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Real Estate Contracts Form and Addenda > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

Question 1
Where in the One to Four Family Residential Contract would a license holder indicate that she is the seller in the transaction and that she has a real estate license?

A. Paragraph 1
B. Paragraph 2
C. Paragraph 8
D. Paragraph 5

A

Correct Answer: C. Paragraph 8
Explanation: Paragraph 8 provides a place for disclosure if the real estate license holder is a party to the transaction or acting on behalf of related parties or entities.

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2
Q

Question 3
Which of the following is FALSE regarding earnest money?

A. Earnest money is not necessary to bind the contract.
B. The promise of the purchaser to buy and the promise of the seller to deliver title are adequate consideration to create a legally binding executory contract.
C. Earnest money is applied to the sales price at funding.
D. Earnest money is necessary to bind the contract.

A

Correct Answer: D. Earnest money is necessary to bind the contract.
Explanation: Earnest money is not necessary to bind the contract. The promise to buy and deliver title are sufficient.

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2
Q

Question 2
The Statutory Tax District Notice in paragraph 6 of the One to Four Family Residential Contract applies to which of the following?

A. A municipality taxing district
B. A utility district that provides water services
C. A school district
D. A public improvement district

A

Correct Answer: B. A utility district that provides water services
Explanation: This notice is required if the property is in a utility or district providing water, sewer, drainage, or flood control services per Texas Water Code.

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3
Q

Question 4
Under paragraph 5 of the TREC One to Four Family Residential Contract, what happens if the buyer fails to deposit the earnest money?

A. The contract is void.
B. The contract is not executed.
C. The buyer is in default.
D. The contract is terminated.

A

Correct Answer: C. The buyer is in default.
Explanation: If the buyer fails to deposit the earnest money, they are in default per paragraph 5, and the seller may seek remedies under paragraph 15.

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4
Q

Question 5
The buyer agrees to purchase a home “as is” but has an option period of 14 days. What are the buyer’s choices during the option period?

A. The buyer may not have the property inspected again.
B. The buyer may have the property inspected again.
C. The buyer may not negotiate additional repairs.
D. The buyer may terminate the contract but will forfeit the earnest money.

A

Correct Answer: B. The buyer may have the property inspected again.
Explanation: The contract allows the buyer to inspect the property during the option period and negotiate repairs or terminate the contract.

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4
Q

Question 7
In a bankruptcy sale, how should a seller trustee respond to an offer requiring the seller to provide the seller’s disclosure notice?

A. The seller should provide the notice on day five.
B. The seller should immediately provide the notice.
C. The seller should counter by indicating that he is not required to provide the notice.
D. The seller should accept the offer as written.

A

Correct Answer: C. The seller should counter by indicating that he is not required to provide the notice.
Explanation: A trustee in bankruptcy is exempt from providing the seller’s disclosure notice per property code section 5.008.

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4
Q

Question 6
Who receives the earnest money if the buyer terminates the contract because of lender-required repairs under the One to Four Family Residential Contract?

A. Seller
B. Buyer
C. Listing agent
D. Lender

A

Correct Answer: B. Buyer
Explanation: If lender-required repairs are not agreed upon, the buyer can terminate and will receive the earnest money.

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5
Q

Question 8
Using the One to Four Family Residential Contract, which document must sellers provide along with the existing survey if they wish to rely on it?

A. Affidavit of Certainty
B. Property Survey Affidavit
C. Residential Real Property Affidavit
D. Affidavit of Previous Ownership

A

Correct Answer: C. Residential Real Property Affidavit
Explanation: The contract requires the seller to provide a Residential Real Property Affidavit if relying on an existing survey.

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5
Q

Question 10
What happens if a buyer fails to pay the option fee within three days of executing the TREC One to Four Family Residential Contract?

A. The buyer may still terminate the contract as long as it is within the option period.
B. The buyer will not have the right to terminate the contract.
C. The buyer may pay the fee late and retain the right to terminate.
D. The buyer will be in default and the contract will terminate.

