Texas Real Estate Sales Agent Exam flashcards

The back-end debt-to-income (DTI) ratio includes all recurring monthly debt payments, plus the proposed housing expense, divided by gross monthly income.

• Includes credit cards, car loans, student loans, personal loans
• Does NOT include non-debt living expenses (utilities, food, insurance)
• Typically has a higher acceptable limit than the front-end ratio

Memory trick: Back-End is ALL Borrowed Debt, not just Bills.

The Closing Disclosure (CD) is a five-page form that provides final details about the mortgage loan selected and must be received by the borrower at least three business days before closing.

• Mandated by TRID rules
• Details all final loan and closing costs
• Compares final costs to Loan Estimate

Memory trick: LEads to CD: Loan Estimate earlier, Closing Disclosure final.

A mortgage loan where the interest rate is not fixed for the entire term but can fluctuate based on an underlying economic index.

• Rate changes periodically (e.g., annually) after an initial fixed period.
• Tied to an index (e.g., LIBOR, SOFR, Treasury rates).
• Includes caps on how much the rate can change.

Memory trick: Rates can be fixed like a rock or adjustable like a thermostat.

A fee charged by the lender to cover the administrative costs of processing a mortgage loan. It is typically a percentage of the loan amount.

• Paid by borrower to lender
• Covers loan processing and administrative costs
• Usually 0.5% to 1.5% of the loan amount

Memory trick: Origination is the Official Office charge.

Discount points are an upfront fee paid by the borrower to the lender at closing in exchange for a lower interest rate on the mortgage.

• Each point is usually 1% of the loan amount
• Used to 'buy down' the interest rate
• Can save money over the life of the loan

Memory trick: Points Discount Your Interest (PDI).

Specific changes to a loan's terms that require a new Closing Disclosure to be issued, restarting the 3-day waiting period before closing.

• An increase in the APR by more than 0.125% (fixed) or 0.25% (adjustable).
• Addition of a prepayment penalty.
• Change in the loan product (e.g., from fixed to adjustable).

Memory trick: Don't rush closing if the APR jumps, or a big penalty looms.

Government-insured loans designed to make homeownership more accessible, especially for first-time homebuyers or those with lower credit scores.

• Insured by Federal Housing Administration (FHA).
• Lower down payment requirements (as low as 3.5%).
• More lenient credit score requirements than conventional loans.
• Require Mortgage Insurance Premiums (MIP).

Memory trick: FHA: Flexible Home Access, but with insurance costs.

A VA loan is a mortgage option guaranteed by the U.S. Department of Veterans Affairs, offering significant benefits to eligible veterans, including 100% financing.

• No down payment required for eligible borrowers
• No private mortgage insurance (PMI)
• Competitive interest rates

Memory trick: Veterans are Granted A Loan (VGAL) for their service.

A convertible adjustable-rate mortgage (ARM) grants the borrower the option to convert the loan into a fixed-rate mortgage during a specified period.

• Offers flexibility to lock in a rate
• Conversion typically incurs a fee
• Useful for managing interest rate risk

Memory trick: A Convertible ARM allows a Change from Adjustable to Fixed.

A lender's assessment of a borrower's ability and willingness to repay a debt, based on their financial history.

• Evaluated using credit score, debt-to-income, payment history.
• Influences loan approval, interest rate, and terms.
• Poor creditworthiness indicates higher risk of default.

Memory trick: Lenders check your financial 'traffic' for green or red lights.

A type of mortgage that allows a buyer to take over the seller's existing mortgage, including the remaining balance and interest rate.

• Buyer takes over seller's existing loan terms.
• Often requires lender approval and buyer qualification.
• Common in FHA, VA, and USDA loans; rare in conventional loans due to 'due-on-sale' clause.

Memory trick: Government loans are often a 'go' for assumption, conventional is mostly a 'no'.

A mortgage with lower initial monthly payments that gradually increase over a specific period, often deferring some interest.

• Payments start low and increase over time.
• Designed for borrowers expecting higher future income.
• Can result in negative amortization in early years.

Memory trick: Gradually rising payments for future financial gains.

The process by which lenders assess the income reliability of self-employed borrowers, who often have fluctuating earnings.

• Requires more extensive documentation than W-2 employees.
• Tax returns are primary documentation.
• Lenders look for consistency and ability to repay based on net income.

Memory trick: Self-employed income needs a history, not just a snapshot.

