Chapter 4 Quiz Law of Contracts Flashcards
1
Q
1. Some of the most common mistakes in contracts are all of the following EXCEPT: A. Time for performance too short B. Inadequate legal description C. Improper use of special provisions D. Broker’s fee
A
The correct answer is D.
Broker’s fee is not part of the contract, but a broker notification is on page 9 of
the 1-4 Family Resale contract. The other three choices are all listed in the 10 Most Common Mistakes section of Chapter 11.
2
Q
- Paragraph 13 of the ONE-TO-FOUR FAMILY RESIDENTIAL CONTRACT (RESALE) addresses
prorations. Which of the following is prorated at closing?
A. Utilities
B. Taxes
C. Escrow fees
D. Title policy
A
The correct answer is B.
Paragraph 13 of the 1-4 Family Resale Contract, Prorations, speaks specifically
on taxes, which accrue daily and continue for the calendar year. The seller will be charged up through the day of closing for their portion which is credited to the buyer, who will cover the entire cost at the end of
the calendar year.
3
Q
3. Which of the following is not an expressed contract? A. An oral contract B. A written contract C. An implied contract D. All are expressed contracts.
A
The correct answer is C.
An expressed contract can be expressed either orally, by talking about your agency representation, or in writing, through a written document. Only the implied agency is not expressed but implied by the actions of both parties. If it walks like and duck and talks like a duck, then it must be a duck. In the agency relationship, if an agent is offering advice and opinion to a buyer, that buyer may assume they have agency representation.
4
Q
4. A promise for a promise is considered a \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_contract. A. Unilateral B. Bilateral C. Valid D. Void
A
The correct answer is B. A bilateral contract, or a promise for a promise, is where both parties are agreeing to both take an agreed action.
5
Q
- After the contract has been finalized, inspections and repairs, change of assigning fees, closing
dates and disclosures are addressed on what form?
A. Amendments
B. Addenda
C. Contract
D. No forms are required.
A
The correct answer is A.
Any change to modify a contract including addressing repair requests, changes to any of the dollar amounts or dates will be addressed on an amendment to the contract, thereby
amending what has already been agreed to.
6
Q
- RESPA does all of the following EXCEPT:
A. RESPA protects buyers from foreclosures.
B. RESPA regulates the cost of mortgage settlement.
C. RESPA protects consumers from unnecessary charges.
D. RESPA outlaws kickbacks.
A
The correct answer is A.
RESPA (Real Estate Settlement and Procedures Act), requires lenders to disclose costs of a loan and does not allow lenders to receive any hidden financial incentives for the use of certain loans, so each of the answers offered are going to be regulated by RESPA except protecting buyers from foreclosure which would only happen through the actions or nonpayment of the borrower
themselves.
7
Q
7. The \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ is the contractual agreement to repay the debt. A. Mortgage B. Deed of Trust C. Deed D. Promissory Note
A
The correct answer is D.
The note is the agreement for repayment of the debt which will include all the terms of the agreement. The mortgage is the loan itself; the deed of trust is the document held to insure payment of the note; and the deed is the document showing ownership of a property.
8
Q
8. In owner financing, who receives the deed of trust? A. The buyer B. The escrow officer C. The seller D. The mortgage company
A
The correct answer is C.
In owner financing, the owner is the lender, as a bank is in a mortgage, so the owner will hold the deed of trust which insures payment of the note.
9
Q
9. FNMA, FHLMC, GNMA, and REITS describe: A. Primary markets B. Secondary markets C. Regions of the Federal Reserve D. Mortgage lenders
A
The correct answer is B.
Secondary markets are where the conforming loans are sold, which include FNMA (Fannie Mae), FHLMC (Freddie Mac), REITS (Real Estate Investment Trusts) and GNMA (Ginnie Mae). Any question with these acronyms are going to refer to the secondary market where loans conforming to the guideline are sold.
10
Q
10. What kind of law is handed down by the legislature? A. Agency law B. Common law C. TREC D. Statutory law
A
The correct answer is D.
Statutory laws are the laws passed by the State Legislature.
11
Q
- For a sum of money negotiated between the parties, the buyer has a time period, stated in this
paragraph, for the “unrestricted right” to terminate. Which paragraph does this reference?
A. Sales price paragraph
B. Earnest money paragraph
C. Option money paragraph
D. Repairs escrow paragraph
A
The correct answer is C.
The option money paragraph is the only negotiable term that allows a buyer the
unrestricted right to terminate the contract. All other terminations by the buyer for the contract are
restricted rights such as delivery of the Seller’s Disclosure.
12
Q
- With regard to common mistakes on contracts, it is recommended that the seller’s name be used
on the contract as it is named in the ____________.
A. Deed
B. Previous contract when they bought the house
C. Survey
D. Mortgagee’s title policy
A
The correct answer is A.
