National Portion
Covers general real estate principles common across states.
Getting Started: Your Exam Journey
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Texas Real Estate Sales Agent Exam — key terms, tricks & tips
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State Portion
Covers Texas-specific real estate laws and regulations.
Getting Started: Your Exam Journey
Scored Questions
Questions that count towards your final exam score.
Getting Started: Your Exam Journey
Pre-test Questions
Unscored questions used for future exam development.
Getting Started: Your Exam Journey
Content Outline
Official TREC document detailing exam topics and percentages.
Getting Started: Your Exam Journey
Passing Score
Minimum percentage of correct answers required to pass.
Getting Started: Your Exam Journey
Exam Structure & Scoring: What to Expect
Think 'N-S-70': National, State, 70% passing score for both!
Getting Started: Your Exam Journey
Exam Structure & Scoring: What to Expect
The Texas exam has two distinct parts, National and State, both requiring a 70% passing score. You must pass both sections independently.
Getting Started: Your Exam Journey
Exam Structure & Scoring: What to Expect
Underestimating the importance of Texas-specific laws; they are a separate and critical section.
Getting Started: Your Exam Journey
Exam Structure & Scoring: What to Expect
Not managing time effectively during the exam, especially for the longer National section.
Getting Started: Your Exam Journey
Exam Structure & Scoring: What to Expect
Ignoring the TREC content outline and studying topics that are less weighted on the exam.
Getting Started: Your Exam Journey
Active Learning
Engaging with material through summarizing, teaching, or practice.
Getting Started: Your Exam Journey
Passive Learning
Absorbing information without active engagement, like reading.
Getting Started: Your Exam Journey
Spaced Repetition
Reviewing material at increasing intervals to boost retention.
Getting Started: Your Exam Journey
Active Recall
Retrieving information from memory without external cues.
Getting Started: Your Exam Journey
Study Schedule
A planned timetable for allocating time to different study topics.
Getting Started: Your Exam Journey
Practice Exam
A simulated test to assess knowledge and familiarize with format.
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Metacognition
Awareness and understanding of one's own thought processes.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
To remember the benefits of Active Recall: 'ACT' - Actively Create Tests!
Getting Started: Your Exam Journey
Effective Study Strategies for Success
The Texas Real Estate Sales Agent Exam tests your ability to apply knowledge, not just recall facts. Focus on understanding 'why' and 'how' concepts work, especially in contract and agency scenarios, as questions often present real-world dilemmas.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
Only highlighting or re-reading notes without active engagement.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
Cramming all studying into the last few days before the exam.
Getting Started: Your Exam Journey
Effective Study Strategies for Success
Not reviewing incorrect answers on practice exams to understand mistakes.
Getting Started: Your Exam Journey
Real Property
Land, improvements, and all associated rights.
Understanding Property Ownership
Personal Property
Movable items not permanently attached to land.
Understanding Property Ownership
Fixture
Personal property permanently attached to real property.
Understanding Property Ownership
Immobility
Land cannot be moved; fixed geographic location.
Understanding Property Ownership
Situs
Economic desirability of a property's location.
Understanding Property Ownership
Bundle of Rights
Collection of rights held by a property owner.
Understanding Property Ownership
Subsurface Rights
Rights to minerals, oil, gas below the surface.
Understanding Property Ownership
Air Rights
Rights to the space above the property's surface.
Understanding Property Ownership
Real Property Characteristics & Rights
To remember the economic characteristics: P.I.S.S. - Permanence of improvements, Immobility (physical but influences economic), Scarcity, Situs.
Understanding Property Ownership
Real Property Characteristics & Rights
The exam frequently tests the distinction between real and personal property, especially regarding fixtures. Remember the MARIA test (Method of attachment, Adaptability, Relationship of parties, Intention, Agreement) to determine if an item is a fixture.
Understanding Property Ownership
Real Property Characteristics & Rights
Confusing personal property that is merely placed on land with a fixture that is permanently attached.
Understanding Property Ownership
Real Property Characteristics & Rights
Assuming mineral rights always convey with surface rights, especially in Texas where they are frequently severed.
Understanding Property Ownership
Real Property Characteristics & Rights
Forgetting that the 'bundle of rights' is not absolute and is subject to government limitations.
Understanding Property Ownership
Estate in Land
Degree, quantity, nature, and extent of interest in real property.
Understanding Property Ownership
Freehold Estate
Ownership for an indefinite period, implying actual ownership.
Understanding Property Ownership
Fee Simple Absolute
Highest and most complete form of property ownership.
Understanding Property Ownership
Life Estate
Ownership for the duration of a specific person's life.
Understanding Property Ownership
Leasehold Estate
Right to possess and use property for a definite period.
