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TEXAS REAL ESTATE PRACTICE EXAM QUESTIONS
WITH VERIFIED SOLUTIONS
"The distinguishing feature of a defeasible fee simple estate is that: a) It could be passed onto heirs. b) It has no restrictions on use. c) The estate may revert to a grantor or heirs if the prescribed use changes.
d) It is of unlimited duration. - CORRECT ANSWER c) The estate may revert to a grantor or
heirs if the prescribed use changes." "Maria acquires a property from her uncle Alfonso. When Maria dies the estate will pass to Alfonso's other niece Serena. The type of estate that Maria has in the property is: a) conventional life estate. b) Legal life estate. c) Fee simple defeasible estate.
d) Tenancy by the entirety's. - CORRECT ANSWER a) conventional life estate."
"One difference between a cooperative estate and a condominium estate is that: a) a condominium owner owns a unit of air space whereas the co-op owner owns a proprietary lease. b) A condominium sale adversely affects other unit owners. c) The co-op owner owns stock and a freehold real estate interest whereas the condominium owner simply a proprietary lease. d) The condominium owner owns the common elements and the air space whereas the co-op
owner only owns the apartment. - CORRECT ANSWER a) a condominium owner owns a unit
of air space whereas the co-op owner owns a proprietary lease." "What is a lien theory state in contrast to a title theory state? a) A state in which liens are given priority over other encumbrances b) A state in which a mortgage retains title to the property when a mortgage lien is created. c) A state in which the holder of a mortgage lien receives title to the mortgage and property until the debt is satisfied.
d) A state in which liens must be recorded to be enforceable. - CORRECT ANSWER b) A state
in which a mortgage retains title to the property when a mortgage lien is created."
"A store owner enters into a lease that charges rent per square foot, a common area fee, and a portion of the store owner's gross income from the property. This kind of lease is a: a) triple charge, or triple net lease. b) Proprietor's lease. c) Percentage lease.
d) Retailer's gross lease. - CORRECT ANSWER c) Percentage lease."
"An owner lease has a property to a business in exchange for rent and the tenant is required to pay all operating expenses as well. This is an example of a _______. a) Proprietary lease. b) Percentage lease. c) Gross lease.
d) Net lease. - CORRECT ANSWER d) Net lease."
"A lease automatically terminates under which of the following circumstances? a) The tenant fails to pay rent. b) The leased property is foreclosed. c) The tenant goes out of business.
d) The landlord canceled the lease. - CORRECT ANSWER b) The leased property is
foreclosed." "A buyer agrees to all terms of a seller's offer except the length of time for a contingency to procure financing. The buyer extends the financing period in the offer by one week, signs the form, and mails it back to the seller. At this point, the seller's offer: a) is void. b) Becomes an executory contract. c) Becomes a counteroffer.
d) Has been accepted, since the modification was a contingency. - CORRECT ANSWER a) is
void." "Real estate contracts that are not personal service contracts: a) May be assigned. b) Are not assignable. c) Must be in writing.
d) Are exempt from the statute of frauds. - CORRECT ANSWER a) May be assigned."
"Real estate advertising must conform to regulatory standards and requirements. One requirement is a) A broker may only place blind ads in social media outlets. b) A broker must have all advertising approved by the local real estate board. c) The advertising must not be deceptive.
d) Sales agents may only advertise in their own name. - CORRECT ANSWER c) The
advertising must not be deceptive." "In the event of a buyer's default a provision for liquidated damages in a sale contract enables the seller to: a) sue the buyer for a person specific performance. b) Force the buyer to quitclaim equitable title. c) Sue the buyer for the broker's marketing expenses.
d) Claim the deposit as compensatory damages for the buyer's failure to perform. - CORRECT
ANSWER d) Claim the deposit as compensatory damages for the buyer's failure to perform."
"Which of the following is true of an option to buy agreement? a) The potential buyer, the optionee, is obligated to buy the property once the option agreement is completed. b) The optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so. c) The contract can be executed at no cost to the optionee.
d) It is a bilateral agreement. - CORRECT ANSWER b) The optionor must perform if the
optionee takes the option, but the optionee is under no obligation to do so." "The key feature of an adjustable-rate mortgage loan is that a) The interest rate may vary. b) The monthly payment increases over the life of the loan. c) The principal balance does not amortize.
d) The loan term can be shortened or lengthened. - CORRECT ANSWER a) The interest rate
may vary." "Why is a wraparound mortgage loan potentially interesting to a home seller as an investment? a) It is a senior loan that can be easily subordinated for additional debt.
b) A wraparound lender can profit when the interest rate of the wraparound exceeds that of the underlying mortgage. c) The underlying loan is retired early.
d) The second mortgage borrower may make payments directly to the first mortgage lender. -
CORRECT ANSWER b) A wraparound lender can profit when the interest rate of the
wraparound exceeds that of the underlying mortgage." "A builder is required to secure a loan with mortgages on three properties. This is an example of a) A participation mortgage loan. b) A blanket mortgage loan. c) A permanent mortgage loan.
d) A bridge loan. - CORRECT ANSWER b) A blanket mortgage loan."