A

Correct Answer: B. The buyer will not have the right to terminate the contract.
Explanation: Time is of the essence; if the buyer fails to pay the option fee within the prescribed time, they lose the right to terminate.

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6
Q

Question 9
Who should fill out the Seller’s Disclosure of Property Condition?

A. The seller
B. The listing agent
C. The buyer
D. The buyer’s agent at the buyer’s direction

A

Correct Answer: A. The seller
Explanation: The seller, not the seller’s agent, should complete the disclosure form.

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6
Q

Question 12
A buyer enters a contract with a small earnest money check upfront and plans to submit more when his certificate of deposit matures in five days. What should he indicate in the contract?

A. Indicate that he will deposit $1,100 five days after the effective date.
B. Indicate that he will deposit $1,100 upon execution.
C. Indicate that he will deposit $100 upon execution and $1,000 five days after the effective date.
D. Indicate that he will deposit $100 and wait five days to fill in the remaining blanks.

A

Correct Answer: C. Indicate that he will deposit $100 upon execution and $1,000 five days after the effective date.
Explanation: The buyer can specify a split deposit as outlined, with initial earnest money now and additional funds upon the certificate’s maturity.

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6
Q

Question 18
If a buyer wants to park a boat in the driveway and is concerned about deed restrictions, what should they do under the TREC contract?

A. Write it into Special Provisions
B. List it as an objection under paragraph 6D
C. List the boat as an exception under paragraph 2
D. Use the Residential Personal Property Affidavit

A

Correct Answer: B. List it as an objection under paragraph 6D
Explanation: Paragraph 6D allows the buyer to state any specific intended uses of the property that might be restricted.

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6
Q

Question 14
Sellers remodeled and added a structure after they bought their home. Using the One to Four Family Residential Contract, what should the listing agent advise regarding the survey?

A. Use the Residential Real Property Affidavit.
B. Provide the old survey to the title company.
C. Negotiate with the buyer on who pays for a new survey.
D. Nothing, it will work itself out.

A

Correct Answer: C. Negotiate with the buyer on who pays for a new survey.
Explanation: Since the property was altered, a new survey is advisable, and payment can be negotiated with the buyer.

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7
Q

Question 17
What is the intent of the option period under paragraph 5 of the TREC One to Four Family Residential Contract?

A. To give the buyers the option to pay the earnest money late
B. To allow the buyers to choose the title company
C. To allow the buyers to do their due diligence
D. To permit the buyers time to sell their existing house

A

Correct Answer: C. To allow the buyers to do their due diligence
Explanation: The option period provides buyers with time to conduct inspections, secure insurance, and perform other due diligence.

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7
Q

Question 11
Who selects the appraiser to appraise a home when financing is involved?

A. The buyer
B. The lender
C. The agents
D. It is negotiated by the parties

A

Correct Answer: B. The lender
Explanation: While the buyer usually pays for the appraisal, the lender selects the appraiser as the lender is the client of the appraiser.

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7
Q

Question 13
Who pays for a residential service contract under the TREC One to Four Family Residential Contract?

A. The seller
B. The parties may negotiate who pays
C. The buyer
D. The listing agent

A

Correct Answer: B. The parties may negotiate who pays
Explanation: Payment for a residential service contract is optional and can be negotiated between the parties.

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8
Q

Question 16
A buyer promises to pay an option fee within three days of execution. What happens if the buyer fails to pay?

A. The buyer may terminate, but will forfeit the earnest money.
B. The buyer may terminate but will forfeit the option fee.
C. The buyer will not have the unrestricted right to terminate the contract.
D. The contract is void.

A

Correct Answer: C. The buyer will not have the unrestricted right to terminate the contract.
Explanation: If the buyer does not pay the option fee on time, they lose the unrestricted right to terminate.

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9
Q

Question 15
A buyer agrees to purchase a home with lender-required repairs totaling less than 5% of the sale price. What are the buyer’s options?

