Texas real estate exam study guide

Flip through the Texas terms first: intermediary, IABS, promulgated forms and the rest of the 40 state questions turn on them. Then the outline, the math and five practice questions.

80 Texas vocabulary flashcards

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TREC: The Texas Real Estate Commission: nine members appointed by the governor, six brokers and three public members, for staggered six-year terms.
Information About Brokerage Services: The written notice a license holder gives at the first substantive talk about specific property. At least 10-point type.
Intermediary: The role a broker must take when representing both buyer and seller in one transaction. The broker must act fairly and impartially.
Appointed license holder: An associate an intermediary names, with written consent, to give one party opinions and advice.
Intermediary confidentiality: An intermediary may not reveal that a seller will take less or a buyer will pay more without that party's separate written instruction.
Sponsoring broker: The broker a sales agent works under. A sales agent may be paid only through her sponsoring broker.
Inactive license: What you hold after you meet the requirements and before a broker sponsors you. You cannot practice on it.
Qualifying education: 180 hours: Principles I and II, Law of Agency, Law of Contracts, Promulgated Contract Forms and Real Estate Finance.
SAE: Sales agent apprentice education: before your first renewal you need 270 qualifying hours in all, plus Legal Update I and II.
Continuing education: After the first renewal, 18 hours each period, including 8 hours of Legal Update I and II and 3 hours on contracts.
Promulgated forms: TREC's required contract forms. Exceptions: a form the owner prepared, or one an attorney drafted and the owner requires.
Seller's disclosure notice: Due on or before the contract's effective date for a home of one dwelling unit. If late, the buyer may end the contract within 7 days of getting it.
Option fee: What a buyer pays for the unrestricted right to end the TREC contract during the option period.
Showing-only agreement: A buyer agreement just to show homes. It may not be exclusive and may last at most 14 days.
Buyer representation agreement: Must state, conspicuously, that broker pay is not set by law and is fully negotiable.
Real Estate Recovery Trust Account: Pays unpaid court judgments against license holders: up to $125,000 a transaction and $250,000 a license holder.
Commingling: Mixing a client's money with your own. Earnest money goes to a title company or a trust account.
Undisclosed principal: Acting as the broker while secretly buying for yourself. You must disclose your interest in writing.
Community property: In Texas, property either spouse acquires during marriage, other than separate property.
Separate property: Property owned before marriage, or received during it by gift, will or inheritance.
School homestead exemption: Every qualifying adult owner gets $140,000 off the appraised value of the home for school district taxes.
DTPA: The Deceptive Trade Practices Act. A knowing violation can cost up to three times economic damages.
Bad-faith deposit: A landlord who keeps a deposit in bad faith owes $100, three times the amount wrongly kept and attorney's fees.
Advertising rule: Every ad must show the sponsoring broker's name. A sales agent's ad may not imply she runs the brokerage.
Third failure: Fail a portion three times and you need 30 more hours of education, or 60 if you failed both portions.
Death on the property: No duty to disclose a natural death, suicide or accident unrelated to the property's condition.
Fee simple absolute: The most complete ownership: no conditions, unlimited in time, and it passes to heirs.
Life estate: Ownership that lasts only for the length of a named person's life.
Easement appurtenant: A right to use a neighbor's land that benefits a parcel and passes with it when it sells.
Easement in gross: A right to use land that belongs to a person or company, such as a utility line, not to a parcel.
Encroachment: A building, fence or other improvement that extends onto a neighbor's land.
Fixture: An item once personal property that is attached to the land or building and now goes with the sale.
Trade fixture: Equipment a commercial tenant installs for business. The tenant may remove it before the lease ends.
Emblements: Yearly crops a tenant planted and tended. They are personal property.
Joint tenancy: Co-ownership with right of survivorship. It needs four unities: time, title, interest and possession.