"The method for deriving an investor's return on investment, or ROI, is by a) Dividing net operating income by cash flow. b) Multiplying the required yield times after-tax cash flow. c) Dividing net income by the price paid for the property.
d) Multiplying cash flow times the price paid for the property. - CORRECT ANSWER c)
Dividing net income by the price paid for the property." "Which of the following items would affect a homeowner's adjusted basis? a) Installing a higher capacity air conditioning and purifying system. b) Replacing a washing machine. c) Stripping and staining hardwood floors.
d) Replacing a broken picture window. - CORRECT ANSWER a) Installing a higher capacity
air conditioning and purifying system." "Which of the following is true with respect to real property taxation by the federal government? a) It imposes ad valorem property taxes and capital gain tax. b) It may not impose property taxes or tax liens. c) There are no federal ad valorem taxes on real property.
d) It imposes ad valorem tax but not capital gain tax. - CORRECT ANSWER c) There are no
federal ad valorem taxes on real property." "Ad valorem taxes are based on a) The replacement value of property.
"An investor just purchased a rectangular 2 acre lot for $250 a frontage foot. If she paid $100, total what was the depth of the lot? a) 400 feet. b) 250 feet. c) 871 feet.
d) 218 feet. - CORRECT ANSWER d) 218 feet."
"Andra can afford to spend $5000 in closing cost to refinance her home. The lender quotes closing costs of $800 +2 points. The house appraised out at $240,000 and she can get an 80% loan. Can Andra afford to refinance? a) No she is short by $64. b) No she is short by $1600. c) Yes with $360 left over.
d) Yes she in fact breaks even. - CORRECT ANSWER c) Yes with $360 left over."
"A lender offers an investor a maximum of 70% LTV loan on the appraised value of a property. If the investor pays $230,000 for the property, and this is 15% more than the appraised value, how much will the investor have to pay as a down payment? a) $93,150. b) $79,350. c) $90,000.
d) $69,000. - CORRECT ANSWER c) $90,000."
"George and Mary have owned a rental house for 10 years. They bought it for $240,000 and estimated the land value at 25%. If the property is depreciated on a 39-year schedule and appreciation total is 50% over the period, what is their gain if they sell the property today? a) $159,230. b) $166,150. c) $181,538.
d) $120,000. - CORRECT ANSWER b) $166,150."
"Which of the following is not a brokerage activity requiring licensure? a) Auctioning real estate. b) Offering to exchange real estate. c) Selling an option to a buyer that the buyer refuses.
d) Advertising one's principal residence for sale. - CORRECT ANSWER d) Advertising one's
principal residence for sale." "Which of the following parties does not have to have a real estate license to operate legally? a) A hostess at an open house who explains how the property's price was identified. b) Answering questions to confirm the terms of advertised property. c) An operator of a real estate rental agency.
A person who supervises licensees. - CORRECT ANSWER b) Answering questions to confirm
the terms of advertised property." "Which of the following is true regarding license procurement in Texas? a) The applicant must be 18 years old and a United States citizen. b) Active or veteran military personnel must meet education requirements but are exempted from passing the exam. c) An application need not be an American citizen. d) Applications are terminated if all requirements are not completed within six months of the
filing date. - CORRECT ANSWER a) The applicant must be 18 years old and a United States
citizen." "Which of the following is a required disclosure to be completed in writing prior to closing? a) That the buyer is well-advised to obtain an appraisal prior to closing. b) That the seller should obtain an inspection. c) That the buyer should have an attorney examine the title abstract or get title insurance. d) That the buyer should obtain a preapproval for a loan sufficient in an amount to qualify for a
given price range. - CORRECT ANSWER c) That the buyer should have an attorney examine
the title abstract or get title insurance." "Which of the following is a listing requirement without which subjects licensees to license suspension? a) Specifications of a termination date. b) A complete legal description. c) The specific financial penalty for failure to complete a sale.
d) The licensee's marketing plan. - CORRECT ANSWER a) Specifications of a termination
date." "TREC makes a payment from the recovery fund to satisfy a judgment against a licensee. Which of the following applies?