An appraisal in a mortgage transaction assesses the property's market value to ensure it adequately serves as collateral for the loan.

• Protects the lender's investment
• Determines collateral value
• Independent, unbiased valuation

Memory trick: An appraiser's report protects the lender's money.

Fees paid at closing. Origination fees cover lender administrative costs; discount points reduce the interest rate.

• Both are typically calculated as a percentage of the loan amount.
• 1 point equals 1% of the loan amount.
• Origination fees are for processing; discount points are for rate reduction.

Memory trick: Loan costs are percentages of the loan, not the home price.

USDA loans are government-backed mortgages for eligible low-to-moderate income borrowers purchasing homes in designated rural areas, often requiring no down payment.

• 0% down payment for qualified borrowers
• Specific income limits apply
• Property must be in an eligible rural area

Memory trick: USDA helps Rural Underprivileged Developers Acquire.

A lease agreement in which the rental payments increase at specified intervals by predetermined amounts or percentages.

• Often used in long-term leases to account for inflation or increasing property value.
• Rent adjustments are known in advance.
• Provides predictable rent increases for both landlord and tenant.

Memory trick: G.I.R.L. - Graduated, Index, Reappraisal, Level (flat) describe rent changes.

The fundamental components that must be present for a contract to be legally valid and enforceable.

• Competent Parties (legal age, sound mind).
• Mutual Assent (offer and acceptance).
• Lawful Objective (legal purpose).
• Consideration (something of value exchanged).

Memory trick: C.L.O.C.K. - Competent, Lawful, Offer/Acceptance, Consideration, in Writing (for real estate).

A listing agreement where the seller grants one broker the exclusive right to sell the property, but the seller reserves the right to sell the property themselves without paying a commission to the broker.

• Only one broker is authorized to act as the exclusive agent.
• Broker earns commission if any broker sells the property.
• Seller retains right to sell and avoid commission if they find the buyer.

Memory trick: E.E.O.N. - Exclusive Right, Exclusive Agency, Open, Net define commission rules.

A clause in a sales contract that makes the contract's enforceability dependent on the buyer obtaining a specific type and amount of financing within a stated period. If the buyer cannot, they can usually terminate and receive their earnest money back.

• Protects the buyer from losing earnest money if financing falls through.
• Specifies a deadline for loan approval.
• Requires the buyer to act in good faith to obtain financing.
• If not met, the contract can be terminated without penalty to the buyer.

Memory trick: C.O.N.D.I.T.I.O.N.S. - Contingencies, Options, Negotiations, Deadlines, Inspections, Termination, Insurance, Other.

A non-refundable fee paid by the buyer (optionee) to the seller (optionor) for the exclusive right to terminate a contract within a specified option period. If the buyer proceeds with the purchase, the fee is typically credited to the purchase price.

• Paid directly to the seller.
• Must be delivered within 3 days of the effective date of the contract.
• Gives the buyer unrestricted right to terminate during the option period.
• Credited to the purchase price if the option is exercised.

Memory trick: O.P.T.I.O.N. - Option fee, Period, Termination, If exercised, Often credited, Non-refundable (if not exercised).

A legal principle requiring certain types of contracts, including most real estate agreements, to be in writing to be enforceable. However, leases for a term of one year or less are a common exception.

• Applies to contracts that cannot be performed within one year.
• Requires written evidence for enforceability.
• Verbal leases for one year or less are generally enforceable.
• Aims to prevent fraud and perjury.

Memory trick: W.R.I.T.E. - Written, Real estate, Impossible to perform in a Year, Executor, Goods.

A provision in a buyer representation agreement that entitles the buyer's agent to a commission if the buyer purchases a property that was presented or shown to them by the agent within a specified period after the agreement officially terminates.

• Protects the agent's efforts and potential commission.
• Also known as a 'protection period' or 'extender clause'.
• Typically includes a list of properties shown during the agreement term.
• Duration is specified in the agreement (e.g., 90 days).

Memory trick: B.U.Y.E.R. - Brokerage services, Unilateral termination, Yield (commission), Exclusivity, Representation scope.

The act of withdrawing an offer or counteroffer by the offeror before it has been accepted by the offeree.

• Must be communicated to the offeree.
• Can occur any time before acceptance.
• Once revoked, the offer/counteroffer is no longer available for acceptance.