The deed is the document of ownership, so the deed is the best source for the
owner’s name that intends to transfer ownership to the buyer.
13
Q
13. Land and all items attached to the property are considered: A. Attachments B. Real property C. Personal property D. Personal items
A
The correct answer is B.
When land is improved with attached items, they become part of the property
and therefore become part of the real estate.
14
Q
14. This is a communication that gives the listener the power to conclude a contract. A. Representation B. Acceptance C. Offer D. Disclosure
A
The correct answer is C.
This question includes the word, “conclude” a contract which means you have offer and acceptance, so the communication to conclude a contract must be acceptance of the offer.
15
Q
15. Failure to file an answer or other response to a summons or complaint in a lawsuit is a \_\_\_\_\_\_\_\_\_\_\_. A. Breach B. Fraud C. Deception D. Default
A
The correct answer is D.
Failure to respond to a lawsuit or a summons and complaint in a lawsuit is putting the respondent in a default position.
16
Q
16. What is the occupation of land to which another person has title with the intention of possessing it as one's own? A. Escheat B. Police power C. Eminent domain D. Adverse possession
A
The correct answer is D.
Adverse possession is when a non-owner occupies land owned by another with the intention of possessing it as one’s own (as an owner).
17
Q
17. Who approves the property and the loan for the buyer? A. Underwriter B. Loan Officer C. Escrow Officer D. Broker
A
The correct answer is A.
The underwriter has three functions: to approve the buyer, to approve the property, and to approve the paperwork.
18
Q
18. In addition to the existing survey, what else needs to be included for the title company to consider accepting the existing survey? A. The S67 testimony of the seller B. A letter from the original surveyor C. The T-47 affidavit D. A letter from the lender
A
The correct answer is C.
For a title office to accept a survey from a seller, the seller must include a T-47 which is an affidavit of any changes the seller has made that might affect the survey.
19
Q
- The only provision in the TREC contract for which time is of the essence is the:
A. Loan approval clause of the contract
B. Mandatory Homeowner’s Association documents
C. Termination Option section of the contract
D. U.S. Constitution
A
The correct answer is C.
The option money paragraph is strictly enforced and must not be handled loosely, so the language, “Time is of the Essence” is included to let all parties know this.
20
Q
20. Involuntary alienation is not done with: A. Escheat B. A will C. Adverse possession D. Eminent domain
A
The correct answer is B.
Involuntary alienation is not by choice, so a will is the only possible answer as a will is voluntary alienation.
21
Q
- The seller covenants with the buyer that the seller has not personally done anything to adversely
affect the title being conveyed. What does he give to the buyer?
A. Special warranty deed
B. General warranty deed
C. Quitclaim deed
D. Title policy
A
The correct answer is A.
The seller is only willing to provide a special warranty deed which only warrants the seller has not done anything personally to encumber the title. This is usually what a new home seller
provides.
22
Q
- If an agent inserts a provision into the contract that may materially affect the legal rights or duties
of the parties, the provision:
A. May render the contract voidable
B. Is grounds for civil penalties
C. Could result in a foreclosure
D. May be considered the unauthorized practice of law
A
The correct answer is D.
If an agent adds language that alters, changes, or affects the legal rights or
duties of the parties, the agent may be accused of or considered to be practicing law without a license.
23
Q
- All of the following are exemptions to the Seller’s Disclosure Notice EXCEPT:
A. Transfer of the property by court order
B. The transfer of the property by a trustee in a bankruptcy
C. A transfer of the property between spouses
D. Sellers of residential properties
A
The correct answer is D.
Sellers of residential properties are required to provide a Seller’s Disclosure Notice to buyers. The key word in this question is “seller.”
24
Q
24. Three parties (the mortgagor, mortgagee, and the trustee) are all part of the \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ used in Texas. A. Deed B. Title policy C. Deed of trust D. Bill of sale
A
The correct answer is C.
With the three parties named, a mortgagor (borrower), a mortgagee (lender),
and a trustee who is servicing the loan until payoff, then the deed of trust is the scenario named.
25
25. In an S Corporation, the earnings of the shareholders are __________.
A. Deferred
B. Taxed
C. Automatically put into a tax-free IRA
D. Shifted to a C Corporation if there are profits in the S Corporation
The correct answer is B.
n an S Corporation, the earnings of the shareholders are taxed, each at their own individual rate depending on their individual incomes.
26
26. General Partnership is a flow-through business entity where profits and losses flow to the
individual partners just as they do in a(n):
A. C Corporation
B. S Corporation
C. Sole proprietor
D. There are no other entities that are follow-through.
The correct answer is B.
Losses from a general partnership "flow through" giving the hint to the correct answer, S corporations, where the individual partners are taxed based on their personal incomes.