a) To inform consumers just what it is that agents do to earn their commission. b) To shed light on the advantages and disadvantages of the exclusive listing versus selling or buying without representation. c) To explain to prospects the types of relationships they may choose with licenses, and what services they get for each alternative. d) To explain to consumers why it is far preferable legally and economically to list with agents,
and the many ways they can do that successfully. - CORRECT ANSWER c) To explain to
prospects the types of relationships they may choose with licenses, and what services they get for each alternative." "There are several requirements for establishing an intermediary relationship. Which of the following is not a requirement? a) Each party to the agreement must give written consent. b) The agreement must stipulate the duty of confidentiality to either buyer or seller. c) How and who will compensate the agent must be set forth.
d) The duties of the intermediary must be clearly identified. - CORRECT ANSWER b) The
agreement must stipulate the duty of confidentiality to either buyer or seller." "Which of the following accurately characterizes the relationship between brokers and sponsored sales agents? a) The sales agent is required to identify and abide by a loyal commitment to the broker. b) The sales agent must stipulate what license activities here she will commit to, and over what period of time. c) The broker is obligated to identify and communicate the sales agents authorized activities. d) The broker must delegate all responsibility for delineated activities to be conducted by
sponsored sales agents. - CORRECT ANSWER c) The broker is obligated to identify and
communicate the sales agents authorized activities." "Licensees must be compensated according to certain regulations. One of the most important regulations regarding compensation is that a) The sales agent may only receive compensation from the sponsoring broker. b) The sales agents must abide by the standard rate of commission prevalent in the local market. c) Sales agents cannot receive compensation from sales agents or principals - only other brokers.
d) Sales agents and brokers comply with commission guidelines promulgated by the TREC. -
CORRECT ANSWER a) The sales agent may only receive compensation from the sponsoring
broker." "Which of the following is an exception to the "must-use" rule concerning promulgated contracts?
a) In transactions where there is no promulgated form, licensees can use a form approved by the Texas Real Estate Broker Lawyer Committee. b) In sales transactions where both principal parties insist on using a previously used form. c) In transactions where the principal or principals immediate family member is a licensee.
d) There are no exceptions to the "must-use" rule. - CORRECT ANSWER a) In transactions
where there is no promulgated form, licensees can use a form approved by the Texas Real Estate Broker Lawyer Committee." "Which of the following is a violation of license law? a) Discouraging a seller from hiring an attorney. b) An attorney advising a client on real estate matters without a real estate license. c) Using a promulgated contract for a suited purpose even though it may not be necessary.
d) Refusing to rewrite a contract clause requested by a buyer who couldn't understand it. -
CORRECT ANSWER a) Discouraging a seller from hiring an attorney."
"What is the essential purpose of a Texas Homestead law? a) To give families a tax break on portions of the value of their principal residence. b) To protect a family's residence from the unilateral conveyance by one party or a forced sale to collect a debt. c) To give a family immunity from the collection of debts.
d) To prevent husbands from gambling away all interest in the property. - CORRECT
ANSWER b) To protect a family's residence from the unilateral conveyance by one party or a
forced sale to collect a debt." "Deceptive trade practices, as codified in the Deceptive Trade Practices Act, are strictly prohibited in real estate practice. Three of the following instances are examples, but one is acceptable. Which one is it? a) Telling a buyer that a property's price has been drastically reduced. b) Bragging about a warranty that doesn't apply to a given claim. c) Disparaging competitors with non-factual innuendos.
d) Telling a buyer that an air conditioner will easily last another five years. - CORRECT
ANSWER a) Telling a buyer that a property's price has been drastically reduced."
"In essence, the Statute of Frauds states which of the following? a) To be enforceable all contracts must be in writing. b) Conveyance contracts and leases must be in writing to be enforceable. c) Conveyance contracts and leases exceeding one year must be in writing to be enforceable.
c) Severance and affixing.
d) Planting and harvesting. - CORRECT ANSWER c) Severance and affixing."
"The highest form of ownership interest one can acquire in real estate is the: a) legal life estate. b) Conventional life estate. c) Defeasible fee simple estate.
d) Absolute fee simple estate. - CORRECT ANSWER d) Absolute fee simple estate."
