Unit 1 - Overview

Question 1

Professional associations of specialists in various fields of real estate activity were organized to serve the interests of their members. Which is NOT generally a service expected of such organizations?

Answer Choices:

A. Keeping members informed of developments in their field
B. Improving standards and practices
C. Providing a clearinghouse of information
D. Passing laws to regulate brokers and sales agents

Answer 1

Correct Answer: D. Passing laws to regulate brokers and sales agents

Explanation: Professional associations focus on improving standards, providing education, and keeping members updated on developments. They do not pass laws—this is the role of government legislative bodies.

Reasoning From The Unit:
The unit explains that professional associations, such as NAR, are responsible for maintaining industry standards, providing training, and supporting their members. However, passing laws is explicitly mentioned as a function of legislative bodies, not associations.

Question 2

There are seven sources of law in the United States. Which is NOT an example of one of them?

Answer Choices:

A. Local zoning laws
B. FHA/VA regulations
C. Court decisions
D. Precedent set by decisions of the city council

Answer 2

Correct Answer: D. Precedent set by decisions of the city council

Explanation: Precedents are established by judicial rulings, not by city councils. City councils can pass local ordinances, but these are not binding legal precedents.

Reasoning From The Unit:
The unit discusses seven sources of law, including constitutions, statutes, and court decisions. Precedents come from courts and are part of the judicial process, while city councils pass ordinances, which are not legal precedents.

Question 3

Laws passed by Congress and various state legislatures may

Answer Choices:

A. Not designate penalties and violations
B. Set precedents for future court decisions
C. Authorize agencies to pass rules and regulations to enforce the provisions of the law
D. Clarify and interpret court decisions

Answer 3

Correct Answer: C. Authorize agencies to pass rules and regulations to enforce the provisions of the law

Explanation: Laws often empower agencies to create detailed regulations that ensure proper enforcement. These regulations help clarify how laws should be applied in various situations.

Reasoning From The Unit:
The unit explains how Congress and state legislatures pass broad laws and give regulatory agencies the power to develop rules to enforce these laws. Agencies like the Texas Real Estate Commission (TREC) are given the authority to ensure laws are followed properly.

Question 4

The legal concept of precedent

Answer Choices:

A. Applies only to state court decisions
B. Must always be followed by judges when formulating court decisions
C. Grew out of common law
D. Binds courts in all jurisdictions, regardless of superior authority

Answer 4

Correct Answer: C. Grew out of common law

Explanation: Precedent originates from common law, where past court rulings influence future legal decisions. Precedent ensures consistency in how laws are applied.

Reasoning From The Unit:
The unit highlights how common law, based on tradition and past rulings, developed the concept of precedent. Precedents are legal decisions that guide future cases and ensure consistent rulings in similar circumstances.

Question 5

Constitutional provisions

Answer Choices:

A. Establish the rights of citizens and delineate government authority
B. Set down specific provisions on every issue
C. Can be waived by signing a release
D. Designate penalties and violations

Answer 5

Correct Answer: A. Establish the rights of citizens and delineate government authority

Explanation: Constitutional provisions are the foundation of the legal system, defining the rights of individuals and the limits of governmental power. They provide the framework for other laws.

Reasoning From The Unit:
The unit explains that constitutional provisions serve as the primary source of law, establishing citizens’ rights and defining the scope of government authority. Other laws must operate within this framework.

Question 6

Real estate license laws

Answer Choices:

A. Are consistent from state to state
B. Apply only to licensed brokers
C. Were passed to protect the public from the possible fraud, dishonesty, and incompetence of unscrupulous brokers and sales agents
D. Apply to persons who sell their own property

Answer 6

Correct Answer: C. Were passed to protect the public from the possible fraud, dishonesty, and incompetence of unscrupulous brokers and sales agents

Explanation: Real estate license laws were created to protect consumers by ensuring that brokers and agents meet standards of competence and ethics. This helps prevent fraud and other unethical behavior.

Reasoning From The Unit:
The unit explains that real estate license laws are in place to regulate brokers and agents, ensuring that they operate with a level of professionalism that protects consumers from dishonest practices.

Question 7

Common law

Answer Choices:

A. Is derived from practices developed in the Spanish Empire
B. Has no effect on today’s real estate practices
C. Includes both custom and court decisions in its application today
D. Establishes the limitations of municipal court decisions

Answer 7

Correct Answer: C. Includes both custom and court decisions in its application today

Explanation: Common law is based on long-standing customs and judicial rulings, which continue to influence real estate law today. It evolves through court decisions.

