Texas Real Estate Practice Exam

Texas Real Property Characteristics and Legal Descriptions 

1 The Smiths found a home they love and asked their agent to write an offer. Their agent informs them that the sellers are taking a fixture from the dining room and moving it to their new home. What are the sellers removing from the home?

a. The chandelier

b. A large, heavy potted plant

c. The teak dining room set

d. The swinging door between the kitchen and the dining room

Incorrect. Please choose another answer.

Personal property that is attached, or fixed, to real estate is typically considered real property and is referred to as "fixtures". In this situation, the seller is choosing to detach the fixture and retain it as personal property. The plant is in a pot which is a personal item that is not attached to the property. Furnishings, in general, are considered personal property. The swinging door is attached to the home and was installed when the home was built. It is considered real property.

Study Online Instantly

Click to Save 50% Now

2 A single-family home being considered by the Powers Family has two parts which are joined by a breezeway that has no HVAC. The bedroom wing has five bedrooms and two bathrooms and is 40' wide and 40' long. The breezeway is 6' wide and 5' long. The living area wing has a living room, dining room, kitchen and laundry room. It is 30' wide and 40' long. What is the gross living area (GLA) of the home?

a. 2,830 square feet

b. 2,800 square feet

c. 2,000 square feet

d. 2,770 square feet

Incorrect. Please choose another answer.

For an area to be included in the GLA it must meet three criteria: (1) it must be heated or have air; (2) it must be finished; and (3) the living area must be directly accessible from the other living areas. In this scenario, the breezeway does not have heat or air, so is not considered part of the GLA and is not counted.

Step 1: Multiply 40'x40' to arrive at 1600 s.f. 
Step 2: Multiply 30'x40' to arrive at 1200 s.f. 
Step 3: 1600 s.f. + 1200 s.f. = 2800 s.f. GLA

Texas Forms of Ownership, Transfers and Recording of Title 

3 Which of the following forms of ownership is best described as "individual ownership"?

a. joint tenancy

b. ownership in severalty

c. tenancy in common

d. tenancy by the entirety

Incorrect. Please choose another answer.

It is important to understand the different forms of real property ownership. Ownership in severalty is a form of ownership where there is one owner. The ownership is "several", meaning separate, distinct or sole. Under ownership in severalty, the owner has sole control over the use and possession of the property. Joint tenancy, on the other hand, means that there is more than one owner and all owners have equal share in the whole property. It is distinguished by the right of survivorship. If one owner dies, his interest passes to the surviving owner(s). Tenancy in common is incorrect because a tenancy in common by definition requires two or more owners. In a tenancy in common, the interest of an owner passes to his descendants or heirs upon his passing and not to the other owners. Tenancy by the entirety is basically a joint tenancy for married couples. It is a form of ownership where a married couple own equal shares in the real estate. It has a right of survivorship.

4 Harry Blackwell owned ten acres on Leaf Creek Dr. The local animal shelter was in need of land to build a new facility for their growing menagerie. Mr. Blackwell, an animal lover, granted his property to the shelter with the condition that it revert back to him or his estate if the shelter ever opted out of its "no kill" policy. What type of estate did Mr. Blackwell create?

a. fee simple estate

b. life estate

c. fee simple defeasible estate

d. fee simple subject to a condition precedent

Incorrect. Please choose another answer.

A fee simple defeasible is a fee simple with a condition placed on it. The holder of the fee simple defeasible possess the property subject to the condition. If the condition is violated or met, the property either automatically goes back to the granter (fee simple determinable) or a designated third party, or the grantor has the option to sue to take the property back (fee simple with a condition subsequent). A life estate is an incorrect answer because it is one in which the grantee has rights of ownership only for the duration of his life or the life of another. This is a limited estate based on the duration of a person's life. A fee simple subject to a condition precedent is an incorrect answer because it establishes an estate for a party upon the future occurrence of some condition.