Understanding Property Ownership
Tenancy in Common
Co-ownership with undivided interests; no right of survivorship.
Understanding Property Ownership
Joint Tenancy
Co-ownership with right of survivorship; requires four unities.
Understanding Property Ownership
Community Property
Property acquired by spouses during marriage, owned equally.
Understanding Property Ownership
Estates in Land & Forms of Ownership
For Joint Tenancy's Four Unities: P.I.T.T. (Possession, Interest, Time, Title).
Understanding Property Ownership
Estates in Land & Forms of Ownership
The Texas exam frequently tests the distinction between community property and separate property, and the characteristics of tenancy in common versus joint tenancy, especially the right of survivorship.
Understanding Property Ownership
Estates in Land & Forms of Ownership
Confusing tenancy in common with joint tenancy, especially regarding the right of survivorship.
Understanding Property Ownership
Estates in Land & Forms of Ownership
Not understanding the implications of community property laws in Texas for married couples.
Understanding Property Ownership
Estates in Land & Forms of Ownership
Assuming all co-owners have equal shares in tenancy in common (shares can be unequal).
Understanding Property Ownership
Encumbrance
A claim or liability against real property.
Understanding Property Ownership
Lien
A financial claim making property collateral for a debt.
Understanding Property Ownership
Specific Lien
Attaches to a particular piece of property.
Understanding Property Ownership
General Lien
Attaches to all of the debtor's property.
Understanding Property Ownership
Easement
Right to use another's land for a specific purpose.
Understanding Property Ownership
Easement Appurtenant
Benefits an adjacent parcel of land (dominant tenement).
Understanding Property Ownership
Easement in Gross
Benefits a specific person or entity, not adjacent land.
Understanding Property Ownership
Encroachment
Illegal intrusion of an improvement onto another's property.
Understanding Property Ownership
Restriction
A limitation on how an owner can use their property.
Understanding Property Ownership
Encumbrances: Liens, Easements, & More
E for Encumbrance, E for Every claim. Think of an 'E' as a barrier or a restriction on your property.
Understanding Property Ownership
Encumbrances: Liens, Easements, & More
TREC emphasizes the difference between specific and general liens, and voluntary vs. involuntary liens. Be able to categorize common examples of each. For easements, understand the difference between appurtenant and in gross, and how they are created (e.g., prescription, necessity).
Understanding Property Ownership
Encumbrances: Liens, Easements, & More
Confusing an encumbrance with a transfer of ownership; encumbrances restrict use or value but don't transfer title.
Understanding Property Ownership
Encumbrances: Liens, Easements, & More
Not understanding that easements 'run with the land' and typically transfer to new owners.
Understanding Property Ownership
Encumbrances: Liens, Easements, & More
Misidentifying a license as an easement; licenses are temporary and revocable, easements are more permanent.
Understanding Property Ownership
Zoning
Government regulation dividing land into districts for specific uses.
Understanding Property Ownership
Variance
Permission to deviate from zoning requirements due to hardship.
Understanding Property Ownership
Conditional Use Permit
Allows a specific use not ordinarily permitted in a zone.
Understanding Property Ownership
Nonconforming Use
Existing use that predates and violates current zoning.
Understanding Property Ownership
Deed Restrictions
Private land use controls written into property deeds.
Understanding Property Ownership
Police Power
Government's right to regulate for public health, safety, welfare.
Understanding Property Ownership
Setback
Minimum distance a structure must be from property lines.
Understanding Property Ownership
Introduction to Land Use Controls
Zoning is like a ZOO: Each area has specific animals (uses) that belong there, keeping the lions (factories) away from the gazelles (homes).
Understanding Property Ownership
Introduction to Land Use Controls
TREC does not use the term 'police power' as frequently as some other states, but it is the underlying authority for public land use controls. Understand that zoning, building codes, and environmental regulations all stem from this government right. Memorize common zoning classifications like R (Residential), C (Commercial), and I (Industrial).
Understanding Property Ownership
Introduction to Land Use Controls
Confusing public controls (government) with private controls (HOA/deed restrictions).
Understanding Property Ownership
Introduction to Land Use Controls
Assuming that if a use is allowed by zoning, it's automatically allowed by deed restrictions (the more restrictive rule applies).
Understanding Property Ownership
Introduction to Land Use Controls
Not checking zoning or deed restrictions before advising a client on property development potential.
Understanding Property Ownership
Eminent Domain
Government's right to take private property for public use with just compensation.
Navigating Land Use Controls
Condemnation
The legal process by which the government exercises its right of eminent domain.
Navigating Land Use Controls
Just Compensation
Fair market value paid to an owner when property is taken via eminent domain.
Navigating Land Use Controls
Public Use
Purpose for which government can take property under eminent domain (e.g., roads).