Reasoning From The Unit:
The unit explains that common law is a system built on past judicial rulings and traditions, which still play a key role in shaping real estate laws and practices today.

Question 8

A REALTOR® is

Answer Choices:

A. A specially licensed real estate professional who acts as a point of contact between two or more people in negotiating the sale, purchase, or rental of property
B. Any real estate broker or sales agent who assists buyers, sellers, landlords, or tenants in any real estate transaction
C. A real estate license holder who is a member of the National Association of REALTORS®
D. A member of the National Association of Real Estate Brokers who specializes in residential properties

Answer 8

Correct Answer: C. A real estate license holder who is a member of the National Association of REALTORS®

Explanation: A REALTOR® is a member of the National Association of REALTORS® (NAR) and follows its Code of Ethics. Not all agents are REALTORS®; membership in NAR is required to use the term.

Reasoning From The Unit:
The unit clarifies that only real estate professionals who are members of NAR can use the title REALTOR®. NAR membership also requires adherence to a strict Code of Ethics.

Question 9

Which is an example of commercial real estate?

Answer Choices:

A. An office building converted to low-income housing
B. An apartment for rent
C. Retail space for lease
D. A factory

Answer 9

Correct Answer: C. Retail space for lease

Explanation: Commercial real estate refers to properties used for business purposes, such as offices, retail stores, and warehouses. Retail space for lease is an example of a property used for business operations.

Reasoning From The Unit:
The unit explains that commercial real estate encompasses properties used for business activities, including office spaces, industrial facilities, and retail stores available for lease.

Question 10

Peyton is a real estate broker in a large metropolitan area. Chances are his real estate firm

Answer Choices:

A. Deals in most or all the various real estate specializations
B. Deals only in farm property
C. Deals only in insurance
D. Specializes in only one or two types of property

Answer 10

Correct Answer: D. Specializes in only one or two types of property

Explanation: In large metropolitan areas, real estate firms typically specialize in one or two types of property, such as commercial, residential, or industrial, to build expertise and serve their clients better.

Reasoning From The Unit:
The unit discusses how many real estate firms, particularly in urban areas, specialize in a narrow range of property types rather than handling all types of real estate.

Question 11

Which is an example of special-purpose real estate?

Answer Choices:

A. A public library
B. A shopping center
C. An industrial park
D. An apartment complex

Answer 11

Correct Answer: A. A public library

Explanation: Special-purpose real estate refers to properties that serve unique public or institutional functions, such as libraries, schools, and places of worship.

Reasoning From The Unit:
The unit provides examples of special-purpose properties, such as public buildings, libraries, and government-owned facilities, that serve specific functions.

Question 12

Brenda holds a real estate license and has several years of experience in the industry. However, she has “retired” from actively marketing properties and now helps clients choose among the various alternatives involved in purchasing, using, or investing in property. What is her profession?

Answer Choices:

A. Real estate counselor
B. Real estate appraiser
C. Real estate educator
D. REALTOR®

Answer 12

Correct Answer: A. Real estate counselor

Explanation: A real estate counselor provides expert advice and guidance to clients about property investments, but does not actively market or sell properties. Brenda’s role fits this description.

Reasoning From The Unit:
The unit explains that real estate counselors are professionals who offer advice to clients on property decisions without directly engaging in property sales. Brenda’s responsibilities match this definition.

Question 13

Value is BEST defined as

Answer Choices:

A. The highest price that a property will bring
B. Capital outlay for land, labor, materials, and profits
C. A measure of the present worth of future benefits as perceived by each person
D. The amount a buyer agrees to pay and a seller agrees to accept

Answer 13

Correct Answer: C. A measure of the present worth of future benefits as perceived by each person

Explanation: Value is subjective and reflects how much an individual perceives the future benefits of owning the property. It takes into account personal use, potential financial returns, and other factors.

Reasoning From The Unit:
The unit defines value as the present worth of future benefits expected from a property. It emphasizes that value is a personal measure based on what each person perceives as the future gains of owning the property.

Question 14

The factors that influence the demand for real estate include

Answer Choices:

A. Wage levels and employment opportunities
B. Local government ordinances
C. Scarcity of building materials
D. Labor supply

Answer 14

Correct Answer: A. Wage levels and employment opportunities

Explanation: Wage levels and employment opportunities directly affect demand for real estate. When people have higher incomes and job security, they are more likely to purchase property.

