Real Estate Exam

what is a valid contract?

Has all essential elements: competent parties, mutual consent, lawful objective, consideration, and in writing.

what is a void contract?

Has no legal force or effect, typically due to missing essential elements.

what is a voidable contract?

Appears valid but can be rejected by one party (e.g., due to coercion or fraud).

what is an unenforceable contract

Valid but not enforceable in court due to legal defect (e.g., not in writing).

what is an offer?

Initial proposal made by buyer; must be communicated to be valid.

what is a counteroffer?

Changes terms of original offer; legally replaces original offer.

what is an acceptance?

Occurs when offeree agrees to all terms; must be communicated.

what is consideration?

Something of value exchanged (money, promise, etc.). Required for valid contract.

what is breach of contract?

One party fails to perform per agreement. May lead to damages or rescission.

what are liquidated damages?

Predetermined amount of damages agreed to in contract (often earnest money).

What is specific performance?

Legal action to force contract completion.

what is rescission?

Cancellation of a contract by mutual agreement or court order.

what is an assignment?

Transfer of contractual rights to another party.

what is novation?

New contract replaces old; all parties agree.

What does Time is of the Essence mean?

Strict deadlines must be followed for valid performance.

what is earnest money?

Deposit to show good faith; held in escrow by broker or title company.

What is an option contract?

Unilateral contract giving buyer exclusive right to buy during option period.

What is contingency?

Condition that must be met (e.g., financing) before closing.

What is statue of frauds?

Certain contracts must be in writing to be enforceable (including real estate).

What is an addendum?

Document attached to a contract to modify terms.

What is agency?

Legal relationship where one acts on client's behalf with fiduciary duties.

What are fiduciary duties?

OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable care.

What is dual agency?

Agent represents both parties with written consent.

what is single agency?

Agent represents only one party (buyer or seller).

What intermediary?

Texas version of dual agency, broker represents both with appointments.

What is implied agency?

Created through actions, not written agreement.

What is expressed agency?

Created through written or spoken agreement.

what is a subagent?

Represents the seller via another broker, not the buyer.

what is a broker?

Holds license to supervise agents and perform brokerage services.

what is a sales agent?

Must work under a licensed broker to perform real estate acts.

What is the difference between a client and a customer?

a _____ is represented

a _____ has no fiduciary relationship

what is disclousre of representation?

Required at first substantive dialogue.

what is information about brokerage services (IABS)?

Form given to explain agency roles in Texas.

what is termination of Agency?

Occurs through completion, expiration, mutual agreement, or legal action.

what is agency coupled with an interest?

Agent has financial stake in transaction; cannot be revoked easily.

what is the loan-to-value ratio (LTV)?

Loan amount divided by appraised value or purchase price (whichever is

lower).

what is a FHA Loan?

Government-insured loan with low down payment; limits on loan amount.

What is a VA Loan?

No down payment required; available to eligible veterans and service members.

What is a conventional loan?

Not insured/guaranteed by government; higher credit requirements.

what is an adjustable rate mortgage (ARM)?

Interest rate changes periodically based on index.

what is a fixed rate mortgage?

Interest rate remains the same for life of loan.

What is amorization?

Gradual loan repayment through scheduled payments of principal and interest.

what is PMI (Private Mortgage Insurance)

Required on conventional loans with LTV over 80%.

what are discounted points?

Prepaid interest paid to reduce loan's interest rate.

what is debt-to-income ratio (DTI)?

Total monthly debt ÷ gross monthly income. Used for loan approval.

what is TRELA?

Texas Real Estate License Act governs licensing and conduct of real estate professionals in Texas.

What is TREC?

Texas Real Estate Commission enforces TRELA and regulates licensees.

what are the license renewal requirements?

Texas licensees must complete CE every 2 years to renew their license.

what is broker responsibility?

Texas brokers are responsible for the actions of their sponsored agents.

what is an IABS Form?

Information About Brokerage Services must be provided at first substantive dialogue.