Study Online Instantly

Click to Save 50% Now

Texas Property Value and Appraisal 

5 The economic concept of scarcity is best explained by which example?

a. A retail developer asks his agent to find a two-acre tract downtown and the agent reports back that there are no listings that meet his request.

b. A storeowner decides to convert the second floor of his building into an apartment because there is a rental apartment shortage in the downtown area.

c. A couple decides to move to the next town because housing is more plentiful and more reasonably priced.

d. All of the above.

Incorrect. Please choose another answer.

Scarcity means that there is a shortage of land in a market where there is a high demand. In answer A, there is a need for land and the land for the developer's use is scarce. In answer B, apartments are scarce in the downtown area, therefore the store owner decides to modify his building to take advantage of the situation. Answer C is a good example of scarcity. Housing is scarce in the couple's current town and more plentiful in the next town, enticing the couple to move.

6 A local developer saw a two-story office building with a "For Sale" sign. He called the listing agent and asked him to find out the annual net operating income (NOI). Which of the following expresses NOI?

a. NOI = gross rents - operating expense - capital improvements

b. NOI = gross rents - operating expenses

c. NOI = gross rent + depreciation - utilities

d. The NOI is the same as annual gross rents.

Incorrect. Please choose another answer.

Net operating income (NOI) is one way for an investor to analyze the value of an income producing property. NOI is calculated by adding all the revenue generated by the property and then subtracting all of the reasonably necessary operating expenses, like rent, utilities, inventory costs, payroll and insurance. The NOI does not take into account such things as debt payments, costs for capital improvements or depreciation and amortization.

7 What does it mean if an appraisal states that a property is not currently at its "highest and best use"?

a. The air space is not being properly utilized.

b. The property is not being used in a manner that will produce its highest current value.

c. The property is not zoned correctly.

d. The structure on the property is not constructed to its maximum height.

Incorrect. Please choose another answer.

There are many principles of value that help determine a market price. "Highest and best use" means that a property is being used in a manner that will produce the highest current value. The appraisal industry generally considers that a property is at it's highest and best use when it meets four criteria:

• that it is physically possible (ex. An airport on enough land for a runway),
• legally permissible (ex. Zoned properly),
• financially feasible (ex. land value exceeds the value of the improved property); and
• that it is maximally productive (the current use is the most profitable in a set of possible uses).

Study Online Instantly

Click to Save 50% Now

8 Which of the following is used by real estate agents to determine the value of a property by comparing similar listed and sold properties?

a. a market assessment

b. a comparative market analysis

c. a written opinion of value

d. a tax assessment

Incorrect. Please choose another answer.

Value of real estate can be determined by various methods for different purposes. A comparative market analysis is commonly performed by a real estate agent to determine market value by comparing a minimum of three active listed properties and three recent sold properties.

A market assessment is close but not the correct answer. A written opinion of value is not the name of a valuation method. A tax assessment is used to provide value for a taxing entity but not performed by a real estate agent.

Texas Real Estate Contracts and Agency 

9 What type of listing reserves the right for an exclusive agent to find a buyer and receive a commission and also allows the seller to find a buyer herself without having to pay a commission?

a. Open Listing

b. Exclusive Right to Sell Listing

c. Net Listing

d. Exclusive Agency Listing

Incorrect. Please choose another answer.

There are four common listing types.

• An Exclusive Agency Listing allows the seller to find a buyer and excuses him from paying a real estate commission while allowing an exclusive agent to also look for a buyer and receive a commission.
• The Exclusive Right to Sell Listing disallows anyone but the broker named in the agreement to procure a buyer and receive a commission. 
• An Open Listing gives the most freedom to the seller and allows anyone, including the seller, to procure a buyer and receive a commission. 
• A net listing is illegal in most states and allows the broker to procure a buyer at a set price, determined by seller and broker, and allows the broker to keep the difference in the set price and the contract price, pocketing any money over and above the set price.

10 Pearl wanted to buy her first home in Texas. Her neighbor referred her to his favorite real estate agent, Paula. Pearl and Paula met on Saturday and Paula advised Pearl on local market conditions and then offered to show her a few properties. Next Paula asked Pearl to sign an agreement to establish their working relationship. Which of the following is the agreement Paula used?

a. buyer representation agreement

b. dual agency agreement

c. intermediary agreement

d. exclusive agency listing

Incorrect. Please choose another answer.