Reasoning From The Unit:
The unit explains that demand for real estate is influenced by economic factors, including wages and job availability. Higher wages and greater employment opportunities increase people’s ability to buy property, thus driving up demand.

Question 15

Business cycles

Answer Choices:

A. Recur at regular intervals
B. Cannot be regulated by government fiscal and monetary policy
C. Involve periods of expansion, recession, depression, and revival
D. Occur simultaneously throughout the state

Answer 15

Correct Answer: C. Involve periods of expansion, recession, depression, and revival

Explanation: Business cycles are the natural fluctuations of an economy, moving through phases of growth, contraction, and recovery. These cycles influence real estate markets and property values.

Reasoning From The Unit:
The unit discusses the phases of the business cycle, including expansion, recession, and recovery. It explains how these cycles affect real estate markets, with periods of growth increasing demand for property and recessions decreasing it.

Question 16

A factor that affects supply in the real estate market is

Answer Choices:

A. Construction costs
B. Population
C. Wage levels
D. Demographics

Answer 16

Correct Answer: A. Construction costs

Explanation: Construction costs affect how much new real estate can be built. High construction costs can limit new development, reducing supply, while lower costs encourage more building.

Reasoning From The Unit:
The unit explains that supply is influenced by factors such as the cost of construction. High costs for materials and labor can reduce the amount of new real estate entering the market, while lower costs can increase supply.

Question 17

The real estate market is considered local in character because

Answer Choices:

A. Parcels of land are likely to be similar and confusion could occur concerning similar parcels in two different locations
B. Each state has its own licensing requirements for real estate sales agents
C. Land is fixed, or immobile
D. Local taxation policies affect real estate values

Answer 17

Correct Answer: C. Land is fixed, or immobile

Explanation: Real estate markets are local because land cannot be moved. The value and use of land are determined by local factors, such as location and zoning regulations.

Reasoning From The Unit:
The unit explains that real estate is inherently local because land is immobile. Each property is tied to its geographic location, and local conditions such as zoning laws and market demand influence its value.

Question 18

In general, when the supply of a certain commodity increases,

Answer Choices:

A. Prices tend to rise
B. Prices tend to remain level
C. Prices tend to drop
D. Demand tends to drop

Answer 18

Correct Answer: C. Prices tend to drop

Explanation: When the supply of a commodity, including real estate, increases without a corresponding rise in demand, prices generally fall. This is because there are more units available, and sellers may lower prices to attract buyers.

Reasoning From The Unit:
The unit explains the basic principle of supply and demand: when supply exceeds demand, prices decrease. This principle applies to real estate markets, where an excess of available properties leads to lower prices.

Question 19

Price is BEST defined as

Answer Choices:

A. The highest dollar amount a property will bring
B. The most likely amount a property will bring
C. The capital outlay for land, labor, materials, and profits
D. The amount a buyer agrees to pay and a seller agrees to accept

Answer 19

Correct Answer: D. The amount a buyer agrees to pay and a seller agrees to accept

Explanation: Price refers to the final agreed-upon amount in a transaction between the buyer and the seller. It reflects what the buyer is willing to pay and what the seller is willing to accept.

Reasoning From The Unit:
The unit defines price as the amount that is agreed upon in a real estate transaction. This price is determined by the buyer and seller and may differ from the property’s market value or appraised value.

Question 20

Compared with typical markets, the real estate market

Answer Choices:

A. Is relatively quick to adapt to the forces of supply and demand
B. Is national in scope
C. Is relatively slow to adjust because of its nonhomogeneity and its immobile characteristics
D. Does not have the problem of oversupply

Answer 20

Correct Answer: C. Is relatively slow to adjust because of its nonhomogeneity and its immobile characteristics

Explanation: Real estate markets are slow to adjust because each property is unique and fixed in location. These characteristics make it difficult to quickly balance supply and demand, leading to slower market adjustments.

Reasoning From The Unit:
The unit explains that real estate markets are slow to react to changes in supply and demand because properties are nonhomogeneous (each one is unique) and immobile (cannot be moved).

Question 21

In general terms, the term market refers to which of the following?

Answer Choices:

A. A place where buyers and sellers come together to establish prices
B. The amount of goods available at a given price
C. An estimate of the selling price
D. The amount of goods bought at a given price

Answer 21

Correct Answer: A. A place where buyers and sellers come together to establish prices

Explanation: A market is where buyers and sellers meet to negotiate prices. In real estate, the market determines property values based on supply, demand, and buyer-seller interactions.