A. The buyer may terminate the contract and receive the earnest money.
B. The buyer may not terminate the contract.
C. The buyer may terminate the contract, but the earnest money will be paid to the seller.
D. The buyer may terminate if they pay an option fee during the feasibility period.

A

Correct Answer: B. The buyer may not terminate the contract.
Explanation: Since repairs are less than 5% of the sales price, the buyer cannot terminate based on lender-required repairs.

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10
Q

Question 19
A buyer submits an offer with earnest money, but the agent forgets to deposit it. Is there a binding contract?

A. No, because the agent failed to deposit the earnest money.
B. Yes, because the buyer paid the earnest money.
C. Yes, because the buyer promised to buy the property and the seller promised to deliver title at closing.
D. No, because the contract is not binding until after the option period.

A

Correct Answer: C. Yes, because the buyer promised to buy the property and the seller promised to deliver title at closing.
Explanation: Earnest money is not essential to bind the contract; promises to buy and deliver title suffice.

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11
Q

Question 23
How many exceptions to title are listed under paragraph 6A of the One to Four Family Residential Contract?

A. Five
B. Six
C. Seven
D. Eight

A

Correct Answer: D. Eight
Explanation: There are eight listed exceptions, including standard printed exceptions.

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11
Q

Question 20
What constitutes adequate consideration to create a legally binding contract?

A. The buyer’s provision of the earnest money
B. The buyer’s promise to pay the earnest money
C. The promise of the buyer to buy and the promise of the seller to deliver title
D. The seller’s promise to deposit the earnest money with the escrow officer

A

Correct Answer: C. The promise of the buyer to buy and the promise of the seller to deliver title
Explanation: Mutual promises to buy and deliver title are enough to create a binding contract without earnest money.

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11
Q

Question 21
Where does the buyer deposit the earnest money under paragraph 5 of the TREC One to Four Family Residential Contract?

A. In a special bank account held by the buyer
B. With the seller’s agent
C. With the escrow agent
D. With the buyer’s agent

A

Correct Answer: C. With the escrow agent
Explanation: Paragraph 5 requires that the buyer deposit earnest money with the escrow agent.

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11
Q

Question 27
The buyer’s home inspector needs access to the house for inspection. Who ensures the doors are unlocked?

A. The buyer
B. The seller
C. The home inspector
D. The listing agent

A

Correct Answer: B. The seller
Explanation: The TREC contract stipulates that the seller shall permit reasonable access to the buyer and agents for inspections.

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12
Q

Question 22
A buyer needs termite treatment to meet lender requirements. What are the buyer’s options?

A. The buyer must immediately pay extra for the termite treatment.
B. The buyer has no choice but to let the seller pay for the termite treatment.
C. The cost of the treatment will be paid by the buyer at closing.
D. The buyer may refuse to pay for the termite treatment.

A

Correct Answer: D. The buyer may refuse to pay for the termite treatment.
Explanation: If neither party agrees to pay for lender-required repairs, the buyer may terminate and receive the earnest money.

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13
Q

Question 24
Which law prohibits the seller from requiring the buyer to use a particular title provider?

A. TRELA
B. RESPA
C. DTPA
D. CFPB

A

Correct Answer: B. RESPA
Explanation: The Real Estate Settlement Procedures Act (RESPA) prohibits sellers from requiring the use of specific title providers.

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13
Q

Question 26
Using the TREC One to Four Family Residential Contract, the buyer submits an offer with earnest money of $500, which the seller accepts. Is there a binding contract?

A. No, because the buyer has not yet paid the earnest money.
B. Yes, because the buyer promised to purchase the property and the seller promised to give the buyer title at closing.
C. Yes, because the buyer promised to pay the earnest money.
D. No, because the contract is not binding until closing and funding.

A

Correct Answer: B. Yes, because the buyer promised to purchase the property and the seller promised to give the buyer title at closing.
Explanation: Earnest money is not essential to bind the contract; mutual promises of purchase and title transfer suffice.