A buyer representation agreement is used to establish the agency relationship between the agent and the buyer. It is used to spell out what the agent will do for the client and how the agent will be compensated for her performance.

Study Online Instantly

Click to Save 50% Now

11 Mi Wu, a landlord, was standing in the front yard of her new property, a duplex in Texas. She saw that Apex Lawncare was mowing next door and when they took a break, she asked one of the workers if they had time to mow her lawn. He answered that they would be delighted to mow her yard too and 30 minutes later they began working at Mi's place. This is an example of:

a. an express contract

b. an option contract

c. a unilateral contract

d. an implied contract

Incorrect. Please choose another answer.

People make agreements, or contracts, every day. When time is short, agreements are sometimes made by implication. An implied contract is made because it is commonly known and understood that certain actions will result in payment. Mi invited Apex to mow and it is commonly expected that she would pay for that work when it is completed. If she refuses to pay, or the amount of payment is disputed, a small claims court would use a reasonable, customary amount accepted in the lawncare industry. An express contract is a verbal or written contract in which the parties make it clear what they will do and what essential terms are part of the agreement. Mi did not say, "I will pay you $50 after you mow my yard", thus an express contract did not arise.

12 All of the following are a part of Paragraph 5: Earnest Money and Termination Option in the TREC promulgated One to Four Family Residential Contract (Resale), pertaining to the buyer's option to terminate, except:

a. The buyer can terminate the contract for any reason during the option period.

b. A fee must be paid by the buyer to the seller for the right to terminate.

c. The buyer has three (3) days to deliver the option fee to the escrow agent.

d. The buyer has ten (10) days for the option period.

Incorrect. Please choose another answer.

According to paragraph 5 of TREC's One to Four Family Residential Contract (Resale), the buyer shall have a right to terminate the contract for any reason as long as he or she:

1. delivers the option fee to the escrow agent within three (3) days; and
2. gives notice of termination to the seller within the negotiated "option period".
 
The option period is not a set or standard timeframe and must be negotiated between the parties. The buyer can terminate the contract for any reason during the option period.

Texas Real Estate Practice 

13 You receive a phone call from a prospect you spoke with weeks ago and they are now ready to list their home located in Texas. You list the property the next night and before you put up your sign, the neighbors, Mr. and Mrs. Adams, call and ask you to represent them to make an offer on the house. What is your next step?

a. You ask both buyer and seller to sign a Notice of Intermediary Relationship, disclosing that you are representing both parties and will now be an intermediary.

b. You show the home to Mr. and Mrs. Adams and wait to tell them you are the listing agent until you see if they are really interested.

c. You must tell Mr. and Mrs. Adams that you cannot represent them since you represent the seller.

d. You show the home to the Adams and then write an offer. When you present it to the seller, you mention at the end of the presentation that you represent the Adams too.

Incorrect. Please choose another answer.

Texas law is clear about how agents should handle representation of multiple parties in a transaction. The role of Intermediary is the established practice requiring agents to disclose their agency relationship to more than one party in a transaction. Upon discovery that an agent represents more than one party, he must immediately send both parties a Notice of Intermediary Relationship and have both parties sign the notice to document their acknowledgement. An agent should always disclose his position and relationship to the parties BEFORE working for both parties simultaneously. He should never keep that fact to himself while inducing action from one of the parties.

Study Online Instantly

Click to Save 50% Now

14 A typical Buyer Representation Agreement was signed by a buyer and his agent. The agent found a home the buyer wants to purchase but the seller is refusing to pay the buyer's agent a commission. According to the Buyer Representation Agreement, who will ultimately pay the buyer's agent if the buyer proceeds with that house?

a. the seller's agent

b. the buyer agent's broker

c. the title company

d. the buyer

Incorrect. Please choose another answer.

