Chapter 3

Question 1

The Texas Administrative Code includes six canons of professional ethics and conduct to be applied
to all real estate license holders:

Answer 1

1. FIDELITY
2. INTEGRITY
3. COMPETENCY
4. CONSUMER INFORMATION NOTICE 1-2
5. DISCRIMINATORY PRACTICES
6. INFORMATION ABOUT BROKERAGE SERVICES

Question 2

FIDELITY

Answer 2

a license holder is a fiduciary to his client

Question 3

INTEGRITY

Answer 3

license holder will avoid misrepresentation by commission or omission

Question 4

COMPETENCY

Answer 4

license holder will be knowledgeable, informed and educated in performing
his work. He must be both scrupulous and meticulous in performance of occupational
activities related to the practice of real estate.

Question 5

Consumer Information Notice 1-2 -

Answer 5

Notifies the public of the recovery trust account
• Applies to both real estate license holders and inspectors
• Must be displayed in a prominent place in the broker’s office.

Question 6

Discriminatory Practices

Answer 6

no license holder shall inquire about, respond to or facilitate
inquiries about or make disclosures indicating any discriminatory preferences or limitations.

Question 7

Information About Brokerage Services

Answer 7

the TREC IABS form is a mandatory form to
be presented at first substantive dialog. The completed IABS Notice can be provided:
1. by personal delivery by the broker or sales agent;
2. by first class mail or overnight common carrier delivery service;
3. in the body of an email; or
4. as an attachment to an email, or a link within the body of an email, with a specific
reference to the IABS Notice in the body of the email.

Question 8

A link to a completed IABS Notice may NOT be

Answer 8

in a footnote or signature block in an email

Question 9

GROUND FOR SUSPENSION AND REVOCATION

Answer 9

Grounds for Suspension and Revocation
• Guaranteeing future profits.
• Sales agents receiving commissions directly from selling, leasing, negotiating, appraising, or
auctioning real estate.
• Failing to specify a definite termination date in a Buyer’s Representation Agreement or a
Listing contract that is not subject to prior notice.
• Selling real estate by lottery.
• Giving legal advice.
• Not advising a purchaser in writing to get an attorney’s opinion of title on the abstract or to
obtain an Owner’s Title Policy.
• Placing a sign offering to sell, rent, or lease real estate without first obtaining the written
permission of the owner.
• Acting in the dual capacity of broker and undisclosed principal. A license holder must disclose
if he is representing his spouse, parent, or child.
• Knowingly making a substantial misrepresentation. Puffing is not misrepresentation.
• Advertising without the brokerage information - broker or company name.
• Commingling money - earnest money must be placed in an escrow account, not in with
broker personal or operating accounts. Conversion - spending commingled funds is also
prohibited.
• Threatening to sue for a commission you have not earned.
• Not furnishing copies of a document to one of the signatories, upon demand.
• Steering of prospective buyers. You are also subject to federal and state prosecution.
• Disbursing money deposited in a trust account before the transaction concerned has been
consummated (at closing) or finally otherwise terminated.
• Enters a plea of guilty or nolo contendere to, or is convicted of a felony or a criminal offense
involving fraud.
• Fails to honor within a reasonable time a check issued to TREC after the TREC has sent, by
certified mail, a request for payment to the license holder’s last known business address.
• Fails to notify the Commission not later than the 30th day after the date of a final conviction
or the entry of a plea of guilty or nolo contendere to a felony. (NOTE: a second DWI conviction
in TX is NOT a felony).

Question 10

If a license is revoked by TREC

Answer 10

the individual must wait at least 2 years before trying to obtain a
new license.

Question 11

COMMINGLING MONEY

Answer 11

The act of mixing the funds belonging to one party with those of another party.

Question 12

CONVERSION

Answer 12

Unauthorized use or withholding of money or property that rightfully belongs to another person.

Question 13

It is a violation of TREC rules to practice law without a law license.

Answer 13

We do not prepare forms, rather

we fill in the blanks on already prepared TREC and TAR forms.

