Unit 1

Question 1

Describe agency and how The Real Estate License Act and the TREC Rules work together to define it, regulate it, and enforce it.

Answer 1

Answer: Agency is defined as a fiduciary relationship where one person (the agent) acts on behalf of another (the principal) under the principal’s control. The Real Estate License Act (TRELA) establishes the duties of real estate license holders and TREC enforces these laws, ensuring license holders adhere to specific guidelines, which help protect the public.

Question 2

Identify the different parties in agency relationships which might include clients, customers, or both.

Answer 2

Answer: In an agency relationship, the key parties are the agent (either a broker or sales agent) and the principal (frequently referred to as the client). Other parties such as customers receive limited services but are not in an agency relationship with the agent.

Question 3

Discuss factors that make it important for real estate license holders to study and understand agency.

Answer 3

Answer: It’s crucial for license holders to understand agency due to increasing litigation, confusion about representation, complex transactions, and heightened consumer expectations. Additionally, agency law is essential to ensure proper disclosure of representation and avoid legal consequences.

Question 4

Describe the basic relationship between principals and agents and the basic duties owed to the principal.

Answer 4

Answer: The relationship between a principal and agent is fiduciary in nature, meaning the agent is expected to act in the best interests of the principal. This includes loyalty, disclosure, confidentiality, and putting the principal’s interests above the agent’s own.

Question 5

Keypoint Question: Why is it important to understand the concept of agency in real estate?

Answer 5

Keypoint Answer: Understanding agency is critical because it defines the legal relationship between a real estate agent and their client, ensuring the agent knows their duties, such as loyalty, confidentiality, and disclosure, which can protect both the client and agent from legal disputes.

Question 6

Keypoint Question: What is the difference between a client and a customer in real estate transactions?

Answer 6

Keypoint Answer: A client is someone who has an agency relationship with the agent, where fiduciary duties are owed, while a customer receives limited services without an agency relationship.

Question 7

Keypoint Question: What are the duties of a real estate agent towards their principal (client)?

Answer 7

Keypoint Answer: The duties include loyalty, acting in the best interest of the client, disclosure of relevant information, confidentiality, and obeying the client’s lawful instructions.

Question 8

Keypoint Question: How does TRELA and TREC work together to regulate real estate transactions?

Answer 8

Keypoint Answer: TRELA establishes the laws that real estate license holders must follow, while TREC enforces these laws by overseeing licensing, monitoring real estate practices, and disciplining agents who violate regulations.

Question 9

Keyterm: Broker

Answer 9

Meaning: A person who, in exchange for a commission or other valuable consideration, performs one of many acts for another person in real estate transactions. These acts include selling, buying, leasing, or managing property .

Question 10

Keyterm: Unlicensed Broker

Answer 10

Meaning: A person who performs any of the acts described in the TRELA definition of “Broker” for another person for compensation, without first obtaining a broker’s license. This is a violation of the License Act and is punishable by law .

Question 11

Keyterm: REALTOR®

Answer 11

Meaning: A licensed real estate broker or sales agent who is a member of the National Association of REALTORS® (NAR) .

Question 12

Keyterm: REALTIST®

Answer 12

Meaning: A member of the National Association of Real Estate Brokers (NAREB), the largest and oldest minority trade association in America .

Question 13

Keyterm: License Holder (Active)

Answer 13

Meaning: A person licensed by the Texas Real Estate Commission (TREC) to act as a broker or a sales agent in real estate transactions .

Question 14

Keyterm: License Holder (Inactive)

Answer 14

Meaning: A person licensed by TREC but not currently authorized to conduct real estate transactions. They must have their license activated by being associated with a sponsoring broker

Question 15

Keyterm: Agent

Answer 15

Meaning: A broker or sales agent who represents a seller, landlord, buyer, or tenant in a real estate transaction .

Question 16

Keyterm: Subagent

Answer 16

Meaning: A license holder not sponsored by or associated with the client’s broker but who represents the client through a cooperative agreement with the client’s broker .

