.

Other important information recently appearing on the State Exam:

Veteran’s Land Board (VLB): The Texas Veteran’s Land Board was created in 1946 and allows Texas veteran’s to borrow money at below market interest rates for the purchase of land in Texas. There is a minimum 5% down payment and the VLB originates all land loans, not private investors.

Holographic Will: A will that is completely handwritten, dated and signed is recognized in Texas. It is not required to be witnessed.

Codicil: A written supplement or amendment to a will. Used to change a will without rewriting.

Do-Not-Call-List: A licensee may not call a number on the national do-not-call registry. A licensee must check the list prior to making any cold calls. The registry download must be updated at least every 31 days. The licensee may call a number on the registry if they have an established business relationship (EBR) with the person. If a company allows cold calls, it must maintain an internal do-not-call list. A request to be placed on the list must be honored for 5 years.

Mediation: A dispute resolution procedure where as an impartial person designed to encourage communication between the parties. The mediator does not need to be a judge, attorney or have any kind of a license. The mediator is a neutral third party that for a fee hears both sides of the dispute and

helps the parties reconcile their differences. The fee is often split between the parties involved. The mediator does not make decisions concerning the dispute and may not give awards.

Arbitration: Much more formal than mediation. The arbitrator need not be licensed. Any parties to the dispute must agree in writing to arbitrate. If the parties cannot agree than the arbitrator may render a specific reward to the prevailing party. The winning party may seek to enforce the judgment by requesting a court of law to do so. Arbitration awards may be appealed.

M.U.D. District: A Municipal Utility District (MUD) is a political subdivision of the State of Texas authorized by the Texas Commission of Environmental Quality (TCEQ) to provide water, sewage, drainage and other services within the MUD boundaries. In addition to their common functions of water and wastewater service, MUDs are

ctio legally empowered to engage in conservation, irrigation, electrical generation, firefighting, solid waste collection and disposal, and recreational activities (such as parks, swimming pools, and sports courts). A MUD can provide for itself the recreational amenities that are approved by the Board of Directors and funded by the District.

Mold and Mold Remediation: The property is first checked for mold and a mold remediation plan that specifies the quantities and location of the materials to be remediated is developed. After remediation has been performed a post assessment is done to ensure that the location is free of all visible mold and that the work was done according to the plan. No later than 10 days after the mold remediation has passed the inspection the contractor must provide the property owner with a Certificate of Mold Remediation. All Certification of Mold Remediation must be given to any buyer for the next 5 years. All insurers are prohibited from making a decision to insure based upon mold damage or because a property had mold in the past if:

1) The applicant has property eligible for property insurance 2) The property had mold damage 3) Mold remediation has been performed and 4) A Certificate of Mold Remediation was issued and the property has no evidence of mold

damage

Asbestos: Is a naturally occurring fibrous mineral that has high tensile strength and is resistant to heat and most chemicals. Exposure to the airborne fibers may result in lung diseases including lung cancer. A seller is not required to have testing done but must disclose asbestos if known to the seller. The buyer may have the property inspected for asbestos at their expense.

Radon Gas: Is a gaseous radioactive element and is present in most all rock, soil, and water. The EPA (United States Environmental Protection Agency) states that radon causes lung cancer. A seller is not required to have a home tested, but must disclose radon if known to the seller.

Uniform Standards of Professional Appraisal (USPAP): Is the document that can be considered the

quality control standards applicable for real property analysis and reports in the United States. First

developed in the 1980’s.

Member of the Appraisal Institute (MAI): Is a membership designation given by the Appraisal Institute to appraisers who are experienced in the evaluation of properties, and who advise clients on real estate investment decisions.

While Realestateprepexams.com has used reasonable efforts in collecting and preparing materials

included here, due to the rapidly changing nature of the real estate marketplace and the law, and our

reliance on information provided by outside sources, Realestateprepexams.com makes no representation,

warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on our

website, Study Guides, Questions or Explanations of the Questions. Any legal or other information found

here, on Realestateprepexams.com or at other sites to which we link, should be verified before it is relied upon.

Working Both Sides of One Transaction

Intermediary Relationship

Are the Buyer and the Seller both represented by the same Broker?

No Yes

No Intermediary Do both buyer and seller want

to continue working with

broker?

YES NO

Does broker sponsor two

or more licensees? NO

Yes

Intermediary Broker makes NO appointments

and both buyer and seller

represent themselves. Broker

gives no advice or opinions to

either party

Intermediary Broker appoints sponsored

licensee to both buyer and seller.

Broker may not appoint himself

Broker’s

Choice

Requires consent of both

parties and written

notification of the

appointments

Only appointed licensee can

provide advice and opinions to

their appointed parties

Consent Seller Buyer

Listing agreement Buyers agreement

Notification Intermediary Relationship Notice