"Who are the essential parties involved in an estate and trust? a) Owner trustor, and lawyer. b) Owner, trustor, and trustee. c) Trustee, title company, and beneficiary.
d) Trustor, trustee, and beneficiary. - CORRECT ANSWER d) Trustor, trustee, and
beneficiary." "A condominium owner enjoys a: a) share in an association that owns one's apartment. b) Tenancy in common interest in air space and common areas of the property. c) Fee simple ownership of the airspace in a unit and an undivided share of the entire property's common areas.
d) The simple ownership of a pro rata share of the entire property. - CORRECT ANSWER c)
Fee simple ownership of the airspace in a unit and an undivided share of the entire property's common areas." "With various types of junior liens, the order of payment priority is generally established according to: a) the date of recordation. b) What form of tax is in question. c) The order of disbursement.
d) Whether the lien was subordinated. - CORRECT ANSWER a) the date of recordation."
"A property owner has an easement appurtenant on her property. One day the property is sold to another party who is opposed to the easement. Following the closing, this particular form of easement: a) terminates. b) Transfers with the property. c) Transfers with the owner to a new property.
d) Becomes a license on the property. - CORRECT ANSWER b) Transfers with the property."
"What fundamental legal purpose is fulfilled by title records? a) Keeping the county apprised of tax payments. b) Preventing identity theft. c) Giving constructive notice of one's rights and interests in the property.
d) Assembling all relevant documents in a single place. - CORRECT ANSWER c) Giving
constructive notice of one's rights and interests in the property." "What is chain of title? a) The list of all parties who have ever owned real estate. b) The bundle of rights linked to the recorded title to a parcel. c) A chronology of successive owners of record of a parcel of real estate.
d) Involuntary conveyance of title by statutory roles of descent. - CORRECT ANSWER c) A
chronology of successive owners of record of a parcel of real estate." "Which of the following provides the strongest evidence of marketable title? a) A general warranty deed. b) A title certificate. c) Title insurance.
d) An attorney's opinion. - CORRECT ANSWER c) Title insurance."
"A county or municipal authority usually grants a certificate of occupancy for new construction only after: a) all contractor's work has been inspected. b) All work has been completed for at least 60 days. c) The construction conforms to building codes.
d) The tax assessor has valued the improvement. - CORRECT ANSWER c) The construction
conforms to building codes." "A property owner is precluded by the restriction from developing a 30-foot boat dock. The limitation prompts the owner to sell to another party. The new owner: a) is free to build the dock since the next-door neighbor built a similar dock two weeks later. b) Takes title subject to the same restriction. c) Can build a dock with special permission from the zoning board.
d) May build, since the restriction is extinguished by the sale. - CORRECT ANSWER b) Takes
title subject to the same restriction."
d) The agent must except the revocation without the possibility of the possibility of damage
recovery. - CORRECT ANSWER b) The client may be liable for compensation commission and
marketing expenses." "A protection period clause in an exclusive listing provides that: a) The owner is protected from all liabilities arising from the agent's actions performed within the agent's scope of duties. b) The agent has a claim to a commission if the owner sells or leases to a party within a certain time following the listing's expiration. c) Agents are entitled to extend a listing agreements term if a transaction is eminent. d) An owner is not liable for a commission if a prospective customer delays in completing an
acceptable offer. - CORRECT ANSWER b) The agent has a claim to a commission if the owner
sells or leases to a party within a certain time following the listing's expiration." "The three principal brokerage firms in a market agree to pay sales agents 15% more than any other competitor currently in practice. This is an example of a) Collusion. b) Price-fixing. c) Allocation of markets.
d) Steering. - CORRECT ANSWER a) Collusion."
"Two leading agencies jointly agreed to raise commissions charge to residential sellers to 7.5% of the sales price. Which of the following is true? a) This is a perfectly legitimate business practice. b) The brokers have illegally fixed prices. c) The brokers have allocated markets.
d) The brokers have engaged in legal collusion. - CORRECT ANSWER b) The brokers have
illegally fixed prices." "A sale contract contains an open-ended financing contingency: if the buyer cannot obtain financing within a reasonable time the deal is off. Six months later the buyer still cannot secure financing. Which of the following is true? a) The seller may cancel the contract since it can be ruled invalid. b) The buyer can continue indefinitely to seek financing, and the seller's property must remain off the market since "reasonable" is not defined. c) The escrow agent is entitled to the buyer's deposit.
d) The seller can force a lender to commit to a loan under fair financing laws. - CORRECT
ANSWER a) The seller may cancel the contract since it can be ruled invalid."
"If a manufacturer that is the major employer in a small city moves its operations to another city, it is reasonable to expect: a) a fall in housing demand, but no other changes in the real estate market. b) A decline in demand for all types of real estate in the real estate market. c) An immediate fall in the demand for industrial real estate, but no other changes in the real estate market. d) An immediate decline in the prices for industrial and office real estate, but no impact on the
residential market. - CORRECT ANSWER b) A decline in demand for all types of real estate in
the real estate market." "If a commercial real estate market is under supplied, it is likely that: a) rental prices in that market will fall. b) Rental prices in that market will rise. c) Rental prices will remain stable until equilibrium is reached.
d) Construction will increase to the point of equilibrium. - CORRECT ANSWER b) Rental
prices in that market will rise." "The amount of available property that becomes occupied over a period of time is called: a) vacancy. b) Absorption. c) Equilibrium.
d) Occupation. - CORRECT ANSWER b) Absorption."