Reasoning From The Unit:
The unit explains that a market is any place where buyers and sellers come together to set prices through transactions. This applies to real estate, where property prices are determined by market forces.

Question 22

Which is an example of an economic characteristic of land?

Answer Choices:

A. Immobility
B. Nonhomogeneity
C. Improvements
D. Indestructibility

Answer 22

Correct Answer: C. Improvements

Explanation: Improvements, such as buildings or infrastructure, are an economic characteristic of land because they add value and affect the property’s utility.

Reasoning From The Unit:
The unit describes improvements as an economic characteristic of land that increases its value. Changes made to the land, such as the construction of buildings or roads, enhance its utility and desirability.

Question 23

The term area preference refers to

Answer Choices:

A. A physical characteristic of land
B. Nonhomogeneity
C. Relative scarcity
D. An economic characteristic of land

Answer 23

Correct Answer: D. An economic characteristic of land

Explanation: Area preference, also known as situs, refers to a buyer’s preference for a particular location. This is an economic characteristic because it influences land value based on location desirability.

Reasoning From The Unit:
The unit explains that area preference is an economic characteristic that significantly affects land value. Buyers are often willing to pay more for land in a preferred location due to proximity to amenities, infrastructure, and other factors.

Question 24

Which physical and economic factors would NOT be a consideration for a land developer in determining the optimum use for a parcel of land for industrial purposes?

Answer Choices:

A. Transportation
B. Natural resources available
C. Public improvements
D. Indestructibility

Answer 24

Correct Answer: D. Indestructibility

Explanation: Indestructibility is a physical characteristic of land but does not influence how a developer chooses to use the land. Developers focus on factors like transportation access, resources, and public improvements when making land-use decisions.

Reasoning From The Unit:
The unit describes indestructibility as a physical characteristic of land, meaning that land cannot be destroyed. However, this characteristic does not impact a developer’s decision on how to use a property for industrial purposes.

Question 25

The term nonhomogeneity refers to

Answer Choices:

A. Land’s durability and indestructibility
B. Capital expenditures represented by a fixed investment
C. The fact that no two parcels of land are exactly alike
D. The fact that the geographic location of land cannot be changed

Answer 25

Correct Answer: C. The fact that no two parcels of land are exactly alike

Explanation: Nonhomogeneity means that every parcel of land is unique. Even if properties are similar in size or shape, their location and other characteristics make each one distinct.

Reasoning From The Unit:
The unit explains that nonhomogeneity refers to the uniqueness of land, as no two parcels are exactly the same. This uniqueness is important when assessing property value and comparing real estate transactions.

Question 26

Relative scarcity implies that

Answer Choices:

A. Land available for development is scarce throughout Texas
B. Land available for development may be in short supply in some areas
C. Families may place different values on similar properties
D. Families may prefer one area of a city over another

Answer 26

Correct Answer: B. Land available for development may be in short supply in some areas

Explanation: Relative scarcity means that while there may be plenty of undeveloped land overall, the availability of land in specific desirable areas may be limited. For example, prime locations in urban centers may have limited land for new developments, which drives up prices due to scarcity.

Reasoning From The Unit:
In the unit, it is explained that “scarcity in an economic sense means that the total supply of land is fixed. Even though a considerable amount of land remains unused, land in a given location or of a particular quality is in short supply in some areas, such as downtown Houston.” This concept shows that although land is available in general, its availability in desirable or developed areas can be quite limited.

Question 27

Key term: Abatement

Answer 27

Definition: Abatement refers to a reduction in the amount or degree of something, such as a reduction in property taxes, rent payments, or environmental hazards. This term is often used when dealing with legal adjustments or reductions that impact property ownership costs or liabilities. Abatements can be temporary or permanent depending on the agreement or legal decision.

Reasoning From Unit:
The unit discusses abatement as a reduction or suspension, specifically in the context of property tax reductions or other forms of financial relief for property owners. It is used when property owners are provided with a temporary reduction in their financial obligations under certain circumstances.

Question 28

Key term: Agricultural Real Estate

Answer 28

Definition: Agricultural real estate refers to properties used primarily for farming activities, such as growing crops or raising livestock. These properties are usually located in rural areas and may include large tracts of land specifically zoned for agricultural purposes. Owners of agricultural real estate may receive tax benefits and are subject to certain land use restrictions.