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14
Q

Question 28
The buyer fails to pay earnest money as required by paragraph 5, though the seller has accepted the offer. What happens?

A. The contract is terminated.
B. Buyer is in default.
C. The contract is void.
D. The contract is no good.

A

Correct Answer: B. Buyer is in default.
Explanation: Failure to deposit the earnest money places the buyer in default per paragraph 5, with the seller able to seek remedies under paragraph 15.

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14
Q

Question 25
Which of the following is TRUE under paragraph 7D of the One to Four Family Residential Contract?

A. Buyer’s agreement to accept the property as is under paragraph 7D(1) or (2) precludes buyer from inspecting the property under paragraph 7A.
B. Buyer’s agreement to accept the property as is under paragraph 7D(1) or (2) precludes buyer from negotiating repairs or treatments in a subsequent amendment.
C. Buyer’s agreement to accept the property as is under paragraph 7D(1) or (2) precludes buyer from terminating the contract during the option period.
D. Buyer’s agreement to accept the property as is under paragraph 7D(1) or (2) does not preclude buyer from inspecting the property under paragraph 7A.

A

Correct Answer: D. Buyer’s agreement to accept the property as is under paragraph 7D(1) or (2) does not preclude buyer from inspecting the property under paragraph 7A.
Explanation: Accepting the property “as is” does not prevent the buyer from conducting inspections, negotiating repairs, or terminating the contract during the option period.

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15
Q

Question 32
What are the buyer’s options if the seller fails to provide the seller’s disclosure notice under paragraph 7B(2)?

A. The buyer may terminate the contract within seven days of closing.
B. The buyer may terminate the contract at any time before the closing.
C. The buyer may demand specific performance with a sales price reduction.
D. The buyer may terminate the contract and forfeit the earnest money.

A

Correct Answer: B. The buyer may terminate the contract at any time before the closing.
Explanation: If the buyer does not receive the disclosure notice, they may terminate the contract at any time before closing, with a refund of the earnest money.

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15
Q

Question 30
The owner’s title policy is a contract between which two parties?

A. The seller and the title company
B. The lender and the title company
C. The buyer and the title company
D. The seller and the buyer

A

Correct Answer: C. The buyer and the title company
Explanation: The owner’s title policy serves as a contract directly between the buyer and the title company.

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16
Q

Question 31
A buyer enters into a contract and submits $100 earnest money upfront, intending to deposit an additional $500 in 11 days. What happens if the buyer fails to deposit the additional earnest money?

A. The contract is void.
B. The buyer is in default.
C. The contract is terminated.
D. The seller must enforce specific performance.

A

Correct Answer: B. The buyer is in default.
Explanation: Per paragraph 5, the buyer’s failure to deposit the additional earnest money places them in default. The seller can seek remedies under paragraph 15.

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16
Q

Question 29
Which of the following is TRUE regarding the Seller’s Disclosure of Property Condition?

A. The TREC Seller’s Disclosure of Property Condition is a mandatory form.
B. The Seller’s Disclosure of Property Condition form is not promulgated by TREC.
C. The TREC Seller’s Disclosure of Property Condition is an optional form.
D. The TREC Seller’s Disclosure of Property Condition is required in all contracts.

A

Correct Answer: C. The TREC Seller’s Disclosure of Property Condition is an optional form.
Explanation: Although TREC approves this form, its use is optional.

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17
Q

Question 34
A buyer promises a $500 option fee but only pays half upfront and half four days after execution. What happens?

A. The buyer may still terminate because time is not of the essence.
B. The buyer may still terminate but must pay twice the original option fee.
C. The buyer will not have the unrestricted right to terminate the contract.
D. The buyer’s option period is reduced to seven days for late payment.

A

Correct Answer: C. The buyer will not have the unrestricted right to terminate the contract.
Explanation: Paragraph 5 states that failure to pay the option fee on time means the buyer forfeits the unrestricted right to terminate.