Navigating Land Use Controls
Governmental Rights: Police Power, Eminent Domain
PEC: Police Power (no compensation), Eminent Domain (compensation), Condemnation (process).
Navigating Land Use Controls
Governmental Rights: Police Power, Eminent Domain
For the exam, focus on the distinction between police power (regulation, no compensation) and eminent domain (taking, just compensation). Keywords: 'regulate' vs. 'take' or 'acquire'.
Navigating Land Use Controls
Governmental Rights: Police Power, Eminent Domain
Confusing police power with eminent domain, especially regarding compensation.
Navigating Land Use Controls
Governmental Rights: Police Power, Eminent Domain
Believing that all government interference with property requires compensation.
Navigating Land Use Controls
Governmental Rights: Police Power, Eminent Domain
Underestimating the broad scope of police power in land use regulation.
Navigating Land Use Controls
Zoning Ordinance
Local laws regulating land use and development.
Navigating Land Use Controls
Comprehensive Plan
Long-range guide for community growth and development.
Navigating Land Use Controls
Non-Conforming Use
Lawful use existing before zoning, now non-compliant.
Navigating Land Use Controls
Building Codes
Minimum standards for construction, safety, and health.
Navigating Land Use Controls
Building Permit
Authorization from local government to build or renovate.
Navigating Land Use Controls
Public Controls: Zoning & Building Codes
ZONING: Z-Zones for O-Orderly N-Neighborhoods, I-Including N-New G-Growth.
Navigating Land Use Controls
Public Controls: Zoning & Building Codes
The Texas Real Estate Sales Agent Exam will expect you to know that zoning is enacted by local government (cities/counties) and is an exercise of police power. Understand the difference between a variance (exception due to hardship) and a non-conforming use (pre-existing, legal use).
Navigating Land Use Controls
Public Controls: Zoning & Building Codes
Confusing zoning (land use) with building codes (construction standards).
Navigating Land Use Controls
Public Controls: Zoning & Building Codes
Assuming a property's current use is always compliant without checking zoning.
Navigating Land Use Controls
Public Controls: Zoning & Building Codes
Underestimating the time and difficulty of obtaining a zoning change or variance.
Navigating Land Use Controls
CC&Rs
Covenants, Conditions, and Restrictions; rules governing a subdivision.
Navigating Land Use Controls
Deed Restriction
A limitation on property use written into the deed.
Navigating Land Use Controls
Run with the Land
A restriction that binds all future property owners.
Navigating Land Use Controls
Homeowners' Association (HOA)
An organization managing and enforcing CC&Rs in a community.
Navigating Land Use Controls
Injunction
A court order requiring a party to stop a specific action.
Navigating Land Use Controls
Abandonment
Termination of a restriction due to consistent non-enforcement.
Navigating Land Use Controls
Private Controls: Covenants & Restrictions
Think 'Private Parties' for Private Controls. They're agreements between people, not laws from the government.
Navigating Land Use Controls
Private Controls: Covenants & Restrictions
The California exam frequently tests the distinction between public and private controls. Remember that private controls like CC&Rs are enforced by HOAs or property owners, not by the government.
Navigating Land Use Controls
Private Controls: Covenants & Restrictions
Confusing private controls (CC&Rs, deed restrictions) with public controls (zoning, building codes).
Navigating Land Use Controls
Private Controls: Covenants & Restrictions
Assuming that if a use is allowed by zoning, it's automatically allowed by private restrictions.
Navigating Land Use Controls
Private Controls: Covenants & Restrictions
Forgetting that HOAs are typically responsible for enforcing CC&Rs.
Navigating Land Use Controls
Asbestos
Fibrous mineral, health hazard when airborne.
Navigating Land Use Controls
Lead-Based Paint
Paint with lead, common in pre-1978 homes.
Navigating Land Use Controls
Radon
Radioactive gas, naturally occurring, health risk.
Navigating Land Use Controls
CERCLA (Superfund)
Federal law for hazardous waste site cleanup.
Navigating Land Use Controls
Phase I ESA
Non-invasive environmental site assessment.
Navigating Land Use Controls
TCEQ
Texas Commission on Environmental Quality.
Navigating Land Use Controls
USTs
Underground Storage Tanks, potential for leaks.
Navigating Land Use Controls
Environmental Concerns & Regulations
Remember 'LEAD': **L**ead-based paint, **E**nvironmental hazards, **A**gent's duty, **D**isclosure.
Navigating Land Use Controls
Environmental Concerns & Regulations
The California Environmental Quality Act (CEQA) requires state and local agencies to identify significant environmental impacts of their actions and to avoid or mitigate them.
Navigating Land Use Controls
Environmental Concerns & Regulations
Assuming a property is environmentally sound just because it looks good.