What is disclosure of agency?

Must disclose who you represent in a transaction before showing a property.

what is intermediary with appointments?

Broker designates agents to represent each party in the same transaction.

what are trust account rules?

Earnest money must be deposited in trust account by end of second business day.

What are promulgated contracts?

TREC requires licensees to use standard forms unless advised otherwise by an attorney.

What is the difference between an option fee vs earnest money?

_____ buys the right to terminate

_____ shows intent 

what is a MUD disclosure?

Must disclose if property is in a Municipal Utility District before execution of contract

what is an HOA Addendum?

Gives buyer the right to cancel if resale certificate is not provided timely.

what is a sellers disclosure notice?

Required for most residential properties; failure to deliver gives buyer right to terminate.

what is a termination option?

Gives buyer time to inspect and terminate the contract for any reason within option period.

what is a notice to terminate?

Buyer must give written notice by deadline to terminate under option period.

what is DTPA?

Deceptive Trade Practices Act protects consumers from false, misleading, or deceptive business acts.

what are advertising requirements?

Ads must include broker's name and avoid misleading information.

what is important about the lead-based paint disclosure?

Required for homes built before 1978; failure can result in civil penalties.

what are TREC Complaints?

Consumers can file complaints with TREC for violations of license law.

What is a non-judicial foreclosure?

Most common type of foreclosure in Texas; lender sells property without court order.

what is the fiduciary duty of loyalty?

Agent must act in client's best interests above all else.

what is the disclosure of material facts?

Agent must disclose all known material facts about a property to all parties.

what is fraud?

Intentional misrepresentation for personal gain.

what is negligent misrepresentation?

Providing false info without intent to deceive; still liable.

what is conflict of interest?

Must be disclosed and managed; may require written consent.

what is commingling?

Mixing client funds with personal/business funds; prohibited.

what is a conversion?

Using client funds for personal use; illegal and unethical.

what is the code of ethics?

REALTORS must adhere to NAR's Code of Ethics in all professional activities.

what are discriminatory practices?

Prohibited under Fair Housing and state laws.

what are rebates and inducements?

Must be disclosed to all parties and comply with state law.

what is fee simple absolute?

The most complete form of ownership with full rights.

what is life estate?

Ownership for the duration of someone's life; reverts after death.

what is tenancy in common?

Two or more owners without right of survivorship.

what is joint tenancy?

Two or more owners with right of survivorship.

what is community property?

Property acquired during marriage shared equally in Texas.

what is a separate property?

Owned before marriage or acquired by gift/inheritance.

what is adverse possession?

Gaining title through open, notorious, continuous, hostile possession over time.

What is easement appurtenant?

Right to use adjoining land; runs with the land.

What is a use of land license?

Personal, revocable privilege to use land.

what is an encumbrance?

Any claim, lien, or liability attached to real property.

what is commission calculation?

Sales price × commission rate = total commission.

what is a buyer agency commission?

Total commission × split rate (e.g., 50%) = agent's share.

what is Loan-to-value ratio?

Loan amount ÷ appraised value or sale price (whichever is less).

what is property tax calculation?

Assessed value × tax rate = annual tax.

what is proration of rent?

Monthly rent ÷ 30 × days owed = prorated rent.

what is interest on loan?

Loan amount × interest rate × time = interest due.

what is annual depreciation?

Improvement value ÷ useful life = annual depreciation amount.

what is teh capitalization rate?

NOI ÷ value = cap rate. Used for income property valuation.

what is the gross rate multiplier?

Price ÷ gross monthly rent = GRM.

what is the net operating income?

Income - expenses (excluding debt) = NOI.

how do you calculate area?

Length × width = square footage.

how do you calculate cost per square foot?

Price ÷ square footage = cost per sq ft.

whats the formula for equity?

Market value - loan balance

what is a down payment?

Price × required %

what is a mortgage payment?

Use amortization calculator or table to determine monthly P&I.