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17
Q

Question 40
Which of the following is TRUE regarding earnest money?

A. Earnest money is necessary to bind the contract.
B. The promise of the purchaser to buy and the promise of the seller to deliver title are not enough to create a legally binding contract.
C. Earnest money is not applied to the sales price at funding.
D. Earnest money is not necessary to bind the contract.

A

Correct Answer: D. Earnest money is not necessary to bind the contract.
Explanation: The promise of the purchaser to buy and the seller’s promise to deliver title provide adequate consideration to create a binding contract.

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18
Q

Question 33
Who holds the earnest money while a contract is pending under the TREC One to Four Family Residential Contract?

A. The buyer
B. The seller
C. The escrow agent
D. It is put in a file until closing

A

Correct Answer: C. The escrow agent
Explanation: Paragraph 5 designates the escrow agent to hold the earnest money until it is applied to the purchase or disbursed as outlined in the contract.

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18
Q

Question 38
Who should choose the title company under paragraph 6?

A. The agents
B. The parties should negotiate it
C. The seller’s agent
D. The buyer’s agent

A

Correct Answer: B. The parties should negotiate it.
Explanation: The title company choice and title insurance costs are negotiated by the parties. Once agreed upon, they are indicated in paragraph 6A.

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19
Q

Question 35
Which notice in paragraph 6E of the One to Four Family Residential Contract applies to coastal area properties?

A. Coastal waters
B. Tide waters
C. Annexation
D. Intracoastal waterways

A

Correct Answer: B. Tide waters
Explanation: The “tide waters” notice is specifically for properties in coastal areas and provides information about proximity to coastal waters.

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20
Q

Question 39
What happens to the earnest money if the buyer terminates within the option period under paragraph 5?

A. It is paid to the seller.
B. It is split between the buyer and the seller.
C. The agents split the earnest money.
D. It is refunded to the buyer.

A

Correct Answer: D. It is refunded to the buyer.
Explanation: Paragraph 5 specifies that if the buyer terminates within the option period, they receive a refund of the earnest money.

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20
Q

Question 41
How long does the seller have to provide the buyer with a title commitment?

A. 21 days after receiving the contract copy
B. 20 days after the title company receives the contract copy
C. 21 days after contract execution
D. 20 days after contract execution

A

Correct Answer: B. 20 days after the title company receives the contract copy.
Explanation: The contract requires the seller to provide the title commitment within 20 days after the title company receives the contract copy.

20
Q

Question 36
What should buyers do if they wish to make the purchase of the home contingent on a home inspection?

A. Pay additional earnest money for an unrestricted termination right.
B. Pay an option fee for the unrestricted right to terminate under paragraph 5.
C. Promise additional earnest money if the inspection is good.
D. Promise to pay an option fee before the end of the option period.

A

Correct Answer: B. Pay an option fee for the unrestricted right to terminate under paragraph 5.
Explanation: The option to terminate under paragraph 5 is designed for buyers to conduct inspections within a specified period.

21
Q

Question 37
Which of the following is NOT a reason for providing earnest money?

A. It serves as liquidated damages in the event of default.
B. It serves as consideration for the contract.
C. It indicates the buyer’s serious intent to carry out the terms.
D. It might make an offer more attractive to the seller.

A

Correct Answer: B. It serves as consideration for the contract.
Explanation: Earnest money acts as liquidated damages and demonstrates good faith but is not essential to bind the contract.

22
Q

Question 42
Who pays for a new survey if the seller agreed to provide an existing survey but fails to do so on time?

A. Buyer
B. Seller
C. Title company
D. Lender

A

Correct Answer: B. Seller
Explanation: If the seller fails to timely provide the existing survey, the contract allows the buyer to obtain a new survey, and the seller is required to pay.

23
Q

Question 43
What are restrictive covenants?