Navigating Land Use Controls
Environmental Concerns & Regulations
Trying to interpret environmental reports or give expert advice yourself.
Navigating Land Use Controls
Environmental Concerns & Regulations
Failing to disclose known environmental issues or recommend professional inspections.
Navigating Land Use Controls
Appraisal
Unbiased estimate of property value by a licensed professional.
Valuation and Market Analysis
Market Value
Most probable price a property should bring in an open market.
Valuation and Market Analysis
Market Price
Actual price a property sold for in a transaction.
Valuation and Market Analysis
Principle of Contribution
Value of improvement measured by its addition to property's total value.
Valuation and Market Analysis
Principle of Substitution
Value set by cost of acquiring an equally desirable substitute property.
Valuation and Market Analysis
Highest and Best Use
Most profitable, legal, and physically possible use of a property.
Valuation and Market Analysis
Principle of Conformity
Maximum value realized when property conforms to neighborhood standards.
Valuation and Market Analysis
The Appraisal Process & Principles
To remember the appraisal principles, think 'DUST CASC': Demand, Utility, Scarcity, Transferability, Contribution, Anticipation, Substitution, Conformity.
Valuation and Market Analysis
The Appraisal Process & Principles
TREC requires you to know the 8 steps of the appraisal process and the core principles of value. Look for questions that test your understanding of how these principles apply to real-world scenarios, especially Highest and Best Use, Contribution, and Substitution.
Valuation and Market Analysis
The Appraisal Process & Principles
Confusing market value with market price; they are not always the same.
Valuation and Market Analysis
The Appraisal Process & Principles
Underestimating the importance of 'highest and best use' in determining a property's value, especially for vacant land.
Valuation and Market Analysis
The Appraisal Process & Principles
Believing that the cost of an improvement automatically equals its contribution to market value.
Valuation and Market Analysis
Sales Comparison Approach
Compares subject to recently sold similar properties, adjusting for differences.
Valuation and Market Analysis
Cost Approach
Estimates value by rebuilding cost minus depreciation plus land value.
Valuation and Market Analysis
Income Capitalization Approach
Converts future income into present value for income-producing properties.
Valuation and Market Analysis
Comparables (Comps)
Recently sold properties similar to the subject property used for comparison.
Valuation and Market Analysis
Depreciation
Loss in value from physical deterioration, functional, or external obsolescence.
Valuation and Market Analysis
Net Operating Income (NOI)
Property's income after operating expenses, before debt service and taxes.
Valuation and Market Analysis
Capitalization Rate (Cap Rate)
Rate of return used to convert NOI into an estimate of value.
Valuation and Market Analysis
Reconciliation
Appraiser's final process of weighing and correlating value indicators.
Valuation and Market Analysis
Approaches to Property Valuation
To remember the three approaches, think of 'SCI': Sales, Cost, Income. Like a science to valuation!
Valuation and Market Analysis
Approaches to Property Valuation
The exam often asks which approach is best for a specific property type. Remember: Sales Comparison for residential, Cost for new/unique, Income for income-producing. Know the principles each approach is based on.
Valuation and Market Analysis
Approaches to Property Valuation
Confusing when to apply each approach (e.g., using Income Approach for a single-family home).
Valuation and Market Analysis
Approaches to Property Valuation
Thinking reconciliation is simply averaging the values from different approaches.
Valuation and Market Analysis
Approaches to Property Valuation
Forgetting that adjustments are always made to the comparable property, not the subject property.
Valuation and Market Analysis
Comparative Market Analysis (CMA)
Agent's informal estimate of property value.
Valuation and Market Analysis
Comparable Properties (Comps)
Recently sold, active, or expired listings similar to the subject.
Valuation and Market Analysis
Subject Property
The property for which the value is being estimated.
Valuation and Market Analysis
Adjustments
Modifications to comp prices for differences.
Valuation and Market Analysis
Multiple Listing Service (MLS)
Database used by agents to list and find properties.
Valuation and Market Analysis
Comparative Market Analysis (CMA) Basics
CMA: 'Comps Make Adjustments' – Remember you're comparing properties and adjusting their prices to find value.
Valuation and Market Analysis
Comparative Market Analysis (CMA) Basics
The Texas Real Estate Commission (TREC) allows real estate licensees to prepare CMAs for clients. However, agents must clearly state that a CMA is not an appraisal and should not be used for purposes requiring an appraisal, such as securing a loan. Know the difference between a CMA and an appraisal, and when each is appropriate.
Valuation and Market Analysis
Comparative Market Analysis (CMA) Basics
Confusing a CMA with a formal appraisal, especially regarding its legal standing or use for lending.
Valuation and Market Analysis
Comparative Market Analysis (CMA) Basics
Using outdated sales data or comparables that are too geographically distant or dissimilar to the subject property.