Memory trick: O.C.A.R. - Offer, Counter, Acceptance, Revocation are key steps.

A lease agreement in which the tenant pays a fixed rent plus some or all of the property's operating expenses, such as property taxes, insurance, and maintenance.

• Can be single net (taxes), double net (taxes + insurance), or triple net (taxes + insurance + maintenance).
• Common in commercial real estate.
• Shifts some operating cost burden from landlord to tenant.

Memory trick: G.N.P. - Gross, Net, Percentage describe how expenses are paid.

A contract that can be legally cancelled or annulled by one or more parties to it without breaching the contract, often due to a defect like fraud, misrepresentation, or duress.

• Valid until rescinded by the injured party.
• Injured party has the option to affirm or rescind.
• Common causes include fraud, duress, undue influence, or minority.

Memory trick: Valid contracts are V.O.I.D. - Void, Voidable, Invalid, or Defective.

An agent authorized to perform a broad range of acts in connection with a particular business or activity for the principal, but not all matters.

• Examples include property managers and business managers.
• Has ongoing authority.
• Can bind the principal in matters related to the specific business.

Memory trick: U.G.S. - Universal, General, Special describe the scope of agent power.

Rules set by the Texas Real Estate Commission that govern how real estate licensees must advertise to ensure clarity, honesty, and proper identification of the brokerage.

• Broker's name must be displayed prominently.
• Advertisements must not be misleading.
• Team names must end with 'team' or 'group' and not imply a brokerage.

Memory trick: TREC Ads need 'Clear Broker Branding'.

Actions performed for another party for compensation that involve the sale, exchange, purchase, or lease of real estate in Texas, as defined by TRELA.

• Involves real estate transactions
• Performed for another party
• Done for compensation or expectation of compensation

Memory trick: If you're paid to help others with property, a license key unlocks the door.

A type of lease where the rental payments are adjusted periodically based on an agreed-upon economic index, such as the Consumer Price Index (CPI).

• Rent fluctuates based on an index
• Common in long-term commercial leases
• Protects landlord against inflation

Memory trick: Index finger points to the CPI for rent changes.

A fundamental obligation under agency law and TRELA for a real estate broker to promptly present all offers, regardless of their terms, to their client, unless the client provides specific, lawful instructions otherwise.

• Applies to all written offers
• Must be prompt
• Only lawful and specific instructions can alter this duty

Memory trick: Every offer is a package: deliver them all, unless the law or clear, lawful client rules say no.

A mandatory requirement for a Texas real estate sales agent to activate their license, where a licensed Texas real estate broker agrees to supervise their activities.

• Required for active status
• Broker is responsible for sales agent's actions
• License remains inactive without sponsorship

Memory trick: To open the sales agent door, find a broker's helping hand.

The Texas Real Estate Commission (TREC) promulgates various addenda to be used with its standard contract forms to address common contingencies and situations in real estate transactions.

• Must be used by licensees for their intended purpose.
• Cover common scenarios like financing, property condition, and sale of other property.
• Prevent the unauthorized practice of law by agents.

Memory trick: When a buyer needs to sell, a TREC addendum is the correct way to compel.

Under the Texas Property Code, a landlord has a legal obligation to make a diligent effort to repair or remedy a condition if it materially affects the physical health or safety of an ordinary tenant, provided the tenant is current on rent and has given proper notice.

• Applies to health/safety issues
• Tenant must give notice and be current on rent
• Landlord generally pays for and arranges repairs

Memory trick: Health and safety repairs are the landlord's duty, not the tenant's bill to front.

An analysis of the prices of recently sold homes that are similar to a subject property in terms of location, size, and features, used to estimate the property's current market value.

• Prepared by real estate agents.
• Provides an opinion of value, not an appraisal.
• Used to help sellers set listing prices and buyers make offers.

Memory trick: CMA's 'M' is for Market, not for Measuring like an Appraiser.

A provision in a Buyer Representation Agreement that entitles the buyer's agent to a commission if the buyer purchases a property previously shown to them by that agent, within a specified period after the agreement expires.

• Protects the agent's commission after the agreement term.
• Applies to properties introduced to the buyer by the agent.
• Requires a specified 'protection period' after the agreement ends.

Memory trick: Safety Secures Sales After Six Months.

Real estate licensees in Texas have an independent duty to disclose any known material facts about a property to all parties, especially defects, regardless of seller's disclosure.