Reasoning From Unit:
The unit explains agricultural real estate as property used for farming and agricultural purposes. This includes land dedicated to crop production, livestock raising, or other types of farming activities that are important to rural economies.

Question 29

Key term: Broker

Answer 29

Definition: A broker is a licensed professional who represents buyers or sellers in real estate transactions. Brokers negotiate and manage the sale, purchase, or rental of property on behalf of clients and are typically compensated through commissions. Brokers are responsible for overseeing transactions and ensuring that all legal and regulatory requirements are met.

Reasoning From Unit:
The unit defines a broker as a person or firm licensed to conduct real estate transactions. Brokers work on behalf of clients to negotiate deals, and they are responsible for managing the legal and financial aspects of the transaction to protect their clients’ interests.

Question 30

Key term: Business Cycle

Answer 30

Definition: The business cycle refers to the fluctuations in economic activity over time, characterized by periods of expansion, peak, recession, and recovery. These cycles affect real estate markets, as periods of economic growth increase demand for properties, while recessions tend to lower demand. Understanding the business cycle is important for real estate professionals to anticipate market trends.

Reasoning From Unit:
The unit describes the business cycle as the natural rise and fall of economic activity, impacting real estate demand and supply. Real estate professionals need to be aware of these cycles to make informed decisions about when to buy or sell properties.

Question 31

Key term: Commercial Real Estate

Answer 31

Definition: Commercial real estate includes properties used for business purposes, such as offices, retail stores, hotels, and warehouses. These properties generate income for investors and are subject to different tax rules and regulations compared to residential real estate. Commercial real estate often involves long-term leases and higher operating costs.

Reasoning From Unit:
The unit highlights commercial real estate as properties used for commerce or business activities. These properties are vital to the economy, providing space for retail, office, and industrial activities that generate revenue and economic growth.

Question 32

Key term: Common Law

Answer 32

Definition: Common law is a legal system based on court rulings and customs rather than written laws. In real estate, common law plays a significant role in shaping legal practices and interpretations, particularly in areas like property rights, contracts, and legal disputes. Common law evolves over time through judicial decisions.

Reasoning From Unit:
The unit explains that common law is derived from judicial decisions and long-standing customs. It has a significant influence on real estate practices, particularly in legal disputes where statutory law may not provide specific guidance.

Question 33

Key term: Cost

Answer 33

Definition: Cost refers to the capital expenditure required to acquire or develop a property. This includes expenses for land, labor, materials, and associated profits. The cost of a property is different from its price or value, as it represents the amount of money invested into the creation or purchase of the property.

Reasoning From Unit:
The unit explains cost as the outlay required for land, labor, and materials to bring a property into existence. It differentiates between cost and value, emphasizing that cost is the actual expense incurred to produce a property.

Question 34

Key term: Demand

Answer 34

Definition: Demand in real estate refers to the desire and financial ability of buyers to purchase property. It is influenced by factors such as employment rates, wage levels, population growth, and interest rates. High demand for real estate typically leads to rising prices, while low demand results in lower prices and slower sales.

Reasoning From Unit:
The unit discusses demand as a key factor in determining property values. It highlights the economic forces that drive demand, including population changes, economic conditions, and buyer preferences.

Question 35

Key term: Demographics

Answer 35

Definition: Demographics are statistical data about the population, including information on age, income, education, and family size. In real estate, demographics play a critical role in shaping housing demand, as different population segments have varying housing needs and preferences.

Reasoning From Unit:
The unit explains how demographic trends influence the real estate market by shaping buyer demand for different types of properties. For instance, younger populations may prefer urban apartments, while older populations may seek suburban homes.

Question 36

Key term: Industrial Real Estate

Answer 36

Definition: Industrial real estate includes properties used for manufacturing, production, storage, and distribution of goods. Examples include factories, warehouses, and distribution centers. Industrial properties are often located in areas with good access to transportation infrastructure to facilitate the movement of goods.

Reasoning From Unit:
The unit describes industrial real estate as properties dedicated to the production and movement of goods. These properties play a key role in supply chains and are essential for the functioning of businesses involved in manufacturing and distribution.

Question 37

Key term: Market

Answer 37

Definition: A market is a place or system where buyers and sellers come together to exchange goods and services. In real estate, the market refers to the overall system in which properties are bought and sold, with prices determined by supply and demand forces. Real estate markets can be local, regional, or national.