Valuation and Market Analysis
Comparative Market Analysis (CMA) Basics
Failing to make appropriate adjustments for differences between the subject property and the comparables.
Valuation and Market Analysis
Physical Obsolescence
Loss in value due to wear and tear or deterioration of the property.
Valuation and Market Analysis
Functional Obsolescence
Loss in value due to outdated or poor design, or inadequate features.
Valuation and Market Analysis
Economic Obsolescence
Loss in value from external factors, outside the property's boundaries.
Valuation and Market Analysis
Governmental Factors
Zoning, taxes, building codes, public services influencing value.
Valuation and Market Analysis
Social Factors
Population, demographics, cultural trends affecting property value.
Valuation and Market Analysis
Economic Factors
Interest rates, employment, inflation impacting real estate values.
Valuation and Market Analysis
Factors Influencing Property Value
Think of PEST-G: Physical, Economic, Social, Technical (Functional), and Governmental/Environmental factors that affect value. (T for Technical is a stand-in for Functional!)
Valuation and Market Analysis
Factors Influencing Property Value
TREC emphasizes understanding the four main categories of factors (Governmental, Environmental, Social, Economic) and the various types of obsolescence (physical, functional, economic). Be ready to identify examples of each.
Valuation and Market Analysis
Factors Influencing Property Value
Confusing functional obsolescence with economic obsolescence: functional is internal design flaw, economic is external market/neighborhood issue.
Valuation and Market Analysis
Factors Influencing Property Value
Forgetting that highest and best use considers not just current use, but also potential, legally permissible uses.
Valuation and Market Analysis
Factors Influencing Property Value
Underestimating the impact of governmental factors like zoning or property taxes on a property's desirability and value.
Valuation and Market Analysis
Mortgage
A loan secured by real property as collateral.
Real Estate Financing Essentials
Promissory Note
A borrower's written promise to repay a debt.
Real Estate Financing Essentials
Deed of Trust
A three-party security instrument common in Texas.
Real Estate Financing Essentials
Mortgagor
The borrower in a mortgage transaction.
Real Estate Financing Essentials
Mortgagee
The lender in a mortgage transaction.
Real Estate Financing Essentials
PITI
Principal, Interest, Taxes, and Insurance in a mortgage payment.
Real Estate Financing Essentials
Amortization
Gradual repayment of a loan over time.
Real Estate Financing Essentials
Equity
Property value minus outstanding loan balance.
Real Estate Financing Essentials
Basic Concepts of Mortgage Financing
PITI: 'P'ay 'I'n 'T'ime, 'I'ncludes everything!
Real Estate Financing Essentials
Basic Concepts of Mortgage Financing
The Texas exam often distinguishes between a mortgage and a Deed of Trust; remember that Texas primarily uses the Deed of Trust system for real estate financing.
Real Estate Financing Essentials
Basic Concepts of Mortgage Financing
Confusing the promissory note (the debt) with the mortgage/Deed of Trust (the security instrument).
Real Estate Financing Essentials
Basic Concepts of Mortgage Financing
Underestimating the total monthly housing cost by only considering principal and interest, forgetting taxes and insurance.
Real Estate Financing Essentials
Basic Concepts of Mortgage Financing
Not understanding the role of the trustee in a Deed of Trust as a neutral third party.
Real Estate Financing Essentials
Conventional Loan
Not insured/guaranteed by a government agency.
Real Estate Financing Essentials
Private Mortgage Insurance (PMI)
Insurance protecting lenders on conventional loans with low down payments.
Real Estate Financing Essentials
FHA Loan
Insured by the Federal Housing Administration (FHA).
Real Estate Financing Essentials
Mortgage Insurance Premium (MIP)
Required insurance for FHA loans (upfront and annual).
Real Estate Financing Essentials
VA Loan
Guaranteed by the Department of Veterans Affairs (VA).
Real Estate Financing Essentials
VA Funding Fee
A fee on VA loans that helps offset the cost to taxpayers.
Real Estate Financing Essentials
Certificate of Eligibility (COE)
Document proving a veteran's eligibility for a VA loan.
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
FHA = First-time Homebuyer's Aid; VA = Veteran's Advantage; Conventional = Common Choice.
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
The exam often tests the minimum down payment for FHA loans (3.5%) and that VA loans require no PMI. Remember that conventional loans require PMI if the down payment is less than 20%.
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
Confusing PMI (conventional) with MIP (FHA) or the VA Funding Fee (VA). They are distinct.
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
Assuming all government-backed loans have no down payment (only VA typically offers 0% down).
Real Estate Financing Essentials
Types of Loans: Conventional, FHA, VA
Forgetting that FHA loans have both an upfront and an annual mortgage insurance premium.
