Texas Real Estate Practice Exam

Personal property that is attached, or fixed, to real estate is typically considered real property and is referred to as "fixtures". In this situation, the seller is choosing to detach the fixture and retain it as personal property. The plant is in a pot which is a personal item that is not attached to the property. Furnishings, in general, are considered personal property. The swinging door is attached to the home and was installed when the home was built. It is considered real property.

For an area to be included in the GLA it must meet three criteria: (1) it must be heated or have air; (2) it must be finished; and (3) the living area must be directly accessible from the other living areas. In this scenario, the breezeway does not have heat or air, so is not considered part of the GLA and is not counted.

Step 1: Multiply 40'x40' to arrive at 1600 s.f. 
Step 2: Multiply 30'x40' to arrive at 1200 s.f. 
Step 3: 1600 s.f. + 1200 s.f. = 2800 s.f. GLA

It is important to understand the different forms of real property ownership. Ownership in severalty is a form of ownership where there is one owner. The ownership is "several", meaning separate, distinct or sole. Under ownership in severalty, the owner has sole control over the use and possession of the property. Joint tenancy, on the other hand, means that there is more than one owner and all owners have equal share in the whole property. It is distinguished by the right of survivorship. If one owner dies, his interest passes to the surviving owner(s). Tenancy in common is incorrect because a tenancy in common by definition requires two or more owners. In a tenancy in common, the interest of an owner passes to his descendants or heirs upon his passing and not to the other owners. Tenancy by the entirety is basically a joint tenancy for married couples. It is a form of ownership where a married couple own equal shares in the real estate. It has a right of survivorship.

A fee simple defeasible is a fee simple with a condition placed on it. The holder of the fee simple defeasible possess the property subject to the condition. If the condition is violated or met, the property either automatically goes back to the granter (fee simple determinable) or a designated third party, or the grantor has the option to sue to take the property back (fee simple with a condition subsequent). A life estate is an incorrect answer because it is one in which the grantee has rights of ownership only for the duration of his life or the life of another. This is a limited estate based on the duration of a person's life. A fee simple subject to a condition precedent is an incorrect answer because it establishes an estate for a party upon the future occurrence of some condition.

Scarcity means that there is a shortage of land in a market where there is a high demand. In answer A, there is a need for land and the land for the developer's use is scarce. In answer B, apartments are scarce in the downtown area, therefore the store owner decides to modify his building to take advantage of the situation. Answer C is a good example of scarcity. Housing is scarce in the couple's current town and more plentiful in the next town, enticing the couple to move.

Net operating income (NOI) is one way for an investor to analyze the value of an income producing property. NOI is calculated by adding all the revenue generated by the property and then subtracting all of the reasonably necessary operating expenses, like rent, utilities, inventory costs, payroll and insurance. The NOI does not take into account such things as debt payments, costs for capital improvements or depreciation and amortization.

There are many principles of value that help determine a market price. "Highest and best use" means that a property is being used in a manner that will produce the highest current value. The appraisal industry generally considers that a property is at it's highest and best use when it meets four criteria:

• that it is physically possible (ex. An airport on enough land for a runway),
• legally permissible (ex. Zoned properly),
• financially feasible (ex. land value exceeds the value of the improved property); and
• that it is maximally productive (the current use is the most profitable in a set of possible uses).

Value of real estate can be determined by various methods for different purposes. A comparative market analysis is commonly performed by a real estate agent to determine market value by comparing a minimum of three active listed properties and three recent sold properties.

A market assessment is close but not the correct answer. A written opinion of value is not the name of a valuation method. A tax assessment is used to provide value for a taxing entity but not performed by a real estate agent.

There are four common listing types.

• An Exclusive Agency Listing allows the seller to find a buyer and excuses him from paying a real estate commission while allowing an exclusive agent to also look for a buyer and receive a commission.
• The Exclusive Right to Sell Listing disallows anyone but the broker named in the agreement to procure a buyer and receive a commission. 
• An Open Listing gives the most freedom to the seller and allows anyone, including the seller, to procure a buyer and receive a commission. 
• A net listing is illegal in most states and allows the broker to procure a buyer at a set price, determined by seller and broker, and allows the broker to keep the difference in the set price and the contract price, pocketing any money over and above the set price.

A buyer representation agreement is used to establish the agency relationship between the agent and the buyer. It is used to spell out what the agent will do for the client and how the agent will be compensated for her performance.

People make agreements, or contracts, every day. When time is short, agreements are sometimes made by implication. An implied contract is made because it is commonly known and understood that certain actions will result in payment. Mi invited Apex to mow and it is commonly expected that she would pay for that work when it is completed. If she refuses to pay, or the amount of payment is disputed, a small claims court would use a reasonable, customary amount accepted in the lawncare industry. An express contract is a verbal or written contract in which the parties make it clear what they will do and what essential terms are part of the agreement. Mi did not say, "I will pay you $50 after you mow my yard", thus an express contract did not arise.

