Free Texas Real Estate
Practice Questions

All compensation must flow through the sponsoring broker. A sales agent cannot receive commission directly from a title company, another broker, or a client — it must be paid to the broker first, who then pays the agent according to their agreement.

A salesperson license does not grant independent brokerage authority. A salesperson must always operate under the sponsorship and supervision of a licensed broker. The broker is legally accountable for the salesperson's licensed activities.

Texas real estate licenses have a 2-year renewal cycle. Licensees must complete required CE hours and pay the renewal fee before the expiration date every 2 years to keep their license active.

The duty of obedience does not extend to following illegal instructions. Making a knowingly false statement about a material defect violates TREC rules and exposes the broker to liability.

There is no requirement to register an intermediary relationship with TREC. The required elements are written consent from both parties and the same broker representing both.

The IABS must be provided at the first substantive dialogue about a specific property — regardless of whether the buyer is represented. The listing agent must provide it to the unrepresented buyer.

Financing contingency terms are governed by the Third Party Financing Addendum, which must be attached to the contract when the buyer is using mortgage financing. The addendum specifies the loan terms and the buyer's right to terminate if financing cannot be obtained.

A valid termination within the option period entitles the buyer to a full refund of their earnest money. The seller retains only the option fee. This is the primary financial protection the option period provides to buyers.

A contract signed under duress is voidable at the option of the party who was coerced. The buyer can choose to rescind the contract and recover any consideration paid. Duress undermines the genuine consent necessary for a valid contract.

Article 17 requires Realtors to submit disputes with other Realtors (arising out of real estate activities) to binding arbitration through their association rather than going to court — this keeps disputes within the profession and avoids costly litigation. The arbitration covers disputes over commissions and compensation between Realtors. Article 17 also requires Realtors to mediate first when required by the association. Failure to arbitrate per Article 17 is an ethics violation. Note: arbitration under Article 17 is between Realtors — clients who are harmed pursue their legal remedies through courts, not NAR arbitration.

The ADA requires places of public accommodation (commercial real estate open to the public) to remove architectural barriers where 'readily achievable' — meaning the modification can be done without significant difficulty or expense. Factors considered: the cost of the modification, the overall financial resources of the business, the type of business, and the impact on operations. Examples of readily achievable modifications: installing grab bars in bathrooms, adding a ramp at an entrance, lowering shelves to accessible heights, adding accessible parking signage. More costly structural changes may not be readily achievable for a small business. ADA applies to public accommodations — not private residences. New construction has stricter requirements than existing buildings.

Community property states (Texas, California, Arizona, Nevada, New Mexico, Idaho, Louisiana, Washington, Wisconsin — plus Alaska as an opt-in state): (1) property acquired during marriage through spousal efforts (wages, salary, business income) is community property — each spouse owns an undivided 1/2 interest; (2) separate property exceptions: property owned before marriage, gifts to one spouse, inheritances by one spouse, and property acquired with separate property funds remains separate; (3) management rights: in Texas, each spouse may generally manage and control community property they control or manage in the ordinary course, but both spouses must join in conveyances of real property; (4) upon death: each spouse may will their 1/2 of community property; unlike joint tenancy, there is no automatic right of survivorship in basic community property (though couples may hold community property with right of survivorship by agreement). Community property with right of survivorship (CPWROS) is available in Texas.

Intestate succession: when an owner dies without a valid will (intestate), state law determines who receives real property. Each state has an intestate succession statute that specifies the distribution order: (1) surviving spouse typically receives a share (amount varies by state and whether there are children); (2) descendants (children, grandchildren) — share varies by state; (3) parents; (4) siblings and their descendants; (5) more distant relatives. In Texas: a surviving spouse receives a portion of community property and an interest in separate property depending on whether there are children (decedent's children from prior relationships affect the surviving spouse's share). The property does not automatically vest in the state — escheat (passage to the state) occurs only when no qualifying heirs exist. Intestate succession is why real estate licensees should encourage clients to have wills — dying without one can produce unintended ownership splits.

In an easement appurtenant: (1) dominant tenement (dominant estate) — the parcel that benefits from the easement; the owner of the dominant tenement holds the easement right; (2) servient tenement (servient estate) — the parcel burdened by the easement; the servient owner retains ownership but cannot interfere with the easement holder's reasonable use. Memory aid: the dominant estate is 'dominant' because it benefits — it has rights over the servient estate. Example: A owns a landlocked parcel (dominant tenement); B owns the parcel between A's land and the road (servient tenement); A has an easement across B's land to reach the road. Both the dominant and servient tenements are burdened/benefited in title — a title search should reveal easements affecting both properties. The servient owner may still use the easement area so long as they do not interfere with the easement holder's rights.