Real Estate Financing Essentials
Pre-qualification
Informal estimate of borrowing capacity, not verified.
Real Estate Financing Essentials
Pre-approval
Conditional lender commitment based on verified financial data.
Real Estate Financing Essentials
Form 1003
Standard Uniform Residential Loan Application form.
Real Estate Financing Essentials
Underwriting
Process of evaluating borrower, property, and loan risk.
Real Estate Financing Essentials
Underwriter
Lender employee who assesses loan risk and makes approval decision.
Real Estate Financing Essentials
3 Cs of Underwriting
Credit, Capacity, and Collateral assessed by underwriter.
Real Estate Financing Essentials
Clear to Close
Final loan approval, all conditions met, ready for funding.
Real Estate Financing Essentials
Closing Disclosure (CD)
Document detailing final loan terms and costs, issued pre-closing.
Real Estate Financing Essentials
The Loan Application Process & Underwriting
Remember the '3 Cs' of Underwriting: **C**redit, **C**apacity, **C**ollateral. Like a good C.R.C. (Cooked Right Chicken) sandwich, all three parts need to be just right for a successful loan!
Real Estate Financing Essentials
The Loan Application Process & Underwriting
For the exam, distinguish clearly between pre-qualification (informal, no verification) and pre-approval (formal, verified, conditional commitment). Know that the Uniform Residential Loan Application is Form 1003.
Real Estate Financing Essentials
The Loan Application Process & Underwriting
Confusing pre-qualification with pre-approval; pre-approval is much stronger.
Real Estate Financing Essentials
The Loan Application Process & Underwriting
Not preparing clients for the extensive documentation required during underwriting.
Real Estate Financing Essentials
The Loan Application Process & Underwriting
Assuming a pre-approval guarantees the loan; it's conditional and subject to underwriting.
Real Estate Financing Essentials
Closing Costs
Fees paid at the closing of a real estate transaction.
Real Estate Financing Essentials
Loan Estimate (LE)
Disclosure of estimated loan terms and closing costs, due 3 days after application.
Real Estate Financing Essentials
RESPA
Federal law promoting transparency and preventing abusive practices in real estate settlement.
Real Estate Financing Essentials
Kickback
Illegal payment for referring settlement service business, prohibited by RESPA.
Real Estate Financing Essentials
Affiliated Business Arrangement (AfBA)
Relationship between settlement service providers, allowed with disclosure.
Real Estate Financing Essentials
Closing Costs, Disclosures, & RESPA
LE-CD: 'L' comes before 'C' in the alphabet, just like the Loan Estimate comes before the Closing Disclosure in the transaction timeline. Both have a '3-day rule' associated with them!
Real Estate Financing Essentials
Closing Costs, Disclosures, & RESPA
For the Texas exam, remember the specific timing requirements for the Loan Estimate (3 business days after application) and the Closing Disclosure (3 business days before closing). Also, know that RESPA applies to most federally regulated residential mortgage loans.
Real Estate Financing Essentials
Closing Costs, Disclosures, & RESPA
Confusing the Loan Estimate with the Closing Disclosure or their timing requirements.
Real Estate Financing Essentials
Closing Costs, Disclosures, & RESPA
Believing all closing costs are fixed and non-negotiable.
Real Estate Financing Essentials
Closing Costs, Disclosures, & RESPA
Accepting or offering referral fees for settlement services, which is a RESPA violation.
Real Estate Financing Essentials
Agency
Legal relationship where agent acts for principal.
Agency Relationships & Duties
Principal
Party who hires agent; client.
Agency Relationships & Duties
Agent
Party authorized to act for principal.
Agency Relationships & Duties
Third Party
Customer; not represented by agent.
Agency Relationships & Duties
Special Agent
Agent with limited authority for specific act.
Agency Relationships & Duties
Express Agency
Created by clear oral or written agreement.
Agency Relationships & Duties
Implied Agency
Created by actions of the parties.
Agency Relationships & Duties
Understanding Agency Relationships
P.A.T.I.E.N.C.E. for how agency is created: Principal, Agent, Third Party, Implied, Express, No Estoppel, Client, Estoppel.
Agency Relationships & Duties
Understanding Agency Relationships
The exam often tests your ability to distinguish between a 'client' (principal) and a 'customer' (third party) and the duties owed to each. Remember, full fiduciary duties are only owed to the client.
Agency Relationships & Duties
Understanding Agency Relationships
Confusing the principal (client) with a third party (customer).
Agency Relationships & Duties
Understanding Agency Relationships
Believing that an oral agreement is sufficient for agency in all real estate transactions (written is usually required).
Agency Relationships & Duties
Understanding Agency Relationships
Assuming an agent owes fiduciary duties to everyone involved in a transaction.