Question 17

Keyterm: Dual Agent

Answer 17

Meaning: A real estate agent who represents both parties (buyer and seller) in a transaction. Dual agency is prohibited in Texas, and agents must act as intermediaries instead .

Question 18

Keyterm: Sponsoring Broker

Answer 18

Meaning: The broker who sponsors a sales agent and assumes responsibility for the agent’s real estate activities .

Question 19

Keyterm: Sales Agent License Holder

Answer 19

Meaning: A person holding a sales agent’s license issued by TREC, who works under the authority of their sponsoring broker .

Question 20

Keyterm: Broker Associate

Answer 20

Meaning: A licensed broker who conducts business under another broker’s supervision. Texas does not recognize this as a separate license .

Question 21

Keyterm: Sales Associate

Answer 21

Meaning: A sales agent who works under a sponsoring broker or another broker associated with the same brokerage firm .

Question 22

Keyterm: Seller’s Agent

Answer 22

Meaning: A broker or agent representing the seller in a real estate transaction .

Question 23

Keyterm: Buyer’s Agent

Answer 23

Meaning: A broker or agent representing the buyer in a real estate transaction .

Question 24

Keyterm: Intermediary

Answer 24

Meaning: A broker who facilitates a transaction between a buyer and a seller but is not fully representing either party due to fiduciary constraints .

Question 25

Keyterm: Landlord’s Agent

Answer 25

Meaning: A broker who represents a landlord in leasing or managing rental properties .

Question 26

Keyterm: Tenant’s Agent

Answer 26

Meaning: A broker who represents a tenant in leasing or renting property .

Question 27

Keyterm: Client

Answer 27

Meaning: A person who engages a broker or agent’s services and receives fiduciary duties such as loyalty and confidentiality .

Question 28

Keyterm: Customer

Answer 28

Meaning: A person who receives limited services from a broker or agent but is not owed fiduciary duties .

Question 29

Keyterm: Appointed License Holder

Answer 29

Meaning: A license holder appointed by a broker to represent a client in an intermediary transaction, where both buyer and seller are clients of the same broker .

Question 30

Keyterm: Offeree

Answer 30

Meaning: The party receiving the offer in a real estate transaction .

Question 30

Keyterm: Prospect

Answer 30

Meaning: A potential buyer, seller, tenant, or landlord who is not represented by a license holder .

Question 31

Keyterm: Cooperating Agent/Broker

Answer 31

Meaning: A broker or agent who is not affiliated with the listing broker but works with the buyer in a real estate transaction. They are often referred to as “other broker” .

Question 32

Agency is
A. a real estate brokerage.
B. the operation of a business.
C. one person acting on behalf of another.
D. one person giving advice to another.

Answer 32

Correct Answer: C – one person acting on behalf of another
Explanation of Answer: Agency refers to the relationship where one person (the agent) acts on behalf of another person (the principal), typically under their control. This definition forms the foundation of the agent-principal relationship in real estate, which requires agents to act in the best interests of their principals. Without this fundamental understanding, an agent may fail to uphold their fiduciary duties and face legal consequences.

Question 33

An agent works on behalf of
A. a customer.
B. a client.
C. both a customer and a client.
D. neither a customer nor a client.

Answer 33

Correct Answer: B – a client
Explanation of Answer: An agent’s fiduciary duties—such as loyalty, confidentiality, and disclosure—are owed to the client, not the customer. A customer may receive basic services, but they do not have the same legal relationship as a client, who is entitled to the agent’s full support and advocacy. Understanding this distinction ensures agents correctly identify their responsibilities.

Question 34

TRELA
A. enforces the License Act.
B. may appoint an administrator for the TREC.
C. is a primary law that regulates the conduct of real estate license holders.
D. is the law established by the TREC in its rule-making authority.

Answer 34

Correct Answer: C – is a primary law that regulates the conduct of real estate license holders
Explanation of Answer: TRELA is the legislative framework that outlines the rights, responsibilities, and regulations for real estate professionals in Texas. It serves as the governing law that TREC enforces, ensuring that real estate license holders comply with state rules and protect the public’s interests. Understanding TRELA is essential for operating within legal bounds.