27
```
27. TREC exists to protect:
A. Real estate agents
B. The citizens of Texas
C. Real estate brokers
D. Lenders, appraisers, and all licensees
```
The correct answer is B.
TREC is a consumer protection agency, so the correct answer is the citizens of
Texas.
28
```
28. Nonhomogeneity, immobility, and indestructibility are examples of:
A. Physical characteristics of property
B. Economic characteristics of property
C. Bundle of legal rights of property
D. Mineral rights of property
```
The correct answer is A.
The three characteristics of property are non-homogeneity (every parcel is in a
different place on the globe), immobility, and indestructibility (although property can be altered or
damaged).
29
```
29. Property in Texas owned by the husband and wife that was acquired during the marriage is
called:
A. Separate property
B. Tenancy in Common
C. Community property
D. Non-challenged property
```
The correct answer is C.
Texas is a community property state, so properties acquired during a marriage are subject to community property laws
30
```
30. This type of ownership assumes that husband and wife are one person.
A. Community property
B. Joint tenancy
C. Tenancy in common
D. Tenants by entirety
```
The correct answer is D.
As the answer suggests, this is where a husband and wife are considered to be
as one legal entity, so they are one entirety or one entity in the way they are holding the property.
31
31. Condominium ownership includes:
A. The land and the unit
B. The land, the parking space, and a percentage of the recreational areas
C. The interior space of the unit and a percentage of the common area
D. The interior and exterior of the unit
The correct answer is C.
Condominium ownership is the airspace between the walls as the private space
and any other areas that are community owned, whether this includes community parking or community recreational areas will depend on the condo development and the extent of the common areas. The correct answer is anything other than the interior and maybe a garage or parking space as a percentage of ownership with the other owners.
32
```
32. A form of shared property ownership in which rights vest in several owners for a specified period
each year.
A. Cooperatives
B. Timeshares
C. Townhomes
D. Condominiums
The correct answer is B.
```
The correct answer is B.
Timeshares are the only type of ownership of real property that is only for a
certain period of time.
33
33. If a party to the contract defaults, what option(s) does the non-defaulting party have?
A. To terminate the contract and receive the earnest money
B. To enforce specific performance
C. Both A and B
D. Either A or B
The correct answer is D.
If a party defaults to the contract, in paragraph #15, the most important word in
the paragraph is the OR as the non-defaulting party has the contracted right to sue for specific
performance OR receive the earnest money as damages and release all parties from the contract. The OR in the paragraph is why the Either A or B is the correct answer.
34
34. The owners agree to list the property with only one broker, however, the owners reserve the right
to sell the property themselves. What kind of listing is this?
A. Exclusive right to sell
B. Exclusive agency
C. Open
D. Net
The correct answer is B.
Under the four types of listing agreements, this is the agreement, exclusive
agency, where the owner will list with one company, but holds the right to sell the property themselves,
as opposed to the most used listing agreement, the exclusive right to sell, where the broker is guaranteed
to get paid when the property sell
35
35. An agency relationship which is created after the fact when the principal agrees to be bound by
the actions of another person who is acting without authority is called:
A. Agency by ratification
B. Implied agency
C. Expressed oral agency
D. Expressed written agency
The correct answer is A.
Agency by ratification often transpires while the owner is contracting with an
agent for a different real estate service. Instead a different type of transaction occurs which the agent
was not originally contracted for, like an agent listing a property for sale and subsequently writing a lease
for the property to be leased instead of sold.
36
```
36. This estate may be terminated at the will of either party. It has no duration limitation.
A. Estate at will
B. Estate from period to period
C. Estate for years
D. Freehold estate
.
```
The correct answer is A.
As the question includes the words "at the will" this indicates the correct answer
estate at will which allows for either party to terminate the lease with enough notice
37
```
37. With this lease, the tenant pays the taxes, insurance, and maintenance.
A. Gross lease
B. Percentage lease
C. Net lease
D. Ground lease
```
The correct answer is C.
his is a common commercial lease structure and it is known as the triple net lease if the tenant is paying the taxes, maintenance, and insurance, or can be a single net lease with only one of the additional costs, double net for two.
38
```
38. When a buyer acquires an “equitable” title, what does he have?
A. Lease-option contract
B. Lease purchase contract
C. Deed of trust contract
D. Contract for deed
```
The correct answer is D.
When a buyer has contracted to purchase a property, but the buyer will be purchasing over time and the purchase will not conclude for some years, the buyer has an interest or
equitable title in the property and not the deed, so this indicates the buyer is under a contract for deed
purchase agreement.
39
39. How does a lease option agreement differ from a lease purchase agreement?
A. The lease option contract already has a purchase agreement in place.
B. The lease purchase contract already has a purchase agreement in place.
C. The lease option has equitable title.
D. The lease purchase has equitable title.
The correct answer is B.