Agency Relationships & Duties
Fiduciary Duty
A legal obligation to act in another's best interest.
Agency Relationships & Duties
OLDCAR
Acronym for the six fiduciary duties: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable Care.
Agency Relationships & Duties
Obedience
Following all lawful client instructions.
Agency Relationships & Duties
Loyalty
Acting solely in the client's best interest.
Agency Relationships & Duties
Confidentiality
Protecting client's private information, even after the transaction.
Agency Relationships & Duties
Disclosure
Revealing all material facts to the client.
Agency Relationships & Duties
Accounting
Safeguarding client funds and documents.
Agency Relationships & Duties
Reasonable Care
Exercising professional skill and knowledge.
Agency Relationships & Duties
Fiduciary Duties to Clients
Remember OLDCAR: An OLD CAR needs Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable Care to keep running smoothly for its owner (your client)!
Agency Relationships & Duties
Fiduciary Duties to Clients
The Texas exam frequently tests the specific duties under OLDCAR. Pay close attention to which duties are perpetual (Confidentiality) and which apply only during the agency relationship. Know that fiduciary duties are owed ONLY to clients, not customers.
Agency Relationships & Duties
Fiduciary Duties to Clients
Confusing duties owed to clients (fiduciary) with duties owed to customers (honesty, fairness, disclosure of material facts).
Agency Relationships & Duties
Fiduciary Duties to Clients
Believing confidentiality ends when the transaction closes; it is a perpetual duty.
Agency Relationships & Duties
Fiduciary Duties to Clients
Failing to disclose a material fact because it might jeopardize the deal, which violates the duty of disclosure.
Agency Relationships & Duties
IABS Form
Information About Brokerage Services form, explaining agency options.
Agency Relationships & Duties
Substantive Dialogue
Serious discussion about specific real property with a party.
Agency Relationships & Duties
Intermediary Brokerage
Broker represents both buyer and seller with written consent.
Agency Relationships & Duties
Appointed Licensee
Agent assigned to advise one party in an intermediary transaction.
Agency Relationships & Duties
TRELA
Texas Real Estate License Act, the primary law governing licensees.
Agency Relationships & Duties
Disclosure of Agency & Representation
IABS: I Always Bring Service. Remember to provide the Information About Brokerage Services form early!
Agency Relationships & Duties
Disclosure of Agency & Representation
The exam often tests the timing of the IABS form. Remember 'first substantive dialogue' and what it entails. Also, know the difference between disclosure of agency (IABS) and disclosure of representation (who you work for).
Agency Relationships & Duties
Disclosure of Agency & Representation
Failing to provide the IABS form at the first substantive dialogue.
Agency Relationships & Duties
Disclosure of Agency & Representation
Confusing general conversation with 'substantive dialogue'.
Agency Relationships & Duties
Disclosure of Agency & Representation
Not obtaining written consent for intermediary brokerage.
Agency Relationships & Duties
Disclosure of Agency & Representation
Assuming an IABS form is a representation agreement; it is not.
Agency Relationships & Duties
Termination
The ending of an agency relationship.
Agency Relationships & Duties
Revocation
Principal's act of ending the agency.
Agency Relationships & Duties
Renunciation
Agent's act of ending the agency.
Agency Relationships & Duties
Fulfillment of Purpose
Agency ends when its goal is achieved.
Agency Relationships & Duties
Expiration of Term
Agency ends when the agreed-upon time runs out.
Agency Relationships & Duties
Operation of Law
Automatic termination due to legal events.
Agency Relationships & Duties
Agency Coupled with an Interest
Irrevocable agency where agent has a financial stake.
Agency Relationships & Duties
Termination of Agency & Client Relationships
Remember 'DEATH PIE' for termination by operation of law: Death, Expiration, Agreement, Termination (by parties), Illegality, Performance (fulfillment), Incapacity, Destruction.
Agency Relationships & Duties
Termination of Agency & Client Relationships
Memorize the specific events that lead to termination by operation of law: death/incapacity of either party, destruction of property, or illegality of purpose. These are often tested as distinct categories from acts of the parties.
Agency Relationships & Duties
Termination of Agency & Client Relationships
Assuming all duties end immediately upon termination; the duty of confidentiality continues.
Agency Relationships & Duties
Termination of Agency & Client Relationships
Confusing the ability to terminate with the right to terminate without penalty (e.g., breaching a contract).
Agency Relationships & Duties
Termination of Agency & Client Relationships
Forgetting that 'agency coupled with an interest' is an exception to general termination rules.
Agency Relationships & Duties
Competent Parties
Individuals legally capable of entering a contract.
Real Estate Contracts
Mutual Assent
Agreement by all parties to the exact same terms.