Jumbo mortgage (non-conforming loan): (1) a loan that exceeds the FHFA's conforming loan limits for the area — in most areas, any loan above $766,550 (2024 baseline) is jumbo; (2) since jumbo loans cannot be sold to Fannie/Freddie, lenders must: (a) hold them in their own portfolio (portfolio loans), or (b) sell them to private secondary market investors; (3) characteristics: higher interest rates (typically 0.25%–0.5%+ above conforming rates) to compensate for the additional risk and illiquidity; stricter underwriting (higher credit score requirements — often 700+, lower DTI ratios, larger reserves requirements); larger down payments typically required; (4) jumbo loans are often used for luxury and high-cost market purchases; (5) super-jumbo loans typically exceed $2–3 million — even fewer investors, stricter terms; (6) the absence of a government guarantee makes jumbo underwriting standards vary more widely among lenders — comparing jumbo loan offers is especially important for borrowers. Jumbo loans are a specialized market requiring knowledge of local lender appetite and pricing.

Home equity loan vs. HELOC: (1) home equity loan (second mortgage / closed-end loan): (a) lump-sum disbursement at closing; (b) fixed interest rate; (c) fixed monthly payment over a set term (5–30 years); (d) the borrower has certainty of payment amount; (e) good for one-time large expenses; (2) HELOC (Home Equity Line of Credit — open-end loan): (a) revolving credit line — borrow, repay, borrow again during the draw period; (b) variable interest rate (typically tied to Prime Rate); (c) draw period (5–10 years) followed by repayment period; (d) payment during draw period may be interest-only; (e) flexible — use as needed for ongoing expenses; (3) Texas-specific rules for home equity loans (Texas Constitution Article XVI §50(a)(6)): (a) maximum LTV 80% (combined); (b) can only be refinanced as another home equity loan or paid off; (c) only one home equity loan at a time; (d) 12-day waiting period after application; (e) 3-day right of rescission after closing; (f) closing costs capped at 2% of loan amount; (g) can only be made by approved lenders (banks, S&Ls, mortgage companies — not individuals). Texas home equity law is among the most restrictive in the U.S.

Appraisers analyze four categories of forces that influence value: (1) Physical/environmental — climate, topography, soil, natural hazards, proximity to resources; (2) Economic — employment trends, income levels, credit availability, construction costs; (3) Social/demographic — population trends, household formation, lifestyle preferences, crime rates; (4) Governmental/legal — zoning, taxes, building codes, environmental regulations. All four forces operate simultaneously and continuously shape real estate values.

The four HBU tests must be applied in sequence: first, is the use legally permissible? (zoning, deed restrictions); second, is it physically possible? (lot size, soil, topography, utilities); third, is it financially feasible? (would a developer or investor profit?); finally, among financially feasible uses, which is maximally productive? (produces the highest land value?). Applying them in order eliminates non-viable uses efficiently — no point testing financial feasibility for an illegal use.

Puffing (exaggerated promotional statements) is not actionable misrepresentation because reasonable people understand it as sales talk rather than factual claims. 'Breathtaking views' and 'best neighborhood in town' are puffing. But when the statement transitions from subjective opinion to a specific, verifiable factual claim, it becomes potentially actionable: 'The view from this window is amazing' (puffing) vs. 'You can see the ocean from this window' (verifiable fact — if false, actionable misrepresentation). The distinction: can the statement be objectively proven true or false? Opinions, adjectives, and general characterizations are puffing. Specific measurements, ages, claims about systems, or representations of fact are potentially actionable if false.

Most state seller disclosure statutes contain exemptions for sales where the seller has no personal knowledge of the property — most commonly court-ordered sales: (1) foreclosure sales — the lender/trustee selling the property typically has no knowledge of its interior condition; (2) probate sales — the executor or administrator of a deceased person's estate may have no knowledge of the property; (3) bankruptcy trustee sales. These parties cannot honestly complete a condition disclosure form. Buyers in these situations have reduced disclosure protection and are expected to rely more heavily on independent inspections. Some states also exempt new construction (covered by warranties) and transfers between certain related parties. Owner-occupied properties typically require full disclosure — owners are presumed to know their home's condition.