A lease option agreement only allows the tenant the option to make a purchase during the term of their lease, and the lease will not include the terms of the purchase; whereas, a lease purchase will already have the purchase terms included in lease agreement.
40
```
40. What is the law that established the Texas Real Estate Commission?
A. TREC
B. TRELA
C. TAR
D. TCEQ
```
The correct answer is B.
TRELA (or The Texas Real Estate License Act) required someone to administer
it which created the need for the Texas Real Estate Commission.
41
```
41. The Broker-Lawyer Committee has how many members?
A. 10
B. 6
C. 13
D. 3
```
The correct answer is C.
The Broker-Lawyer Committee is the group formed to review and modify the contracts that allow non-attorneys to provide real estate services including writing legal binding contracts and is made up of 6 Brokers and 6 Attorneys for a balance between licensed attorneys and licensed Real Estate Brokers and one public member equaling 13 total members.
42
42. A leasehold estate can also be called:
A. A non-freehold estate
B. A homestead estate
C. A tenant estate
D. There is no other name for leasehold estate.
The correct answer is A.
A leasehold estate is a non-freehold estate, or a non-ownership type of estate of
which all freehold estates are.
43
43. All of the following are exempt from having a real estate license EXCEPT:
A. A principal in a real estate transaction
B. Power of attorney
C. Public officials of governmental agencies while performing official duties
D. A person who solicits listings
The correct answer is D.
Any person who solicits listings must hold a real estate license as this is a form of advertising and the Texas Real Estate Commission has many rules regulating the information that must be contained in advertising.
44
```
44. What is a legally binding agreement between parties to do or not to do something?
A. Void contract
B. Option contract
C. Unenforceable contract
D. Contract
```
The correct answer is D.
By definition, any legally binding agreement is considered a contract.
45
45. What is an automatic legal process by which an effect or result, or liability or right, is created or
extinguished without the consent of either party?
A. A counteroffer
B. An operation of law
C. A breach
D. An option
The correct answer is B.
An ‘automatic legal process’ without the consent of either party are the key words to know that it is the result of some other action and therefore the operation of law that has affected the parties as opposed to an action taken by one of the parties.
46
```
46. In this listing, the owner may employ as many brokers as they wish as well as retain the right to
sell the property themselves.
A. Exclusive right to sell
B. Exclusive agency
C. Open listing
D. Net listing
```
The correct answer is C.
The answer, open listing, is descriptive in the type of listing this is, open to any broker and the seller also may bring a buyer and sell the property.
47
47. Once the counteroffer is made, the initial offer is:
A. Dead and cannot be revived without written consent from the buyer
B. Used as a back-up offer
C. Is voidable
D. Is considered unenforceable
The correct answer is A.
Anytime an offer is made and a counteroffer is the response, the initial offer is rejected and is no longer a viable offer unless the both parties agree to revive the initial offer.
48
```
48. What is a sum of money due by certain and expressed agreement?
A. A mortgage
B. A note
C. A debt
D. A lien
```
The correct answer is C.
The sum of the money due by expressed agreement is the debt, while the note is the terms of the agreement and the mortgage is the what the debt is called when a bank or lending
institution loans the money and the property has a lien against it for the amount of the debt.
49
```
49. When guidelines are followed for sale of a loan to the secondary market, these loans are called:
A. Secondary loans
B. Primary loans
C. Jumbo loans
D. Conforming loans
```
The correct answer is D.
For a loan to be eligible to be purchased by the secondary market, the loan
must adhere to the guidelines set out for purchase, which means that loan is a conforming (to the
guidelines) for sale to the secondary market.
50
```
50. A seller conveys personal property with a:
A. Deed
B. Bill of sale
C. Deed of trust
D. Nothing is required.
```
The correct answer is B.
The non-realty item addendum may be used in a real estate transaction if the items are not too costly perhaps jeopardizing the appraisal value, so any personal property that conveys may be transferred with a bill of sale which acts as a receipt for the transfer of personal possessions.
51
51. All of the following are reasons that contracts may terminate EXCEPT:
A. Fraud
B. Misrepresentation
C. When there is a suit for specific performance
D. Previous agreement
The correct answer is C.
A contract may not terminate if the non-defaulting party is suing for performance
of the contact, thereby continuing the contract until the suit concludes.
52
```
52. This Act is about closing costs and settlement procedures.
A. RESPA
B. ECOA
C. TRELA
D. Fair Credit Act
```
The correct answer is A.
When you break out the acronym for RESPA, that gives you the correct answer,
Real Estate Settlement and Procedures Act.
53
53. Title flaws must be dealt with, property taxes must be current, and outstanding mortgages and
judgments must be resolved before the ____________.
A. Executed contract
B. Loan origination
C. Inspection of property
D. Closing
The correct answer is D.