A. Zoning restrictions
B. Deed restrictions
C. Municipal codes
D. Mutual promises that restrict property access

A

Correct Answer: B. Deed restrictions
Explanation: Restrictive covenants, also known as deed restrictions, are limitations set in property deeds that apply to a subdivision or development.

24
Q

Question 48
What is true about the premium cost to insure the title of properties with the same sales price?

A. The premium cost is the same at all title companies in the state.
B. The premium cost varies by 5% among title companies.
C. The premium cost differs at each title company.
D. The premium cost depends on the property location.

A

Correct Answer: A. The premium cost is the same at all title companies in the state.
Explanation: Title insurance premium costs are standardized statewide for properties with the same sales price.

24
Q

Question 45
Who signs the Residential Real Property Affidavit?

A. The purchasers of the property
B. The owners of the property
C. The title company
D. The surveyor

A

Correct Answer: B. The owners of the property
Explanation: The seller furnishes the Residential Real Property Affidavit if they wish to provide an existing survey.

24
Q

Question 44
How is earnest money disbursed at funding?

A. It is paid to the agents as part of their commission.
B. It is credited to the title company for closing costs.
C. It is applied to the sales price.
D. It is divided between the buyer and seller.

A

Correct Answer: C. It is applied to the sales price.
Explanation: Upon closing, the earnest money is applied toward the sales price.

25
Q

Question 47
A buyer wants to offer to buy the property “as is” with no repairs. How should they complete paragraph 7D?

A. Check the box under 7D(1).
B. Check the box under 7D(2).
C. Check both boxes under 7D(1) and 7D(2).
D. Leave both boxes blank.

A

Correct Answer: A. Check the box under 7D(1).
Explanation: To make an offer without requesting repairs, the buyer should select 7D(1) to purchase the property “as is.”

25
Q

Question 49
Using the One to Four Family Residential Contract, what should happen if a buyer and seller wish to rely on an existing survey of the property?

A. Buyer provides the Residential Real Property Affidavit
B. Seller provides the Residential Real Property Affidavit
C. Previous surveyor provides the Residential Real Property Affidavit
D. Title company provides the Residential Real Property Affidavit

A

Correct Answer: B. Seller provides the Residential Real Property Affidavit
Explanation: If the seller intends to furnish an existing survey, they must also provide the Residential Real Property Affidavit to confirm that the existing survey is accurate and reflects current property conditions.

25
Q

Question 46
Who is required to pay for lender-required repairs under paragraph 7?

A. Buyer
B. Seller
C. Neither buyer nor seller
D. Lender

A

Correct Answer: C. Neither buyer nor seller
Explanation: Paragraph 7 states that neither party is obligated to pay for lender-required repairs; if neither agrees, the buyer may terminate the contract.

25
Q

Question 50
Under the TREC One to Four Family Residential Contract, who is responsible for ensuring that utilities are turned on for inspections?

A. Seller at buyer’s expense
B. Inspector at seller’s expense
C. Buyer at buyer’s expense
D. Seller at seller’s expense

A

Correct Answer: D. Seller at seller’s expense
Explanation: The seller is responsible for ensuring utilities are on for inspections, at the seller’s expense, as stipulated in the TREC contract.

25
Q

Question 53
Which of the following is NOT a way for license holders to give notice to buyers regarding a title policy?

A. Using MLS
B. Using any TREC-promulgated contract form
C. Using TR’s Buyer Representation Agreement
D. Using TREC’s Notice to Prospective Buyer

A

Correct Answer: A. Using MLS
Explanation: The law requires a written notice to buyers, and MLS does not provide such a notice.

26
Q

Question 54
What happens to the earnest money at funding?

A. It is refunded to the buyer.
B. It is applied to the sales price.
C. It is paid to the agents.
D. It is held by the title company.

A

Correct Answer: B. It is applied to the sales price.
Explanation: At closing, earnest money is applied to the sales price.

26
Q

Question 51
A buyer pays an option fee of $25 under paragraph 5 of the TREC One to Four Family Residential Contract to purchase a 10-day option to terminate. What happens if the buyer fails to terminate by the 10th day?