Reasoning From Unit:
The unit defines the real estate market as the environment where buyers and sellers interact to establish prices for properties. Market conditions, such as supply and demand, directly affect property values and transaction activity.

Question 38

Key term: Mixed-Use Real Estate

Answer 38

Definition: Mixed-use real estate refers to developments that combine multiple types of property uses, such as residential, commercial, and industrial within a single project. These developments are often designed to create self-sustaining communities with housing, shopping, and workspaces all in one location.

Reasoning From Unit:
The unit explains that mixed-use developments are becoming increasingly popular as they provide diverse property functions in one area, which can increase property values and provide more convenience to residents and businesses.

Question 39

Key term: National Association of REALTORS® (NAR)

Answer 39

Definition: The National Association of REALTORS® (NAR) is the largest trade organization for real estate professionals in the United States. Members, known as REALTORS®, must adhere to a strict Code of Ethics and are given access to resources that help them in their real estate careers.

Reasoning From Unit:
The unit discusses NAR as an influential organization that sets standards for real estate professionals. REALTORS® who are members of NAR are required to follow ethical guidelines and benefit from the association’s resources and training.

Question 40

Key term: Objective Value

Answer 40

Definition: Objective value refers to the true worth of a property based on market data and appraisals, independent of personal opinions or emotions. It is determined through standardized valuation methods, such as comparable sales or income generation potential.

Reasoning From Unit:
The unit defines objective value as a measurement of a property’s inherent worth, often established through professional appraisals that use objective criteria, such as market comparables and financial performance.

Question 41

Key term: Precedent

Answer 41

Definition: Precedent is a legal principle or rule that is established by a court ruling and must be followed in future cases involving similar facts or legal issues. In real estate, precedents shape legal practices, particularly in property disputes and contracts.

Reasoning From Unit:
The unit explains that precedents are established by court decisions and have significant influence on real estate law, particularly in areas like property rights, zoning disputes, and contract enforcement.

Question 42

Key term: Price

Answer 42

Definition: Price is the amount agreed upon by a buyer and a seller in a real estate transaction. It is the final number that a buyer is willing to pay, and the seller is willing to accept for a property. Price is influenced by various factors, including market conditions, property features, and negotiations between the parties.

Reasoning From Unit:
The unit explains price as the final amount agreed upon in a transaction. It emphasizes that price is determined through negotiations and may vary from the property’s appraised value or market value based on the circumstances of the transaction.

Question 43

Key term: Realtist

Answer 43

Definition: A Realtist is a member of the National Association of Real Estate Brokers (NAREB), an organization that advocates for fair housing and equal opportunities in real estate, especially for minorities. The term “Realtist” is used to describe members who adhere to the organization’s principles of fair housing.

Reasoning From Unit:
The unit describes the role of Realtists as professionals committed to ensuring equal housing opportunities for all individuals, regardless of race, creed, or color. The National Association of Real Estate Brokers (NAREB) is dedicated to promoting these values.

Question 44

Key term: REALTOR®

Answer 44

Definition: A REALTOR® is a licensed real estate professional who is a member of the National Association of REALTORS® (NAR). REALTORS® must follow a strict Code of Ethics and are held to higher standards than non-member agents. Not all licensed real estate agents are REALTORS®, as the designation requires membership in NAR.

Reasoning From Unit:
The unit explains that only real estate professionals who are members of NAR can use the title REALTOR®. The NAR Code of Ethics sets professional standards for REALTORS® to ensure trust and integrity in real estate transactions.

Question 45

Key term: Residential Real Estate

Answer 45

Definition: Residential real estate includes properties designed for housing, such as single-family homes, condominiums, apartments, and townhouses. These properties are primarily used for living purposes rather than commercial or industrial uses. Residential real estate is one of the most common types of property transactions.

Reasoning From Unit:
The unit highlights that residential real estate consists of properties intended for human habitation, covering a wide range of housing options, from individual homes to large apartment complexes.

Question 46

Key term: Sales Agent

Answer 46

Definition: A sales agent is a licensed individual who assists real estate brokers in the sale, purchase, or leasing of properties. Sales agents work under the supervision of a broker and typically earn a commission on transactions. They handle many of the day-to-day tasks involved in real estate transactions.

Reasoning From Unit:
The unit explains that sales agents are licensed professionals working under a broker’s supervision. Their role includes assisting in the negotiation and execution of real estate transactions, typically earning a percentage of the commission.