A property may not transfer ownership with any of the items listed here being
due but may not be known at the time of entering into the contract, therefore making the closing the event
that those items must be resolved by.
54
54. To fully comply with paragraph 6 of the ONE-TO-FOUR FAMILY RESIDENTIAL CONTRACT
(RESALE) concerning the survey, the seller must provide both the survey and the:
A. Seller Disclosure
B. T-47
C. Letter of approval from the original survey company
D. Appraisal
The correct answer is B.
The key word here is seller, for the seller to fully comply with providing the survey, it always includes an affidavit (or T-47) swearing what changes, if any, have been made that
might affect the survey.
55
55. What is a "contingency" with regard to contracts?
A. A due on sale clause
B. An offer to purchase
C. A kick-out clause
D. Something written in a contract that makes the fulfillment of the contract dependent on
certain conditions
The correct answer is D.
The definition of the word contingency is your clue here. In the context of a contract, something must occur for something else to happen, that one event is contingent upon another
event happening.
56
```
56. If an individual is forced to sign a contract under duress or undue influence, what kind of contract
is it?
A. A valid contract
B. A void contract
C. A voidable contract
D. An unenforceable contract
```
The correct answer is C.
Any contract signed while a principal is under duress or undue influence gives
that principal the ability to declare the contract null and void making it a voidable contract by that party,
but not the other party or principal to the contract.
57
```
72. Which deed does not profess that the title is valid?
A. Sheriff’s deed
B. Special warranty deed
C. Quitclaim deed
D. General warranty deed
```
The correct answer is C. The deed that is said to not be worth the paper it's written on or the quitclaim
deed transfers whatever ownership interest the Grantor has, if they have any, to the receiver of the
quitclaim deed.
58
```
58. When is representation discussed?
A. At first substantive dialogue about a specific property
B. At the first “face-to-face” meeting
C. At the time an offer is written
D. At any open house
```
The correct answer is A.
Representation is discussed as part of the delivery of the Information About
Brokerage Services and should be included in the discussion at the first "substantive dialogue" which is
the triggering language for the IABS.
59
```
59. This Act provides a three-day right of rescission.
A. Equal Credit Opportunity Act
B. Truth-in-Lending Act
C. RESPA
D. Fair Housing Act
```
The correct answer is B.
The Truth-In-Lending Act (administered under the Consumer Financial
Protection Bureau or CFPB) includes a three-day right of rescission after receiving the final loan costs
from a lender. This is a measure to protect the borrower from loan terms they do not want or did not
agree to before they are at the closing table signing their documents for their home purchase.
60
```
60. A _____ deed conveys clear title from the sovereignty of the land and back to the Spanish land
grants.
A. Deed in lieu of foreclosure
B. Special warranty deed
C. General warranty deed
D. Quitclaim deed
```
The correct answer is C.
The general warranty deed is the most thorough title work performed and the
most thorough commitment from a seller that the title is clear of encumbrances and ready to transfer to a
new owner. This is why the 1-4 Family Contract (Resale) calls for delivery of the general warranty deed in the contract.
61
```
61. Which of the following includes “Right of Survivorship”?
A. Fee simple
B. Joint tenancy
C. Tenancy in common
D. Freehold estate
```
The correct answer is B.
Joint tenancy and right of survivorship are synonymous with each other for this
type of ownership where two or more persons hold title, and when one passes, the ownership passes to
the other owner(s).
62
```
62. Which is NOT a physical characteristic of property?
A. Indestructibility
B. Non-homogeneity
C. Immobility
D. Assemblage
```
The correct answer is D.
Which is NOT a physical characteristic of property can be determined by
excluding the ones that are. Non-homogeneity is that no two parcels of land can ever be the same as
they may not both occupy the same location on the globe. Immobility is that the land cannot be picked up
and moved to another location. Property is indestructible even though it can be damaged, it is still property. This leaves only the word ‘assemblage’ which is not a PHYSICAL characteristic of property.
63
```
63. Subsurface, surface, and the air above define __________.
A. Land
B. Real estate
C. Real property
D. Realty
```
The correct answer is A.
Land is composed of three parts: surface, sub-surface, and the air. These parts
are in turn part of real estate.
64
```
64. Case law is defined by:
A. Precedents
B. Statutory law
C. TREC
D. TRELA
```
The correct answer is A.
Case law is defined by precedents or decisions made involving the same
subject matter that shows how a court of law has interpreted the law in the past, through the cases that
have been tried before.
65
```
66. In Texas, a buyer receives ownership of the property with a:
A. Deed of trust
B. Title policy
C. Deed
D. Bill of sale
```
The correct answer is C.
In Texas, ownership of real estate is through the deed, whereas the bill of sale
is used for personal property; the deed of trust is held for the repayment of the note; and the title policy is
an insurance policy that the title is clear and available to transfer ownership to the buyer.