"The roof of a property cost $20,000. The economic life of a roof is 20 years. Assuming the straight-line method of depreciation, what is the depreciated value of the roof after three years? a) $20,000. b) $17,000. c) $14,000.
d) $3000. - CORRECT ANSWER b) $17,000."
"The income capitalization approach to appraising value is most applicable for which of the following property types? a) Single-family homes. b) Apartment buildings. c) Undeveloped land.
d) Churches. - CORRECT ANSWER b) Apartment buildings."
a) Equal Credit Opportunity Act. b) Truth in Lending Laws. c) National Disclosure Procedures Act.
d) Federal Fair Housing Laws. - CORRECT ANSWER b) Truth in Lending Laws."
"Which of the following is an important function of the secondary mortgage market? a) Participants borrow funds from banks so the banks can make more loans. b) Participants issued tax certificates and sell them to primary lenders. c) Participants purchase pools of defaulted loans from lenders to keep them solvent.
d) Participants sell mortgage-backed securities in order to buy pools of loans. - CORRECT
ANSWER d) Participants sell mortgage-backed securities in order to buy pools of loans."
"Cash flow is a measure of how much pre-tax or after-tax cash an investment property generates. To derive cash flow it is therefore necessary to exclude a) Cost recovery expense. b) Interest expense. c) Loan principal payments.
d) Net operating income. - CORRECT ANSWER a) Cost recovery expense."
"Which of the following activities is not allowed under the Real Estate Settlement and Procedures Act? a) A broker having any business relationship with an insurance company that is involved in the broker's transaction. b) A broker pre-qualifying a buyer for a mortgage loan. c) A lender requiring a deposit from a borrower for a tax and insurance escrow account.
d) A lender paying a fee to a broker for referring a borrower to the lender. - CORRECT
ANSWER d) A lender paying a fee to a broker for referring a borrower to the lender."
"Which of the following communication records must (as opposed to should) be kept? a) Notes on every conversation. b) Copies of required communications to principles. c) Notes from company training sessions.
d) Business cards of licensees one meets at open houses. - CORRECT ANSWER b) Copies of
required communications to principles." "To minimize the risk of violating fair housing laws, a licensee should a) Refuse to use terms that refer to or describe any of the classes of persons protected by the laws.
b) Avoid working in neighborhoods that are predominantly occupied by a single ethnic group. c) Make discriminatory or derogatory remarks in conversation only, never in writing. d) Give better service to members of a protected class then is standard for other clients or
customers. - CORRECT ANSWER a) Refuse to use terms that refer to or describe any of the
classes of persons protected by the laws." "What are tenant improvements? a) Modifications to a rental suite to conform to a tenant usage specification. b) Marketing programs that yield a higher quality of tenant. c) Increased revenue resulting from a rise in rental rates.
d) Increased occupancy resulting from a population increase in the market area. - CORRECT
ANSWER a) Modifications to a rental suite to conform to a tenant usage specification."
"For the proper handling of client and owner monies, a property manager is generally required to a) Deposit all funds every month in the management firm's central operating account. b) Employ a notary to witness and record every deposit or payment received. c) Maintain a special trust account and a qualified financial depository.
d) Disperse all funds to their legal owners on a weekly basis. - CORRECT ANSWER c)
Maintain a special trust account and a qualified financial depository." "A house is being appraised using the sales comparison approach. The house has three bedrooms, two bathrooms, and a patio. The appraiser selects a comparable house that has three bedrooms, 2 ½ bathrooms, and no patio. The comparable house just sold for $100,000. A half bath is valued at $5000 and a patio at $1000. Assuming all else is equal what is the adjusted value of the comparable? a) $100,000. b) $104,000. c) $96,000.
d) $106,000. - CORRECT ANSWER c) $96,000."
"A family purchased a $90,000 lot to build a custom home. At the date of closing the lot was assessed at $84,550 and the tax rate was $1.91 per $100 assessed valuation. When they completed the home, the assessment increased by $235,000 to include the new construction. If the monthly tax escrow is based on the assessed value, what will the monthly tax escrow be? a) $ b) $ c) $
d) $367 - CORRECT ANSWER c) $508"