Question 47

Key term: Seven Sources of Law

Answer 47

Definition: The seven sources of law in the United States include constitutional law, statutory law, administrative regulations, court decisions (precedents), common law, ordinances, and treaties. These sources collectively form the legal framework that governs various aspects of real estate, including property rights, transactions, and dispute resolution.

Reasoning From Unit:
The unit outlines the seven sources of law that influence real estate practices. It explains how these different legal frameworks work together to regulate real estate activities, ensuring that transactions are legally sound and rights are protected.

Question 48

Key term: Special-Purpose Real Estate

Answer 48

Definition: Special-purpose real estate refers to properties that serve unique or specialized functions, such as schools, churches, government buildings, and hospitals. These properties are typically owned by public entities or non-profit organizations and are designed for specific community or institutional uses.

Reasoning From Unit:
The unit provides examples of special-purpose real estate, noting that these properties are typically intended for a specific function and are often exempt from the same market forces that affect commercial or residential real estate.

Question 49

Key term: Subjective Value

Answer 49

Definition: Subjective value refers to the value of a property as perceived by an individual buyer or seller, based on personal preferences, desires, and needs. Unlike objective value, which is determined through market data, subjective value varies between individuals and reflects emotional or personal factors.

Reasoning From Unit:
The unit describes subjective value as the worth of a property based on individual perceptions rather than purely financial or market considerations. It emphasizes that personal preferences can significantly influence how much a buyer is willing to pay for a property.

Question 50

Key term: Supply

Answer 50

Definition: Supply refers to the amount of real estate available for sale or rent in a particular market at a given time. Supply is affected by factors such as construction costs, land availability, zoning laws, and economic conditions. An increase in supply generally leads to lower prices, while a decrease in supply tends to drive prices up.

Reasoning From Unit:
The unit explains that supply is one of the fundamental forces affecting real estate prices. It discusses how various factors, such as construction activity and land availability, contribute to the overall supply of properties in a market.

Question 51

Key term: Texas Real Estate Commission (TREC)

Answer 51

Definition: The Texas Real Estate Commission (TREC) is the state agency responsible for licensing and regulating real estate professionals in Texas, including brokers, sales agents, and inspectors. TREC ensures that professionals meet the required standards of education and conduct and enforces compliance with real estate laws in the state.

Reasoning From Unit:
The unit explains that TREC oversees the licensing process for real estate professionals in Texas and ensures that they comply with state laws and regulations. TREC also handles complaints and disciplinary actions to maintain industry standards.

Question 52

Key term: Texas Real Estate License Act (TRELA)

Answer 52

Definition: The Texas Real Estate License Act (TRELA) is the law that governs the licensing and regulation of real estate professionals in Texas. TRELA sets the requirements for obtaining and maintaining a real estate license and outlines the ethical and professional responsibilities of licensed agents and brokers.

Reasoning From Unit:
The unit discusses TRELA as the legal framework that establishes the licensing process for real estate professionals in Texas. It ensures that real estate agents and brokers meet certain qualifications and follow industry standards to protect the public.

Question 53

Identify the various careers available in real estate and the professional organizations that support them.

Answer 53

Explanation:
The real estate industry offers a wide variety of career options. Key roles include:

• Real Estate Broker: Licensed professionals who oversee real estate transactions, manage sales agents, and ensure legal compliance.
• Sales Agent: Works under the supervision of a broker, assisting clients in buying, selling, or leasing properties.
  Real Estate Appraiser: Evaluates properties to determine their market value for sale, insurance, or taxation purposes.
• Property Manager: Oversees the day-to-day operations of rental properties, including maintenance, tenant relations, and financial management.
• Real Estate Counselor: Provides advice to clients on real estate investments and property management decisions, typically without being involved in sales.
• Real Estate Educator: Specializes in teaching and training individuals seeking to enter the real estate profession.

The National Association of REALTORS® (NAR) is the largest professional organization supporting real estate professionals, offering resources, education, and a Code of Ethics. Other organizations include the National Association of Real Estate Brokers (NAREB) and the Texas Real Estate Commission (TREC), which oversee licensing and regulatory compliance in Texas.

Question 54

Describe the five uses of real property.