Question 14

When a license holder is working with a client on an already prepared form, such as a TREC or
TAR form, the agent

Answer 14

the client to fill in the blanks and provides an explanation of all preprinted
paragraphs.

Question 15

A license holder can be held financially responsible for any l

Answer 15

loss a client suffers if it is determined that

the loss was a result of the license holder’s unlawful practice of law.

Question 16

A license holder cannot

Answer 16

draft a form, advise about the sufficiency or validity of a form, advise about
title, write a contingency into a form, add details for which there is a TREC addenda, use an out
of date form, add “time is of the essence” to a form, or cross out provisions of a TREC form, except
under the direction of a client. In any/all of these situations, the best course would be to recommend
that the client speak with an attorney

Question 17

Three entities may accept earnest money deposits

Answer 17

• Title Companies
• Attorneys
• Brokers

All
three deposit these funds in some type of Escrow Account.

Question 18

Most commonly the earnest money

check is made payable to the Title Company and must be delivered

Answer 18

by the close of the third day
after the effective date of the contract but this deadline may be extended if the third day falls on
a Saturday, Sunday or holiday. (See paragraph 5 of the sales contract)

Question 19

If the broker accepts the Earnest Money (associated with a sale) or Security Deposits (associated
with a lease) and is using his/her own escrow account the funds must be deposited

Answer 19

by the close of

the second business day after the effective date of the contract/lease.

Question 20

A broker may pay a commission to

Answer 20

any salesperson he sponsors. He may also pay a commission to

another broker.

Question 21

A commission can never be paid to

Answer 21

any unlicensed person in Texas.

Question 22

A license holder may share or rebate a portion of the commission to a

Answer 22

a client within a transaction.
For example: list at a lower than expected commission rate or contribute to a buyers’ closing costs
on the CD.

Question 23

A license holder may rebate a portion of the commission to a

Answer 23

customer with the client’s permission

Question 24

A license holder may give a referral gift up to

Answer 24

$50 in value (not cash) to an unlicensed individual who

provides a referral. Gift cards that cannot be converted to cash are acceptable

Question 25

All ads must contain the brokerage information

Answer 25

the broker or company name. All license holders’
advertisements must include the license holder’s name or team name. Ads also must include the broker’s
name in at least half the size of the largest contact information for any sales agent, associated
broker, or team name contained in the advertisement.

Question 26

TREC requires a broker or salesperson with a website to provide i

Answer 26

information about the IABS and
the Consumer Information Notice on the website. The ideal way to comply with TREC rules about
this is as follows:

Post a link to a completely filled out TREC IABS form labeled “Texas Real Estate Commission
Information About Brokerage Service,” on your business website homepage, in a readily noticeable
place in at least 10 point font. A link in 12 point font can be used with the following wording:
“TREC Information About Brokerage Services.”
Post a link to the Consumer Protection Notice labeled “Texas Real Estate Commission Consumer
Protection Notice” On your business website homepage in a readily noticeable place in at least 10
point font. A link in 12 point font can be used with the following wording: “TREC Consumer
Protection Notice.”

Question 27

Here is an example for the Consumer Protection Notice Link showing the difference in the two
options:

Answer 27

1. “Texas Real Estate Commission Consumer Protection Notice” (in 10 point font)
2. “TREC Consumer Protection Notice” (in 12 point font)

Question 28

Here is an example using the IABS notice link showing the difference in the look of the two
options:

Answer 28

1. “Texas Real Estate Commission information About Brokerage Services” (in 10 point font)
2. “TREC Information About Brokerage Services” (in 12 point font)

Question 29

REMEMBER:

Answer 29

The TREC IABS form must also be provided to consumers at the time of your first
substantive communication by personal delivery, mail or email. In an email, the link to the IABS
form must be included in the body of the email. In other words, it must be above the signature line

Question 30

A broker website must include

Answer 30

the broker or company name on every page of the website

Question 31

License numbers, phone numbers and email addresses are

Answer 31

not required in any advertisement.