A. The buyer may terminate, but she will forfeit the earnest money.
B. The buyer may still terminate, but she will forfeit the option fee.
C. The contract is void.
D. The buyer will not have the unrestricted right to terminate the contract.

A

Correct Answer: D. The buyer will not have the unrestricted right to terminate the contract.
Explanation: The option fee grants the buyer an unrestricted right to terminate within the option period. After the period expires, this right is extinguished.

26
Q

Question 52
Using the TREC One to Four Family Residential Contract, buyer and seller agree that buyer will purchase seller’s property and seller will pay to have the exterior painted at seller’s expense. Who may do the painting?

A. A licensed house painter
B. A professional house painter
C. The seller
D. The buyer

A

Correct Answer: B. A professional house painter
Explanation: The TREC contract requires that repairs be conducted by persons commercially engaged in the trade or licensed if required by law.

27
Q

Question 55
Under paragraph 5 of the TREC One to Four Family Residential Contract, what happens if the buyer fails to timely deposit the earnest money?

A. The buyer automatically gets five more days to deposit the money.
B. The buyer is in default.
C. The contract terminates automatically.
D. The contract is void.

A

Correct Answer: B. The buyer is in default.
Explanation: The buyer is in default if the earnest money is not deposited as required. The seller may seek remedies under paragraph 15.

28
Q

Question 58
What happens under paragraph 7E of the TREC One to Four Family Residential Contract if the cost of lender-required repairs and treatments exceeds 5% of the sales price?

A. Buyer may terminate the contract and the earnest money will be refunded to buyer.
B. Buyer may terminate the contract and the earnest money will be paid to seller.
C. Seller may terminate the contract and the earnest money will be paid to seller.
D. Seller may terminate the contract and the earnest money will be refunded to buyer.

A

Correct Answer: A. Buyer may terminate the contract and the earnest money will be refunded to buyer.
Explanation: If lender-required repairs exceed 5% of the sales price, the buyer may terminate and receive a refund of the earnest money.

28
Q

Question 56
Why is earnest money necessary to bind the contract in Texas?

A. The law requires at least a nominal fee to show good faith.
B. It is consideration for the contract.
C. Earnest money is not necessary to bind the contract.
D. It is a necessary element of a contract.

A

Correct Answer: C. Earnest money is not necessary to bind the contract.
Explanation: In Texas, the promise to buy and deliver title is adequate consideration to bind the contract without requiring earnest money.

28
Q

Question 59
Using the TREC One to Four Family Residential Contract, buyer and seller agree that buyer will purchase seller’s property and seller will pay to have the fuse box replaced. Who may do the repair work?

A. A bonded electrician
B. The seller
C. A licensed electrician
D. A handyman chosen by seller

A

Correct Answer: C. A licensed electrician
Explanation: The TREC contract requires repairs and treatments to be done by licensed professionals, or by those commercially engaged in the trade if no license is required.

28
Q

Question 57
What happens if no dollar amount is inserted in paragraph 5 of the TREC One to Four Family Residential Contract but the time period is filled in as 10 days?

A. The contract is void after 10 days.
B. The paragraph is not part of the contract.
C. The contract is voidable on the 11th day.
D. The contract is terminated on the 11th day.

A

Correct Answer: B. The paragraph is not part of the contract.
Explanation: If no dollar amount is stated as the Option Fee, the paragraph is excluded from the contract, eliminating the unrestricted right to terminate.

29
Q

Question 61
Which of the following promise exchanges is considered adequate consideration to create a legally binding contract?

A. The buyer’s promise to deliver the earnest money and the seller’s promise not to spend it.
B. The buyer’s promise to pay an option fee and the buyer’s promise to deliver it to the escrow officer.
C. The buyer’s promise to buy and the seller’s promise to deliver title.
D. The buyer’s promise to pay the earnest money and the seller’s promise to deliver it to the escrow officer.