Answer 54

Explanation:
Real property can be categorized based on its use:

• Residential: This includes properties used for housing, such as single-family homes, apartments, townhouses, and condominiums. The primary purpose is to provide shelter for individuals and families.
• Commercial: Properties used for business activities, including retail stores, office buildings, hotels, and shopping centers. These properties generate income through business operations or leases.
• Industrial: Properties used for manufacturing, production, storage, and distribution of goods, such as factories and warehouses. These properties are often located near major transportation routes.
• Agricultural: Land used for farming activities, such as growing crops and raising livestock. Agricultural real estate is often located in rural areas and may be subject to special zoning laws.
• Special-Purpose: Properties with unique uses, such as schools, churches, hospitals, government buildings, and libraries. These properties are typically owned by public or non-profit organizations and are exempt from many of the typical market influences.

Question 55

List the seven sources of real estate law and give an example of each.

Answer 55

Explanation:
The seven sources of law in the United States that impact real estate transactions are:

• Constitutional Law: Establishes the fundamental rights and powers of government. Example: The U.S. Constitution protects private property rights under the Fifth Amendment.
• Statutory Law: Laws passed by federal, state, or local governments. Example: The Texas Real Estate License Act (TRELA) governs the licensing and regulation of real estate professionals in Texas.
• Administrative Regulations: Rules established by governmental agencies to implement laws. Example: Regulations set by the Texas Real Estate Commission (TREC) to enforce licensing standards for real estate professionals.
• Court Decisions (Precedents): Legal principles established through judicial rulings. Example: A court decision regarding property disputes that sets a precedent for future cases.
• Common Law: Legal traditions and customs developed over time, largely influenced by court rulings. Example: Property rights derived from historical legal practices.
• Ordinances: Local laws enacted by municipalities or counties. Example: Zoning laws that regulate land use in specific areas, such as residential or commercial zones.
• Treaties: Formal agreements between countries, which can impact international property transactions. Example: Treaties related to property rights for foreign investors.

Question 56

Describe the physical and economic characteristics of real estate.

Answer 56

Explanation:
Real estate has unique physical and economic characteristics that affect its value and usage:

Physical Characteristics:
* Immobility: Land cannot be moved from one location to another. This characteristic makes real estate inherently local.

• Indestructibility: Land is permanent and cannot be destroyed, though its value can be affected by changes in usage or natural disasters.
• Nonhomogeneity (Uniqueness): No two parcels of land are exactly alike. Even if two properties seem identical, their location, topography, and other factors make them unique.

Economic Characteristics:
* Scarcity: The total supply of land is limited, and in certain desirable areas, land may be in short supply, increasing its value.

• Improvements: Any improvements (buildings, infrastructure) made to land can increase its value and utility.
• Permanence of Investment: Real estate investments are typically long-term due to the permanence of land and improvements, contributing to stable property values.
• Area Preference (Situs): Location is a key factor in determining property value. People may prefer one area over another due to proximity to amenities, transportation, and job opportunities.

Question 57

Explain the operation of supply and demand in the real estate market.

Answer 57

Explanation:
Supply and demand are the primary forces that drive the real estate market.

• Supply refers to the availability of properties for sale or rent in a particular market. Factors that influence supply include construction costs, availability of land, zoning laws, and the level of new development. When supply increases, property prices tend to decrease, as there are more options available for buyers.
• Demand is determined by buyers’ willingness and ability to purchase properties. Factors influencing demand include wage levels, employment opportunities, population growth, interest rates, and consumer confidence. Higher demand often leads to rising property prices due to competition among buyers.

The balance between supply and demand determines property prices. When demand exceeds supply, prices increase. Conversely, when supply exceeds demand, prices typically fall.

Question 58

Identify the economic, political, and social factors that influence supply and demand and the real estate cycle.

Answer 58

Explanation:
Several factors influence both supply and demand in the real estate market:

• Economic Factors: Employment rates, wage levels, inflation, and interest rates play a significant role in determining demand for real estate. Economic growth leads to increased demand as people have more purchasing power, while economic downturns reduce demand. For supply, construction costs and access to financing for new developments are critical.
• Political Factors: Government policies, such as tax incentives for homebuyers or restrictions on property development (like zoning laws or building regulations), can impact both supply and demand. Political stability and government interventions also influence investor confidence in real estate.
• Social Factors: Demographic trends, such as population growth, urbanization, and changes in family structures, impact housing needs and preferences. Lifestyle changes, such as the preference for urban living or more eco-friendly housing, also shape demand.

The real estate cycle typically follows phases of expansion, peak, contraction, and recovery. During expansion, demand and prices rise due to economic growth. At the peak, the market experiences high prices and increased development. In the contraction phase, oversupply and reduced demand lead to lower prices, followed by recovery as the market stabilizes.