Unit 3 Flashcards
Objective 1: Describe third parties, the obligations a license holder has to those parties, and the legal concerns associated with the failure to properly fulfill those obligations.
Answer: Third parties in real estate transactions include any persons who deal with the broker or client on matters related to representation, such as buyers, tenants, lenders, appraisers, and service providers. License holders must treat third parties fairly and honestly and are liable for any misrepresentation or failure to disclose material facts that may affect the transaction.
Objective 2: Describe a buyer’s rights and a seller’s obligations under Section 5.008 of the Texas Property Code and how the obligations can be fulfilled.
Answer: Under Section 5.008, sellers of single-family residential properties in Texas must provide a written disclosure notice to buyers, which outlines the property’s condition and any known defects. Failure to provide the disclosure notice allows the buyer to terminate the contract within seven days of receiving the notice.
Objective 3: Describe material facts as they relate to a property’s physical condition, title, and survey.
Answer: Material facts include any issues that could affect a reasonable buyer’s decision to purchase or the amount offered for the property. These facts may pertain to the physical condition (e.g., foundation cracks, flooding), title issues (e.g., liens, ownership disputes), or survey discrepancies (e.g., boundary encroachments).
Objective 4: Describe the different types of stigmas associated with real estate and the disclosure issues surrounding stigmatized properties.
Answer: Stigmas can be psychological or physical. Psychological stigmas arise from events like a death on the property, which do not affect the physical condition but can impact marketability. Physical stigmas relate to health or safety concerns, such as environmental hazards. Disclosure of stigmas depends on whether they are considered material facts under Texas law.
Keyterm: Nonfiduciary Duties
Meaning: Duties owed to customers and the general public, including honesty and fairness. Although not as extensive as fiduciary duties owed to clients, nonfiduciary duties ensure that brokers do not engage in fraudulent behavior or misrepresentations to third parties.
Keyterm: Third Party
Meaning: Any person other than the client, such as buyers, tenants, lenders, or appraisers, who is involved in a real estate transaction. License holders owe general duties of honesty and fairness to third parties.
Keyterm: Material Fact
Meaning: Any fact that is relevant to a person making a decision. This includes physical defects, title issues, or survey problems that might influence a buyer’s decision to purchase or the amount they would pay.
Keyterm: Disclosure
Meaning: The act of making known to others information that is pertinent to a transaction. Texas law requires disclosure of material facts that affect the value and desirability of a property.
Keyterm: Stigmatized Property
Meaning: A property that has been negatively impacted by a condition or event, such as a death on the premises, criminal activity, or environmental concerns, that may affect its marketability or value.
Keyterm: Psychological Stigma
Meaning: A negative perception of a property due to events that do not physically affect the property but may deter buyers, such as a death or criminal activity.
Keyterm: Physical Stigma
Meaning: A negative perception due to health or safety-related concerns, such as the presence of asbestos, radon, or groundwater contamination.
Keyterm: Texas Property Code Section 5.008
Meaning: A law that requires sellers of residential properties in Texas to provide a disclosure notice detailing the condition of the property and any known defects to the buyer.
Keyterm: Seller’s Disclosure Notice
Meaning: A form used to provide the buyer with information about the property’s condition, including known defects. It is required under the Texas Property Code and must be completed to the best of the seller’s knowledge.
Keyterm: Misrepresentation
Meaning: Providing false or misleading information about a property, either intentionally or negligently, that could influence a buyer’s decision. This can include failure to disclose known material defects.
Keyterm: Fraud
Meaning: A type of misrepresentation committed knowingly with the intent to deceive. Fraudulent behavior in real estate can lead to severe legal consequences for license holders.
Keyterm: Megan’s Law
Meaning: A federal law that requires states to implement registration procedures for released sex offenders living in the community. Real estate agents are not required to disclose information related to sex offenders but should refer buyers to the Texas Department of Public Safety (DPS) database.
Keyterm: Prohibited Disclosures
Meaning: Information that cannot be disclosed under federal or state fair housing laws, such as details relating to race, color, religion, sex, national origin, familial status, or handicap.
Keyterm: Materiality
Meaning: The significance of a fact in influencing a reasonable buyer’s decision to purchase a property. Materiality determines whether a disclosure is required.
Keypoint Question: What are nonfiduciary duties, and how do they differ from fiduciary duties?
Keypoint Answer: Nonfiduciary duties include honesty and fairness owed to all parties in a transaction. They differ from fiduciary duties, which are owed exclusively to the client and involve a higher standard of care, such as loyalty and confidentiality.
Keypoint Question: What are the requirements of the Texas Property Code Section 5.008?
Keypoint Answer: Section 5.008 requires sellers of single-family properties to provide a written disclosure notice detailing the property’s condition and any known defects. This notice must be given to the buyer before the contract’s effective date.
Keypoint Question: What are the key differences between psychological and physical stigmas in real estate?