Tenancy in common: Co-ownership with undivided shares, which may be unequal, and no right of survivorship.
Lien: A claim on property as security for a debt. A specific lien hits one property; a general lien hits all of a debtor's property.
Adverse possession: Gaining title by open, hostile and continuous use of another's land for the period state law sets.
General warranty deed: A deed in which the grantor guarantees the title against defects from any time, not just her own ownership.
Quitclaim deed: A deed that passes whatever interest the grantor has, with no promises about the title.
Recording: Filing a deed in the public records. It gives everyone constructive notice of the owner's interest.
Market value: The most probable price a property would bring in a competitive, open market.
Highest and best use: The legal, physically possible and financially feasible use that gives the land its highest value.
Substitution: A buyer will not pay more for a property than the cost of an equally good substitute.
Functional obsolescence: Lost value from an outdated design or feature inside the property, such as one bathroom for five bedrooms.
External obsolescence: Lost value from a cause outside the property, such as a new highway. The owner usually cannot cure it.
Bilateral contract: A promise in exchange for a promise, such as a purchase contract.
Unilateral contract: A promise in exchange for an act. An option binds only the seller.
Void contract: An agreement with no legal effect from the start, such as one for an illegal purpose.
Voidable contract: A valid contract one party may cancel, such as one signed by a minor.
Statute of frauds: The rule that a contract to sell real estate must be in writing and signed to be enforced.
Counteroffer: A new offer that changes the terms. It rejects the original offer, which cannot then be accepted.
Option: A right, bought for a fee, to buy at a set price within a set time. Only the seller is bound.
Liquidated damages: An amount the parties agree in advance will be the damages for a breach, often the earnest money.
Specific performance: A court order making a party carry out the contract as written.
Fiduciary duties: What an agent owes a client: obedience, loyalty, disclosure, confidentiality, accounting and reasonable care.
Special agent: An agent with authority for one task or one transaction, as a listing broker usually is.
General agent: An agent with broad authority over a range of matters, as a property manager usually is.
Exclusive right to sell: A listing that pays the broker whoever sells the property during the term, even the owner.
Exclusive agency listing: A listing that pays the broker unless the owner finds the buyer herself.
Open listing: A listing given to any number of brokers. Only the broker who brings the buyer is paid.
Net listing: The broker keeps whatever the price exceeds a set amount. Illegal or discouraged in most states.
Steering: Channeling buyers toward or away from areas because of a protected class.
Blockbusting: Pushing owners to sell by claiming a protected class is moving into the area.
Redlining: Refusing loans or insurance in an area because of the people who live there.
Loan-to-value ratio: The loan divided by the lower of the price and the appraised value.
Point: One percent of the loan amount, paid at closing.
Private mortgage insurance: Insurance that protects the lender, usually required on a conventional loan above 80% of value.
Acceleration clause: Lets the lender demand the whole balance at once if the borrower defaults.
Alienation clause: Lets the lender call the loan due when the property is sold. Also called due-on-sale.
Capitalization rate: Net operating income divided by value. Value = NOI ÷ cap rate.
Proration: Splitting a bill or income between buyer and seller by the days each owns the property.
Debit: On a closing statement, an amount a party owes.
Credit: On a closing statement, an amount a party has paid or is owed.
Mill: One tenth of a cent. A tax of 1 mill is $1 for every $1,000 of assessed value.
Lead-based paint disclosure: Required for housing built before 1978. Buyers get 10 days to test for lead unless they waive it.
CERCLA: The federal Superfund law. Owners can be liable for cleaning up hazardous waste even if they did not cause it.
Variance: Permission to depart from a zoning rule because following it would cause real hardship.
Nonconforming use: A use that was legal before new zoning banned it and is allowed to continue.
Antitrust: Federal law that bans brokers agreeing on commission rates, boycotting a competitor or splitting up markets.