66
```
67. Which of the following is NOT required for a valid deed?
A. Legal description
B. Name of the parties
C. Recorded at the courthouse
D. Signed by the grantor
```
The correct answer is C.
The deed is not required to be recorded but it is required to have a legal
description of the property and the name of the parties. In order to transfer ownership, the deed must
include the signature of the Grantor.
67
```
68. Descent and Distribution defines the inheritance of an ancestor’s property as:
A. Escheat
B. Intestate succession
C. Adverse possession
D. Short sale
```
The correct answer is B.
The word "inheritance" is the clue to this answer as only intestate succession is
a form of inheritance. Escheat will occur with no heirs or will; adverse possession is a hostile possession
of land; and a short sale is a type of sale, not an inheritance.
68
```
83. Which of the following is not a TREC responsibility?
A. Regulation of real estate providers
B. Enforcement of real estate ethics
C. Education of real estate providers
D. Licensing of real estate providers
```
Answer B
This includes the regulation of real estate providers, the education of real estate providers, and the
licensing of real estate providers; which leaves only one option: the enforcement of real estate ethics,
which is not a responsibility but rather an aspiration.
69
70. Before closing, all of the following must be complete EXCEPT:
A. All repairs must be completed.
B. All property taxes must be current.
C. All outstanding mortgages must be resolved.
D. All judgments must be resolved.
The correct answer is A.
The answer to this question is best determined by excluding the other answers.
The property taxes must be current, or the title will not transfer; all mortgages must be paid off for a clear
title; all judgments must also be paid for a clear title to transfer. This leaves the only viable answer, that a
home may need some repairs that a buyer is accepting, and the home sale will still close.
70
71. What does a "kick-out" clause do?
A. It allows a landlord to kick a tenant out of the property.
B. It allows the buyer to kick out the seller if the closing date extends beyond the date stated in the
contract.
C. It “kicks out” any contingency.
D. It is a clause stating the seller can continue to market the property.
The correct answer is D.
The best answer for what a kick-out clause does is the owner of the property will
continue marketing the property (often using the status of Active Contingent or AC) in case the
contingency is never removed from the contingency contract.
71
```
72. Which deed does not profess that the title is valid?
A. Sheriff’s deed
B. Special warranty deed
C. Quitclaim deed
D. General warranty deed
```
The correct answer is C.
The deed that is said to not be worth the paper it's written on or the quitclaim
deed transfers whatever ownership interest the Grantor has, if they have any, to the receiver of the
quitclaim deed.
72
```
73. What is the biggest influence on bank interest rates?
A. Market conditions
B. The Federal Reserve
C. Supply and demand
D. ECOA
```
The correct answer is B.
You must ask what the BIGGEST influence on bank interest rates is because all the options can influence a bank’s interest rate, but the Federal Reserve controls the money and sets the discount rate which in turn influences a bank’s interest rates.
73
```
74. What kind of loan is sold to the secondary market?
A. Secondary market loans
B. Conforming loans
C. Reverse mortgages
D. Jumbo loans
```
The correct answer is B.
The kind of loan a secondary market will accept is a conforming loan, which
means the loan meets the term requirements for the secondary banks to purchase the loan
74
75. Once a counteroffer is made:
A. The initial offer is dead.
B. The initial offer is kept as a backup offer.
C. The counteroffer has a contingency.
D. The seller has a choice of two offers.
The correct answer is A.
When an offer is made, if it is countered, the initial offer is rejected and
considered dead.
75
```
76. To correct any errors and make any explanatory statements to supplement the file, the individual
is provided this right by which law?
A. Fair Credit Reporting Act
B. Truth in Lending
C. Equal Credit Opportunity Act
D. RESPA
```
The correct answer is A.
The answer to this question can be narrowed down by the question including
the wording, "to correct any errors to the file" and the answer ‘Fair Credit Reporting Act’ which allows the
individual to address mistakes and make explanatory statements regarding the credit report.
76
```
77. Which of the following is described as “Quid pro quo”?
A. Valid
B. Void
C. Unilateral
D. Bilateral
```
The correct answer is D.
Quid pro quo is a promise for a promise which is a bilateral contract or
agreement.
77
```
78. Which of the following is responsible for the examination of public records for information related
to the property’s title?
A. Broker
B. Buyer
C. Escrow officer
D. Inspector
```
The correct answer is C.
Of the possible answers to this question, by excluding the people that don't
examine a property's title, you get to the escrow officer, whose service in the real estate transaction is
exactly to research and examine the property's title work and issue a title policy.
78
79. An amendment is used:
A. To keep track of buyers and sellers change of contact information
B. When the buyer and seller disagree
C. When the contract is already in existence
D. If anything added to the offer
The correct answer is C.