Real Estate Contracts
Consideration
Something of value exchanged between parties.
Real Estate Contracts
Offer
A promise to perform an act if accepted.
Real Estate Contracts
Acceptance
Unqualified agreement to the terms of an offer.
Real Estate Contracts
Void Contract
No legal force from inception; never existed.
Real Estate Contracts
Voidable Contract
Valid but can be legally canceled by one party.
Real Estate Contracts
Unenforceable Contract
Valid but cannot be legally enforced in court.
Real Estate Contracts
General Contract Law Principles
Remember 'CLOC' for the four essential elements: Competent parties, Legal purpose, Offer & Acceptance (Mutual Assent), Consideration.
Real Estate Contracts
General Contract Law Principles
TREC emphasizes the four essential elements of a valid contract. Be prepared to identify which element is missing in a given scenario to determine if a contract is void or voidable. Also, know the Statute of Frauds requires real estate contracts to be in writing.
Real Estate Contracts
General Contract Law Principles
Confusing a counteroffer with an acceptance; any change, even minor, makes it a counteroffer.
Real Estate Contracts
General Contract Law Principles
Assuming all verbal agreements are binding; the Statute of Frauds requires real estate contracts to be in writing.
Real Estate Contracts
General Contract Law Principles
Not verifying the competency of parties, especially regarding age or mental capacity, which can lead to voidable contracts.
Real Estate Contracts
Listing Agreement
Contract between owner and broker to sell property.
Real Estate Contracts
Exclusive Right to Sell
Broker earns commission no matter who sells property.
Real Estate Contracts
Exclusive Agency
Broker earns commission unless owner sells property.
Real Estate Contracts
Open Listing
Only procuring broker earns commission; owner can sell.
Real Estate Contracts
Net Listing
Broker's commission is amount above seller's net price.
Real Estate Contracts
Buyer Representation Agreement
Contract between buyer and broker for buyer representation.
Real Estate Contracts
Fiduciary Duties
Broker's legal obligations to act in client's best interest.
Real Estate Contracts
Protection Period
Period after agreement where broker may still earn commission.
Real Estate Contracts
Listing & Buyer Representation Agreements
Remember the fiduciary duties with OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable Care.
Real Estate Contracts
Listing & Buyer Representation Agreements
The Texas Real Estate Sales Agent Exam frequently tests the differences between the types of listing agreements and the fiduciary duties owed by an agent to their client. Memorize OLD CAR.
Real Estate Contracts
Listing & Buyer Representation Agreements
Failing to get a listing or buyer representation agreement in writing, making it difficult to enforce commission payment.
Real Estate Contracts
Listing & Buyer Representation Agreements
Not fully explaining the terms of the agreement, especially compensation and protection periods, to the client.
Real Estate Contracts
Listing & Buyer Representation Agreements
Acting as a buyer's agent without a written agreement, which can lead to confusion about representation and compensation.
Real Estate Contracts
Listing & Buyer Representation Agreements
Drafting complex clauses instead of using TREC-promulgated forms or advising clients to seek legal counsel.
Real Estate Contracts
Earnest Money
Deposit showing buyer's good faith, held in escrow.
Real Estate Contracts
Option Fee
Payment for the exclusive right to terminate within an option period.
Real Estate Contracts
Option Period
Timeframe for buyer's due diligence and right to terminate.
Real Estate Contracts
Addendum
Additional form attached to the contract, addressing specific terms.
Real Estate Contracts
Amendment
Document used to modify an existing, executed contract.
Real Estate Contracts
Statute of Frauds
Requires real estate contracts to be in writing to be enforceable.
Real Estate Contracts
Promulgated Forms
Forms published by TREC for mandatory use by licensees.
Real Estate Contracts
Sales Contracts: Key Elements & Provisions
Remember 'COALL' for Contract essentials: Competent parties, Offer & Acceptance, Assent (mutual), Legal purpose, and Legally written (Statute of Frauds).
Real Estate Contracts
Sales Contracts: Key Elements & Provisions
TREC promulgated forms are mandatory for licensees for most residential transactions. Know the difference between earnest money and option fees, and their implications for termination.
Real Estate Contracts
Sales Contracts: Key Elements & Provisions
Confusing earnest money with the option fee; they serve different purposes and have different refundability.
Real Estate Contracts
Sales Contracts: Key Elements & Provisions
Failing to use TREC promulgated forms when required, which can lead to license violations.
Real Estate Contracts
Sales Contracts: Key Elements & Provisions
Not ensuring all parties sign and initial all changes or addenda, making them unenforceable.
Real Estate Contracts
Option Contract
Right to buy, not obligation, for a fee.
Real Estate Contracts
Optionee
Party holding the right to purchase in an option.
Real Estate Contracts