According to paragraph 5 of TREC's One to Four Family Residential Contract (Resale), the buyer shall have a right to terminate the contract for any reason as long as he or she:

1. delivers the option fee to the escrow agent within three (3) days; and
2. gives notice of termination to the seller within the negotiated "option period".
 
The option period is not a set or standard timeframe and must be negotiated between the parties. The buyer can terminate the contract for any reason during the option period.

Texas law is clear about how agents should handle representation of multiple parties in a transaction. The role of Intermediary is the established practice requiring agents to disclose their agency relationship to more than one party in a transaction. Upon discovery that an agent represents more than one party, he must immediately send both parties a Notice of Intermediary Relationship and have both parties sign the notice to document their acknowledgement. An agent should always disclose his position and relationship to the parties BEFORE working for both parties simultaneously. He should never keep that fact to himself while inducing action from one of the parties.

A typical Buyer's Representation Agreement will spell out the responsibility of the agent to his client and vice versa. It also addresses how the broker/agent will be paid for his work. In the instance where a seller refuses to pay a buyer's broker/agent, the Buyer's Representation Agreement usually establishes payment to the broker/agent by the buyer. A seller's agent will not normally agree to split his side of a commission. It is possible but not likely. The buyer agent's broker will not normally pay an agent without a commission coming into the brokerage. The title company does not owe an agent a commission.

The Texas REALTOR®'S Canons of Professional Ethics and Conduct establishes rules that all licensees must follow. (Title 22. Examining Boards Part 23. Texas Real Estate Commission Chapter 531.) Ernie violated the rule of integrity because he did not use caution to represent the property accurately to Nelda. He must disclose any material defect to her. By act of omission, Ernie misrepresented the property to her. The rule of Competency does not apply in this situation, although it is a valid rule. The rule of Confidentiality is not a stated Canon in the TREC rules but is included in NAR's Code of Ethics. In this case, Ernie does not represent the seller and does not have a duty of confidentiality to the seller.

The Texas DTPA ensures that salespersons act ethically and honestly in their dealings. They should not represent the thing they are selling or induce a consumer to purchase something by using deceptive practices. Representing something that is used as "new" is one of the most common violations of the DTPA. The other answers do not pertain to DTPA.

Federal law banned the sale of lead-based paint for household use in 1978. The law now requires that sellers and landlords notify a buyer or tenant under contract or lease that lead-based paint may be present in a home and give them a 10 day period to do an assessment if they so desire. This applies for any real property with a residence built prior to 1978. 1977 is the correct answer.

There are various conditions that can cause a hazard for property owners, most of which require disclosure by a seller. The presence of trees are not typically considered a hazard. Flood water, mold and asbestos are all common environmental conditions or substances which can negatively impact residential property owners and must be disclosed by sellers that have knowledge of their presence.

A conventional loan is originated and serviced by private mortgage lenders, like banks, and is not back by a governmental agency. A non-conventional loan is one in which FHA, VA, or USDA insures the lender thereby resulting in less risk to them. If a conventional loan adheres to the standards of Fannie Mae and Freddie Mac, they are said to be conforming conventional loans. Conventional and non-conventional loans go through underwriting. Underwriting is the process where the lender verifies the borrower's income, debt and the property details in order to get final approval for the loan. Although some loans may not require mortgage insurance, most mortgages require mortgage insurance until a specific loan to value is reached.

PITI stands for principle, interest, taxes and insurance, the four components of a mortgage payment with escrow. Utilities is not a component of PITI.

When a homeowner with a mortgage debt, or mortgagor, falls behind and cannot pay their debt, the lender, or mortgagee, will sometimes approve a short sale if the market value is deemed to be less than the amount still owed on the loan. If the homeowner has a history of acting in good faith and has good payment history but has had a recent crisis such as layoff or divorce, then a bank will sometimes approve a short sale. They agree to accept a payoff of the balance of the mortgage that is "short" of or less than the current balance.

As a state administrative agency, TREC is empowered to make and enforce rules and regulations and enjoin any violation of the Texas Real Estate Licensing Act (TRELA). It has the duty to hear complaints and administer consequences for violations such a suspension and revocation of a license. It does not have jurisdiction to adjudicate the criminal code.

A real estate license is required for anyone that for compensation, negotiates, offers, buys or sells, leases or lists real estate, or procures properties or clients for real estate transactions. A license is not needed to sell one's own property. Offering to help a friend sell their property for a fee or commission requires a license. Doing a market analysis for someone for a fee is practicing real estate and requires a license. Helping someone find a tenant in exchange for free rent (something of value) requires a license.

A person that dies leaving a will is said to have died "testate". A person that dies not having a will is said to have died "intestate". If a person dies testate, a court will probate their will. If a person dies intestate, their property will be distributed by the court according to the Texas Estates Code, law of descent and distribution.

The Texas Constitution endows Texas homeowners with an automatic homestead right. The homeowner must occupy the property and use it as their residence to create the right. A court does not formally give someone a homestead right. A homeowner cannot lose his home to a creditor, in general, with some exceptions. A mortgage is one of the exceptions. A rural homestead can be up to 100 acres for an individual or 200 acres for a couple. An urban homestead can be up to 10 acres.