A typical Buyer's Representation Agreement will spell out the responsibility of the agent to his client and vice versa. It also addresses how the broker/agent will be paid for his work. In the instance where a seller refuses to pay a buyer's broker/agent, the Buyer's Representation Agreement usually establishes payment to the broker/agent by the buyer. A seller's agent will not normally agree to split his side of a commission. It is possible but not likely. The buyer agent's broker will not normally pay an agent without a commission coming into the brokerage. The title company does not owe an agent a commission.

Texas Standards of Conduct 

15 Ernie, a licensed realtor, signed a buyer representation agreement with Nelda. They began looking at homes. Nelda found one home online and asked Ernie to show her the property. Ernie realized that the listing was one that he had turned down because the seller would not disclose that the property had flooded during the last storm. The weather was beautiful, dry and sunny the day he showed it to Nelda so Ernie did not mention the flood. What rule of ethics, if any, did Ernie violate?

a. Ernie did not violate any rules.

b. TREC's ethical rule of Competency

c. TREC's ethical rule of Integrity

d. TREC's ethical rule of Confidentiality

Incorrect. Please choose another answer.

The Texas REALTOR®'S Canons of Professional Ethics and Conduct establishes rules that all licensees must follow. (Title 22. Examining Boards Part 23. Texas Real Estate Commission Chapter 531.) Ernie violated the rule of integrity because he did not use caution to represent the property accurately to Nelda. He must disclose any material defect to her. By act of omission, Ernie misrepresented the property to her. The rule of Competency does not apply in this situation, although it is a valid rule. The rule of Confidentiality is not a stated Canon in the TREC rules but is included in NAR's Code of Ethics. In this case, Ernie does not represent the seller and does not have a duty of confidentiality to the seller.

16 Which of the following is on the "laundry list" of the Texas Deceptive Trade Practice Act (DTPA)?

a. representing that used goods are new

b. letting a real estate license lapse

c. not putting a contract between parties in writing

d. All of the above

Incorrect. Please choose another answer.

The Texas DTPA ensures that salespersons act ethically and honestly in their dealings. They should not represent the thing they are selling or induce a consumer to purchase something by using deceptive practices. Representing something that is used as "new" is one of the most common violations of the DTPA. The other answers do not pertain to DTPA.

Study Online Instantly

Click to Save 50% Now

Texas Property Disclosure and Environmental Issues 

17 What year represents the last year that a home may have been constructed using paint containing lead?

a. 1979

b. 1969

c. 1977

d. 1955

Incorrect. Please choose another answer.

Federal law banned the sale of lead-based paint for household use in 1978. The law now requires that sellers and landlords notify a buyer or tenant under contract or lease that lead-based paint may be present in a home and give them a 10 day period to do an assessment if they so desire. This applies for any real property with a residence built prior to 1978. 1977 is the correct answer.

18 All of the following are hazardous conditions that may affect the health or safety of a residential property owner and must be disclosed if known by a seller in Texas, except:

a. location in a flood zone

b. presence of oak trees near the house

c. mold in the basement

d. asbestos siding

Incorrect. Please choose another answer.

There are various conditions that can cause a hazard for property owners, most of which require disclosure by a seller. The presence of trees are not typically considered a hazard. Flood water, mold and asbestos are all common environmental conditions or substances which can negatively impact residential property owners and must be disclosed by sellers that have knowledge of their presence.

Texas Financing and Settlement 

19 The best explanation for the meaning of "conventional loan":

a. a loan that is backed by the government

b. a loan that goes through underwriting

c. a loan that is not guaranteed by the government

d. a loan that does not require mortgage insurance

Incorrect. Please choose another answer.

A conventional loan is originated and serviced by private mortgage lenders, like banks, and is not back by a governmental agency. A non-conventional loan is one in which FHA, VA, or USDA insures the lender thereby resulting in less risk to them. If a conventional loan adheres to the standards of Fannie Mae and Freddie Mac, they are said to be conforming conventional loans. Conventional and non-conventional loans go through underwriting. Underwriting is the process where the lender verifies the borrower's income, debt and the property details in order to get final approval for the loan. Although some loans may not require mortgage insurance, most mortgages require mortgage insurance until a specific loan to value is reached.