Keypoint Answer: Psychological stigmas arise from events like a death on the property, while physical stigmas involve health or safety concerns, such as environmental hazards. Disclosure of psychological stigmas is not always required, whereas physical stigmas that affect health or safety must be disclosed.
Title insurance companies in Texas are regulated by:
A. the Texas Department of Insurance.
B. the Texas Real Estate Commission.
C. the Texas attorney general.
D. the U.S. attorney general.
Correct Answer: A – the Texas Department of Insurance
Explanation of Answer: Title insurance companies in Texas are regulated by the Texas Department of Insurance (TDI), which sets standards and rules for policies, endorsements, and exceptions to protect the interests of policyholders.
Title coverage for the lender is called:
A. mortgagor’s title insurance.
B. mortgage company title insurance.
C. title commitment.
D. mortgagee’s title insurance.
Correct Answer: D – mortgagee’s title insurance
Explanation of Answer: Mortgagee’s title insurance protects the lender’s interest in the property, ensuring that the lender has a valid lien. It is different from an owner’s title policy, which protects the buyer’s interest.
The buyer should only rely on measurements furnished by
A. the seller’s previous survey.
B. the listing agent.
C. the registered professional land surveyor.
D. all of these.
Correct Answer: C – the registered professional land surveyor
Explanation of Answer: Buyers should rely only on measurements provided by a registered professional land surveyor, as this ensures accuracy. Measurements from other sources may not be reliable or legally binding.
On the issue of AIDS-related disclosures
A. TREC rules and federal fair housing laws prohibit disclosure.
B. TREC rules do not prohibit disclosure.
C. license holders may follow their best judgment.
D. HUD requires the license holder to respond to a direct question from the buyer.
Correct Answer: A – TREC rules and federal fair housing laws prohibit disclosure.
Explanation of Answer: TREC rules and federal fair housing laws consider AIDS-related disclosures to be discriminatory under the protected class of handicaps. Therefore, license holders are prohibited from making such disclosures, even if asked directly.
Under Megan’s Law, individual states
A. may choose to ignore Megan’s Law.
B. must develop procedures for registering sex offenders.
C. must require license holders to disclose registered sex offenders.
D. are required to post a sign in the yard of the offender identifying the occupant as a sex offender.
Correct Answer: B – must develop procedures for registering sex offenders.
Explanation of Answer: Megan’s Law requires each state to implement registration procedures for sex offenders and make this information available to the public. However, real estate agents are not required to disclose this information and should direct clients to the appropriate resources.
What obligation does an agent have to disclose information regarding a convicted child molester in close proximity to a subject property?
A. The agent is under no obligation to make this disclosure but could refer individuals to the DPS database.
B. The agent is required to disclose if the seller gives authorization to disclose.
C. The agent is required to disclose even if it is only rumor.
D. The agent is required to disclose only if the buyer asks.
Correct Answer: A – The agent is under no obligation to make this disclosure but could refer individuals to the DPS database.
Explanation of Answer: Agents are not required to disclose information about sex offenders but can direct clients to the DPS database for further information. This approach protects the agent from liability and allows the client to make their own inquiries.
A seller states that he will list his home with you only if you do not reveal to prospective buyers that the police have twice raided the house next door for suspected drug activity. You should
A. take the listing as long as there was no conviction.
B. take the listing but reveal the information to prospective buyers.
C. decline the listing and refuse to work with this seller.
D. refer the seller to another agent in your office and take a referral fee.
Correct Answer: C – decline the listing and refuse to work with this seller.
Explanation of Answer: If a seller asks the agent to conceal material information, the agent should refuse the listing. Disclosing or concealing material information affects the integrity of the transaction and the agent’s legal obligations.
The listing agent tells the buyer that the seller installed a new air conditioner as agreed to in the contract when in fact the seller only refurbished the existing air conditioner. Under TRELA the license holder is
A. not liable because the misrepresentation was not intentional.
B. not liable because the misrepresentation was not negligent.
C. not liable because he only passed on the seller’s representation.
D. Liable.
Correct Answer: D – Liable.
Explanation of Answer: Under TRELA, license holders are responsible for ensuring the accuracy of information provided to buyers. Misrepresenting the condition of a property, even if unintentionally, can lead to liability and disciplinary action.
A property whose value or marketability has been affected by conditions or events related to the property
A. is considered unsalable.
B. is considered stigmatized.
C. is considered valueless by appraisers.
D. may not legally be sold until the condition is corrected.
Correct Answer: B – is considered stigmatized.
Explanation of Answer: A stigmatized property has been affected by negative conditions or events, such as a death or crime. While it can still be sold, the stigma may reduce its market value or desirability.
A property whose value has been diminished by a murder occurring on the property has suffered which of the following?
A. Physical stigma
B. Incurable obsolescence
C. Curable obsolescence
D. Purely psychological stigma
Correct Answer: D – Purely psychological stigma
Explanation of Answer: A purely psychological stigma arises when an event such as a murder affects a property’s desirability or market value, even though it does not physically impact the property itself.