Question 35

The Texas Real Estate Commission
A. does not hold the broker accountable for the actions of sponsored associates.
B. holds the broker accountable for the professional actions of sponsored associates.
C. holds buyers or sellers accountable for the acts of their real estate brokers and sales agents.
D. holds the public accountable for the acts of real estate license holders.

Answer 35

Correct Answer: B – holds the broker accountable for the professional actions of sponsored associates
Explanation of Answer: TREC holds brokers accountable for the actions of the sales agents they sponsor. This means that brokers must ensure that their agents follow all rules and laws set forth by TRELA and TREC. Failure to do so can result in disciplinary action against the broker, including fines or license suspension.

Question 36

B, a broker, is representing Smith, a buyer. In a real estate transaction, Smith is considered
A. a customer of B.
B. a fiduciary of B.
C. a client of B.
D. an agent for B.

Answer 36

Correct Answer: C – a client of B
Explanation of Answer: In this situation, Smith is B’s client, meaning B owes fiduciary duties like loyalty, disclosure, and confidentiality to Smith. Smith is not just a customer because a formal agency relationship exists between the two. This relationship obligates B to act in Smith’s best interests during the transaction.

Question 37

A person who engages an agent to represent her interests in a transaction is called a client or
A. a customer of the agent.
B. a seller.
C. a buyer.
D. the agent’s principal.

Answer 37

Correct Answer: D – the agent’s principal
Explanation of Answer: The principal is the person who hires an agent to represent their interests. In an agency relationship, the agent must act in the best interests of the principal, which may include a buyer, seller, landlord, or tenant. The term “principal” indicates the person for whom the agent performs fiduciary duties.

Question 38

A key distinction between the services given to clients versus those given to customers is that
A. advice, opinions, and advocacy are given to clients, not customers.
B. more advice and opinions are offered to the customer.
C. customers get advice and opinions free while clients must pay.
D. clients must have a contract to receive services while customers do not.

Answer 38

Correct Answer: A – advice, opinions, and advocacy are given to clients, not customers
Explanation of Answer: Clients receive more comprehensive services, including professional advice, opinions, and advocacy, while customers are only provided basic services such as factual information. An agent owes fiduciary duties only to clients, meaning they must work in the client’s best interests and offer personalized guidance.

Question 39

A license holder not associated with the listing broker who represents the seller through the listing broker is known as
A. a buyer’s agent.
B. an intermediary.
C. a seller’s agent.
D. a subagent.

Answer 39

Correct Answer: D – a subagent
Explanation of Answer: A subagent is a license holder who works with a buyer but represents the seller’s interests through the listing broker. Subagents owe fiduciary duties to the seller, not the buyer, even though they may assist the buyer in the transaction. This relationship must be clearly disclosed to avoid misunderstandings.

Question 40

One of the BEST ways a broker might protect against agency problems is to
A. never represent buyers.
B. never discuss agency issues with the parties.
C. always treat both parties as valued customers and treat them fairly, giving them both the same level of service.
D. develop a clear written office policy regarding agency issues and require that it be followed by the broker’s agents.

Answer 40

Correct Answer: D – develop a clear written office policy regarding agency issues and require that it be followed by the broker’s agents
Explanation of Answer: A written office policy helps ensure that all agents in a brokerage understand how to handle agency relationships correctly. By providing training and guidelines, brokers can prevent potential misunderstandings or violations of fiduciary duties, which could lead to legal issues or loss of trust.

Question 41

An important reason to study agency today is
A. to better represent customers.
B. the increased litigation against agents.
C. to be able to settle legal disputes between buyers and sellers.
D. because commissions are greater to the agent when agency law is followed.

Answer 41

Correct Answer: B – the increased litigation against agents
Explanation of Answer: Litigation against real estate agents has increased, often due to misunderstandings about agency relationships and fiduciary duties. Proper knowledge of agency laws helps agents avoid legal disputes by ensuring they follow the correct procedures and disclose their roles clearly to all parties involved in a transaction.