Study Online Instantly

Click to Save 50% Now

20 In mortgage lending jargon, a monthly mortgage payment consists of PITI. Which of the following is NOT a component of PITI?

a. insurance

b. utilities

c. interest

d. taxes

Incorrect. Please choose another answer.

PITI stands for principle, interest, taxes and insurance, the four components of a mortgage payment with escrow. Utilities is not a component of PITI.

21 Esther and Mike owned their home in Texas for ten (10) years. They both lost their jobs and were unable to make their mortgage payments for more than a year. Their agent assisted them with completing a short sale. What did the agent do?

a. The agent listed the home and sold it quickly.

b. The agent listed and sold the home to someone who assumed the mortgage, releasing Esther and Mike from their obligation to pay it.

c. The agent worked with them and their lender to sell the home to a buyer that purchased the home "short" of or less than what was owed by Esther and Mike.

d. The agent sold the home for a price less than, or "short" of what Esther and Mike wanted for the house but enough to cover the mortgage debt.

Incorrect. Please choose another answer.

When a homeowner with a mortgage debt, or mortgagor, falls behind and cannot pay their debt, the lender, or mortgagee, will sometimes approve a short sale if the market value is deemed to be less than the amount still owed on the loan. If the homeowner has a history of acting in good faith and has good payment history but has had a recent crisis such as layoff or divorce, then a bank will sometimes approve a short sale. They agree to accept a payoff of the balance of the mortgage that is "short" of or less than the current balance.

Texas Commission Duties and Powers and Licensing 

22 Which of the following are NOT duties or powers of the Texas Real Estate Commission (TREC)?

a. criminal adjudication

b. revocation of a license

c. holding a hearing

d. enforcing rules and regulations

Incorrect. Please choose another answer.

As a state administrative agency, TREC is empowered to make and enforce rules and regulations and enjoin any violation of the Texas Real Estate Licensing Act (TRELA). It has the duty to hear complaints and administer consequences for violations such a suspension and revocation of a license. It does not have jurisdiction to adjudicate the criminal code.

Study Online Instantly

Click to Save 50% Now

23 A person needs a Texas real estate license to perform all of the following acts, except:

a. sending out letters to see if he can find a buyer for his own house

b. offering to list a neighbor's home for a 3% commission

c. preparing a market analysis for a coworker for a fee

d. agreeing to help find a tenant for his friend's duplex if the friend lets him lease another unit for free

Incorrect. Please choose another answer.

A real estate license is required for anyone that for compensation, negotiates, offers, buys or sells, leases or lists real estate, or procures properties or clients for real estate transactions. A license is not needed to sell one's own property. Offering to help a friend sell their property for a fee or commission requires a license. Doing a market analysis for someone for a fee is practicing real estate and requires a license. Helping someone find a tenant in exchange for free rent (something of value) requires a license.

Texas Special Topics 

24 What does it mean if a person dies "testate" under the Texas Estates Code?

a. He did not leave a will.

b. His heirs will contest his will.

c. He forgot to sign his will.

d. He left a will.

Incorrect. Please choose another answer.

A person that dies leaving a will is said to have died "testate". A person that dies not having a will is said to have died "intestate". If a person dies testate, a court will probate their will. If a person dies intestate, their property will be distributed by the court according to the Texas Estates Code, law of descent and distribution.

Study Online Instantly

Click to Save 50% Now

25 Which of the following is a true statement about Texas Homestead Protection law?

a. A court must formally entitle someone with a homestead right.

b. A homeowner can lose his home to a creditor for not paying medical bills.

c. A homeowner can lose his home if he defaults on his mortgage.

d. An urban homestead can be up to 15 acres.

Incorrect. Please choose another answer.

The Texas Constitution endows Texas homeowners with an automatic homestead right. The homeowner must occupy the property and use it as their residence to create the right. A court does not formally give someone a homestead right. A homeowner cannot lose his home to a creditor, in general, with some exceptions. A mortgage is one of the exceptions. A rural homestead can be up to 100 acres for an individual or 200 acres for a couple. An urban homestead can be up to 10 acres.