• Applies to all known material facts, not just those from the seller.
• Duty exists even if the seller is exempt from providing a disclosure notice.
• Failure to disclose can lead to disciplinary action by TREC and civil liability.

Memory trick: Agents must 'Reveal Real Defects, Regardless'.

A response to an offer that changes one or more of the original terms. It automatically terminates the original offer and creates a new offer.

• Rejects the original offer.
• Makes the party who receives it the offeree.
• Requires acceptance by the original offeror to form a contract.

Memory trick: Changes Create Counter-Offers, Canceling Original.

Under Texas law, if a landlord fails to make certain essential repairs after proper notice, a tenant may, under specific conditions, arrange for the repair and deduct the cost from future rent.

• Applies to conditions materially affecting health/safety.
• Requires written notice to landlord and reasonable time to repair.
• Strict limitations on cost and type of repairs.
• Tenant must not be delinquent on rent.

Memory trick: Repair Remedy: 'R'eport, 'R'easonable time, 'R'epair & 'R'educt.

The Texas Real Estate Commission (TREC) primarily regulates licensee conduct and protects the public, but generally does not intervene in contractual disputes between licensees (e.g., commission disputes).

• TREC investigates violations of TRELA and TREC Rules.
• Commission disputes between agents and brokers are private contractual matters.
• Aggrieved parties typically seek resolution through civil courts or arbitration.

Memory trick: Licensee disputes need 'Contract Clarity, Court Call'.

Real estate licensees in Texas are generally prohibited from drafting legal documents, such as commercial lease agreements, as this is considered the unauthorized practice of law.

• Licensees cannot draft commercial leases.
• Licensees can fill in blanks on TREC-promulgated forms (residential).
• Clients should be advised to seek legal counsel for complex documents.

Memory trick: Legal forms are for Lawyers, not for Licensees.

A provision in a lease or a separate agreement between a tenant and a lender that guarantees the tenant will not be evicted in the event of a foreclosure or sale of the property, as long as the tenant is not in default.

• Protects tenant's occupancy rights
• Applies in case of foreclosure or sale
• Often requested by tenants in commercial leases

Memory trick: No disturbance, no eviction, keep your lease position.

The obligation of a real estate agent to reveal to their client all material facts and information that could affect the client's decision-making process.

• Applies to all material facts
• Must be timely and complete
• Crucial for client's informed consent

Memory trick: An agent's OLD CAR safely drives their client's interests.

A contract where a seller (optionor) grants a buyer (optionee) the exclusive right to purchase a property within a specified period for a determined price. The optionee pays an option fee for this right and is not obligated to purchase.

• Buyer has right, not obligation, to purchase
• Option fee is typically non-refundable
• Unilateral contract until option is exercised

Memory trick: The option fee opens the door, but you don't have to walk through.

A contractual provision where the buyer agrees to purchase the property in its current condition, without seller warranty or obligation to make repairs, though sellers must still disclose known material defects.

• Buyer accepts property with all faults.
• Seller generally not obligated to make repairs.
• Does NOT relieve seller of disclosure duty for known material defects.

Memory trick: As-Is: 'A'ccepting 'S'tatus, 'I'ncluding 'S'hortcomings (but not 'S'ecrets).

A section in TREC-promulgated contracts where factual statements or business details pertinent to the transaction may be inserted by a licensee, provided they do not change the legal rights or obligations of the parties. It is not for adding legal advice.

• For factual statements only
• Cannot change legal rights
• Commonly used for short extensions

Memory trick: Special Provisions for those special little delays.

A provision in the TREC One to Four Family Residential Contract (Resale) that allows the buyer to terminate the contract for any reason within a specified option period, typically for an option fee.

• Requires an option fee paid by the buyer.
• Must be exercised within a specific timeframe (option period).
• Buyer receives a refund of earnest money upon termination.

Memory trick: Options Offer Open Exits for Buyers.

Certain property transfers, such as those by court order, foreclosure, or between co-owners, are exempt from the requirement to provide a Seller's Disclosure Notice in Texas.

• Transfers by court order or foreclosure are exempt.
• Transfers between co-owners or to a spouse are exempt.
• New homes sold by a builder are generally exempt.

Memory trick: Foreclosures are free from disclosure forms, banks don't know the home's past.

In Texas, buyers of property within a Property Owners' Association (POA) are entitled to receive a Resale Certificate (providing financial and operational details) and the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) (outlining property rules and limitations).