An amendment is always used to make any change to the contractual
agreement when the contract is already effective or in existence
79
```
80. Taxation laws are allowed by:
A. Eminent domain
B. Condemnation
C. Escheat
D. Police powers
```
The correct answer is D.
Taxation laws are enforced by and are part of police powers.
80
81. As far as consumer information goes, the Fair Credit Reporting Act legislation that was
enacted promotes all of the following EXCEPT:
A. Accuracy
B. Privacy
C. Relevance
D. Fairness
The correct answer is C.
This question is asking to exclude the right answers and the Fair Credit
Reporting Act was enacted to provide better accuracy, hold the information private, and allow for
individuals to respond to credit findings and make them fairer which leaves ‘relevance’ as the only
answer that was EXCEPT or excluded from the options.
81
```
82. What kind of a deed is a bargain and sale deed?
A. Deed without warranty
B. General warranty
C. Special warranty
D. Quitclaim
```
The correct answer is A.
The bargain and sale deed is part of the deeds without warranty like the quitclaim deed. The special warranty and general warranty deeds both come with warranties.
82
```
83. Which of the following is not a TREC responsibility?
A. Regulation of real estate providers
B. Enforcement of real estate ethics
C. Education of real estate providers
D. Licensing of real estate providers
```
The correct answer is B.
This question is best approached by excluding what TREC is responsible for.
This includes the regulation of real estate providers, the education of real estate providers, and the
licensing of real estate providers; which leaves only one option: the enforcement of real estate ethics,
which is not a responsibility but rather an aspiration.
83
84. All are considered to be practicing law without a license EXCEPT:
A. Disclosing to the principal all pertinent facts
B. Giving legal advice
C. Giving an opinion as to the validity of title
D. Giving advice as to the legal effect of any contract
The correct answer is A.
It is the agent’s fiduciary duty to disclose all pertinent facts to the principal, while
the other acts are all practicing law acts.
84
85. What are the options of the non-defaulting party when the other defaults?
A. To enforce specific performance
B. To terminate the contract and receive the earnest money
C. Either A or B
D. Neither A or B
The correct answer is C. I
n paragraph #15 of the 1-4 Family Contract (Resale), the most important word
is ‘OR,’ which entitles the non-defaulting party to sue for specific performance OR receive the earnest
money and terminate the contract, so the correct answer is ‘Either A or B’ as it is one of both.
85
```
86. This is a form of real property with portions designated for separate ownership and the remainder designated for common ownership.
A. Cooperative
B. Corporation
C. Trust
D. Condominium
```
The correct answer is D.
When purchasing a condominium, the buyer is buying the interior of the unit and an undivided interest in the common areas. What this means is that if there are 12 units in a
condominium project, the buyer is buying the air space within the walls of the unit and 1/12 of the
common area
86
```
87. Credit unions, mortgage brokers, and mortgage bankers describe the:
A. Primary markets
B. Secondary markets
C. Federal Reserve Regions
D. Conforming loans
```
The correct answer is A.
The real estate financing market comprises both the primary and the secondary markets. Loans are generated first through the primary market. Players in this market include mortgage brokers, mortgage bankers, credit unions, individuals, and others.
87
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88. Who is responsible for the protection of the consumer, qualifying the real estate agent, and the
enforcement of professional standards?
A. Texas Association of REALTORS®
B. Texas Real Estate Commission
C. Texas State Bar
D. The National Association of REALTORS®
```
The correct answer is B.
The Texas Real Estate Commission is responsible for the protection of the
consumer, so none of the other answers are possible.
88
89. The consumer is not protected from the licensee under the Deceptive Trade Act for which of the
following?
A. Misrepresentation of a material fact
B. Failing to disclose information with the intent of inducing a consumer into a transaction
C. Committing an unconscionable act
D. Practicing real estate with an expired license
The correct answer is D.
The Deceptive Trade Practices Act (DTPA) excludes real estate agents from
claims of DTPA except for three actions: misrepresentation of a material fact, failing to disclose
information with the intent of inducing a consumer into a transaction, or committing an unconscionable
act. This leaves only the answer ‘Practicing real estate with an expired license’ which would be TREC's oversight.
89
```
90. With owner financing, who holds the deed until the property is paid for?
A. Seller
B. Buyer
C. Escrow officer
D. Broker
```
The correct answer is A.
With owner financing, the seller is in the role of the bank with a mortgage, so the seller holds the deed until the property is paid for.
90
```
91. The actual agreement to repay the debt is called the:
A. Mortgage
B. Deed
C. Note
D. Lien
```
The correct answer is C.
The terms or agreement to repay the debt is the note, see question #7.
91
92. What is real property that is transferred from the seller to the buyer?
A. All things attached to the property.
B. All things attached to the property and other property agreed on between parties.
C. All things attached to the land.
D. All things attached to the property and owned by the seller.
The correct answer is D.