What the Texas exam covers

The Texas law portion has 40 scored questions, plus 10 unscored. You need 28 right.

Area	Questions
Agency and brokerage, including the intermediary	11 questions
Standards of conduct	9 questions
Contracts, promulgated forms and disclosures	9 questions
Special topics: community property, homestead, DTPA	5 questions
Commission duties and powers	3 questions
Licensing	3 questions

10 Texas math questions, worked

Try each one, then open the working.

A Texas home sells for $385,000. The total commission is 6%, split equally between the two brokerages. The buyer's agent gets 70% of her broker's side. What does she earn?
Show the answer
$8,085
1. Total commission: $385,000 × 6% = $23,100.
2. Each brokerage's side: $23,100 ÷ 2 = $11,550.
3. Agent's share: $11,550 × 70% = $8,085.
Texas property taxes of $7,300 for the year are unpaid at closing on March 31. Use a 365-day year; the seller owns the closing day. What is the proration, and who is debited?
Show the answer
$1,800, debit the seller
1. Seller's days: January 31 + February 28 + March 31 = 90 days.
2. Daily tax: $7,300 ÷ 365 = $20.
3. $20 × 90 = $1,800. The taxes are unpaid, so debit the seller and credit the buyer.
A Texas home is appraised at $380,000. The school district rate is $0.95 per $100 of taxable value. Apply only the $140,000 general homestead exemption. What is the school tax?
Show the answer
$2,280
1. Taxable value: $380,000 − $140,000 = $240,000.
2. Hundreds of value: $240,000 ÷ 100 = 2,400.
3. Tax: 2,400 × $0.95 = $2,280.
A Texas seller wants $250,000 after a 6% commission and $4,000 of other closing costs. To the nearest cent, what must the price be?
Show the answer
$270,212.77
1. Add the costs to the net: $250,000 + $4,000 = $254,000.
2. The seller keeps 94% after commission.
3. $254,000 ÷ 0.94 = $270,212.77.
A Texas landlord keeps $1,000 of a tenant's security deposit in bad faith. Besides attorney's fees, how much can the tenant recover?
Show the answer
$3,100
1. The landlord owes $100 plus three times the amount wrongly kept.
2. 3 × $1,000 = $3,000.
3. $100 + $3,000 = $3,100.
A rectangular Texas tract measures 1,320 feet by 660 feet. How many acres is it?
Show the answer
20 acres
1. Area: 1,320 × 660 = 871,200 square feet.
2. One acre is 43,560 square feet.
3. 871,200 ÷ 43,560 = 20 acres.
A Texas ranch is half of a section. Land nearby sells for $4,500 an acre. What is the ranch worth on that basis?
Show the answer
$1,440,000
1. A section is 640 acres, so half is 320 acres.
2. $4,500 × 320 = $1,440,000.
A Texas buyer's loan is $320,000 and the lender charges 1.5 points. What do the points cost?
Show the answer
$4,800
1. One point is 1% of the loan.
2. 1.5% of $320,000 = $320,000 × 0.015 = $4,800.
A Texas fourplex earns net operating income of $38,400 a year. Investors expect an 8% cap rate. What is it worth?
Show the answer
$480,000
1. Value = NOI ÷ cap rate.
2. $38,400 ÷ 0.08 = $480,000.
A Texas buyer borrows $280,000 at 6.6% a year. What is the interest for the first month?
Show the answer
$1,540
1. Yearly interest: $280,000 × 0.066 = $18,480.
2. One month: $18,480 ÷ 12 = $1,540.

5 Texas practice questions

Question 1

A Texas intermediary learns the buyer would pay $15,000 more than his written offer. The buyer has not authorized sharing it. Which is true?

Question 2

A Texas sales agent writes a purchase offer on a one-to-four family home. Which form must she use, unless an exception applies?

Question 3

A Texas listing agreement says it lasts 'until the property sells.' Why is that a problem?

Question 4

A Texas buyer gets a deed but never records it. The seller then sells again to a second buyer who pays value and has no notice of the first deed. Who prevails?

Question 5

How many classroom hours of qualifying real estate courses must a Texas sales agent applicant complete?

Next step

Take the free Texas quiz Lesson: Texas law

Pearson VUE Texas candidate handbook, with the national outline (PDF)

Questions people ask

What should I study for the Texas real estate exam?

Agency and the intermediary role (11 of the 40 state questions), standards of conduct (9) and contracts and promulgated forms (9), plus the national portion's 80 questions.

Is there math on the Texas real estate exam?

Yes. The national portion has math questions on commissions, prorations, loans and area. Pearson VUE recommends bringing a silent financial calculator.

How many questions do I need right on the Texas state portion?

28 of the 40 scored questions.