• Resale Certificate includes current assessments, dues, and violations.
• CC&Rs detail property use rules, architectural guidelines, etc.
• Seller is responsible for providing these documents.

Memory trick: For a POA, the Resale Certificate and CC&Rs are the essential documents, like a rulebook and a bank statement.

Disciplinary measures taken by the Texas Real Estate Commission against licensees who violate the Texas Real Estate License Act (TRELA) or TREC Rules.

• Can include fines, suspension, revocation
• Aimed at protecting the public
• Based on formal complaints and investigations

Memory trick: TREC's enforcement hammer: fines, warnings, or taking away the license key.

A contractual provision in which one party (often the broker) agrees to protect another party (the seller) from liability for specified damages or claims related to the property or activities, such as injuries during showings.

• Protects a party from liability
• Commonly used in listing agreements
• Shifts risk or responsibility

Memory trick: Hold Harmless: Keep me safe, don't blame me for harm.

The legal options available to a tenant in Texas when a landlord fails to make necessary repairs to a property after proper notice.

• Landlord must be notified in writing of the condition.
• Condition must materially affect health or safety.
• Remedies include termination, repair and deduct (limited), or lawsuit.
• Withholding rent without court order is generally prohibited.

Memory trick: Texas tenants 'Notice, Not No-Rent' for repairs.

Damage to the property before closing (e.g., fire, flood) that may give the buyer the right to terminate the contract and receive their earnest money.

• Applies if damage occurs between contract execution and closing.
• Buyer generally has the option to terminate or proceed if seller repairs.
• Seller is usually responsible for maintaining the property until closing.

Memory trick: Casualty Causes Contract Chaos.

A type of agency relationship in Texas where a broker represents both the buyer and the seller in the same transaction, and appoints different licensed associates to each party to provide advice and opinions.

• Requires written consent from both parties.
• Broker remains neutral and cannot give advice to either party.
• Appointed associates can give advice and opinions to their respective clients.

Memory trick: Intermediary is 'Impartial and Appointed'.

The act of replacing an old contract with a new one, or replacing one of the parties in a contract with a new party, with the mutual consent of all involved parties.

• Requires agreement from all original and new parties.
• Completely extinguishes the old contract or party's obligations.
• Different from assignment or sublease where original party may retain liability.

Memory trick: New Nova's Nullify Old Obligations.

A document required by the Texas Property Code for sellers of most residential properties to disclose known defects or conditions affecting the property.

• Required for most residential sales.
• Must be provided by the seller to the buyer.
• Buyer can terminate contract if not received timely.

Memory trick: Disclosure's Notice: Know before you close, what the seller knows.

Real estate licensees are prohibited from drafting legal language in the 'Special Provisions' paragraph of TREC forms if it goes beyond factual statements and constitutes the unauthorized practice of law.

• Paragraph 11 (Special Provisions) is for factual statements.
• Drafting legal provisions is unauthorized practice of law.
• Licensees should advise clients to consult an attorney for specific legal language.

Memory trick: Special Provisions: 'S'tick to 'S'imple 'S'tatements, 'S'top drafting 'S'pecific 'S'tatutes.

A provision in a listing agreement where the seller agrees to protect the broker from any claims, losses, or damages that may arise from the listing or sale of the property.

• Protects the agent from liability due to property conditions or seller actions.
• Commonly used to cover issues like injuries on the property or misrepresentations by the seller.
• Shifts risk from the agent to the seller.

Memory trick: Indemnify Injuries, Insure Integrity.

Real estate licensees must ensure that sellers disclose the presence of known underground storage tanks (USTs) on a property, regardless of their current status (e.g., empty), as they represent a material fact.

• USTs are considered material facts due to potential hazards.
• Disclosure required even if empty or abandoned.
• Included in Seller's Disclosure Notice.
• Agent's duty to ensure seller complies.

Memory trick: UST 'U'nderground 'S'torage 'T'ank: 'U'pon 'S'eeing, 'T'ell 'T'he 'T'ruth.

A provision in a lease that allows for rent to be increased at specified times or upon the occurrence of certain events, such as increases in operating expenses or property taxes. This can be a fixed increase or tied to an index.

• Allows for rent increases
• Can be fixed or variable (index-based)
• Common in long-term commercial leases

Memory trick: Escalate the rent, just as planned, to keep up demand.