Real property can be many of these answers, but the best answer is ‘All things
attached and owned by the seller’ as there may be some attached items that are not owned by the seller
and could not transfer to the buyer, such as a leased security system, or a leased water filter, etc.
92
93. All of the following are expressed contracts EXCEPT:
A. Implied contracts
B. Oral contracts
C. Written contracts
D. All the above are expressed contracts.
The correct answer is A.
Any oral or written contract is an expressed contract leaving only the implied
contracts as the possible answer which is both parties acting as if there were a contractual agreement.
93
```
94. At closing, which of the following is not prorated?
A. Option money
B. Taxes
C. Interest
D. Rent
```
The correct answer is A.
Option money is due to be delivered to the seller within 3 days of the effective
date of the contract. Depending on the mark in the boxes at the bottom of the option paragraph, option
money may or may not be credited to the buyer, but it is the seller's money at delivery and they may use
it whether the sale concludes or not.
94
```
101. “EQUITABLE” for a buyer means a:
A. Lease purchase
B. Deed of trust
C. Lease option
D. Contract for deed
```
The correct answer is D.
Equitable interest or title is going to mean a contract for deed to a buyer, which
is an agreement for purchase over a period of time but is not a lease and the seller would hold the deed.
95
```
102. What does "non-freehold" mean?
A. Owned by an individual
B. Owned by a group
C. Non-owned, leased
D. Contingent upon another event
```
The correct answer is C.
Non-freehold is a lease hold or non-owned estate.
96
```
103. What kind of an agreement allows the owner to list the property with one broker and reserve the
right to sell the property themselves?
A. Open
B. Exclusive agency
C. Exclusive right to sell
D. Net
```
The correct answer is B.
When the owner agrees to list the sale of a property with only one Broker, but
holds the right to also sell it himself, that is an exclusive agency listing.
97
```
104. What is the right of a governmental entity to take private property for public use called?
A. Police power
B. Eminent domain
C. Condemnation
D. Taxation
```
The correct answer is B.
The right of the government to take private property for the public good is
eminent domain. The government is required to pay the owner market value for the land, but there is little
the owner can do to obstruct the government under eminent domain.
98
```
105. When neither party consents but an effect or result, or liability or right is created, this is called:
A. Option
B. Default
C. Breach
D. Operation of law
```
The correct answer is D.
When neither party creates the effect, but the use of the property changes, it is
an operation of law which then also affects the parties.
99
```
106. What is the purpose of the Broker-Lawyer Committee?
A. Governing TREC
B. Setting ethics for Realtors
C. Enforcing TRELA
D. Writing and reviewing contract forms
```
The correct answer is D.
The Broker-Lawyer committee has one function, to review and modify the
contract forms
100
108. When should the Information About Brokerage Services be discussed?
A. At first “face-to-face” meeting
B. At the open house
C. At first substantive dialogue about a specific property
D. At the time an offer is written
The correct answer is C.
The IABS or Information About Brokerage Services, which explains the roles
Brokers and agents have in real estate transactions, should be presented and discussed "at the first
substantive dialogue" about specific property to protect the buyer in knowing who the agent represents in a possible future transaction.
101
118. This agency is created after the fact when the principle agrees to be bound by the actions of
another person who is acting without authority.
A. Implied agency
B. Expressed oral agency
C. Expressed written agency
D. Agency by ratification
The correct answer is D.
The agency relationship will have started under the authority for the agent to act
for the principle in one aspect, such as listing a home for sale, but it may evolve into preparing a lease
agreement without the agent having been specifically hired for that purpose, thus creating agency by
ratification.
102
119. Normally, why would a buyer submit a contingency contract to a seller?
A. They don’t want to fully commit to the process.
B. They want to negotiate price.
C. They have a home to sell.
D. They want to tie up the seller's home and still be free to look at other properties.
The correct answer is C.
Normally, a buyer wants a home, but must sell their current home to qualify for
the note to purchase the home they want. All they can offer the seller is a contingency contract or a
purchase contract that is contingent on the buyer selling their current home to qualify for the home they want.
103
```
120. Fannie Mae, Freddie Mac, and Ginnie Mae describe:
A. Primary markets
B. Mortgage-backed securities
C. Secondary markets
D. Types of Federal Reserve programs
s.
```
The correct answer is C.
All of the other options in this question are in the primary market; while Fannie
Mae, Freddie Mac, and Ginnie Mae are in the secondary markets that buy loans that conform to their loan specification
104
```
44. In most companies, the salespeople are:
A. Employees
B. Employers
C. Unlicensed
D. Independent contractors
```
The correct answer is D. An independent contractor salesperson sets his own hours and receives no
benefits from the broker.
The salesperson must pay all of his own income taxes and his Social Security
taxes.