A

Correct Answer: C. The buyer’s promise to buy and the seller’s promise to deliver title.
Explanation: Earnest money is not necessary to bind the contract. The mutual promises of the buyer to buy and seller to deliver title are adequate for a legally binding contract.

29
Q

Question 60
A buyer wishes to make an offer on a house but wants to ensure that she has time to confirm that the foundation is sound. What should she do using the TREC One to Four Family Residential Contract?

A. She should try to get the foundation inspected before making the offer.
B. She should write a contingency under paragraph 11, Special Provisions.
C. She should list the foundation as a repair item under paragraph 7, just to be sure.
D. She should purchase an option to terminate under paragraph 5.

A

Correct Answer: D. She should purchase an option to terminate under paragraph 5.
Explanation: An option period allows the buyer time to inspect the property and terminate if issues are discovered.

29
Q

Question 65
A buyer promises to pay an option fee of $500 within three days of execution under paragraph 5 of the TREC One to Four Family Residential Contract to purchase a 15-day option to terminate. What happens if the buyer pays the fee four days after execution?

A. The buyer will not have the unrestricted right to terminate the contract.
B. The buyer may still terminate, but she will forfeit the earnest money if she terminates.
C. The buyer may still terminate because time is not of the essence.
D. The right to terminate shifts to the seller.

A

Correct Answer: A. The buyer will not have the unrestricted right to terminate the contract.
Explanation: If the option fee is not paid within the specified time, the right to terminate under paragraph 5 is forfeited.

29
Q

Question 63
The potential buyers wish to make an offer to purchase a home but want the seller to pay for a new fence because the old one is falling down. How should they make the offer using the One to Four Family Residential Contract?

A. They should check paragraph 7D(1) and indicate “repair fence” in the blank line.
B. They should check paragraph 7D(2) and indicate “replace fence” in the blank line.
C. They should check paragraph 7D(1) and purchase the property as is because the lender will replace the fence.
D. They should check paragraph 7D(1) and purchase the property as is and wait for the seller’s counter.

A

Correct Answer: B. They should check paragraph 7D(2) and indicate “replace fence” in the blank line.
Explanation: Paragraph 7D(2) allows the buyer to specify repairs, such as replacing a fence, which the seller can accept or counter.

29
Q

Question 64
What types of transactions are covered by RESPA?

A. Commercial transactions
B. One-to four-family residential transactions subject to private financing
C. One-to four-family residential transactions subject to seller financing
D. One-to four-family residential transactions with federally related financing

A

Correct Answer: D. One-to four-family residential transactions with federally related financing
Explanation: The Real Estate Settlement Procedures Act (RESPA) applies to one-to four-family residential transactions involving federally related financing.

29
Q

Question 62
What is the purpose of earnest money?

A. It is consideration for the contract.
B. It is payment for a termination option.
C. It is consideration for the offer.
D. It serves as liquidated damages in the event of default.

A

Correct Answer: D. It serves as liquidated damages in the event of default.
Explanation: Earnest money serves as liquidated damages if the buyer defaults, as outlined in the contract’s remedies section.

30
Q

Question 69
If the property is located outside the limits of a municipality, which notice in paragraph 6 of the One to Four Family Residential Contract provides notice about the extraterritorial jurisdiction of the municipality?

A. Annexation
B. Statutory tax district
C. Public improvement district
D. Municipal district

A

Correct Answer: A. Annexation
Explanation: The annexation notice informs buyers about the municipality’s extraterritorial jurisdiction.

30
Q

Question 66
Which of the following is not a notice under paragraph 6 of the One to Four Family Residential Contract?

A. The notice of membership in a property owners association
B. The abstract or title policy notice
C. The seller’s disclosure notice
D. The transfer fee notice

A

Correct Answer: C. The seller’s disclosure notice
Explanation: The seller’s disclosure notice is covered in paragraph 7, not paragraph 6.

30
Q

Question 67
A buyer wishes to submit a small earnest money check up front ($100), and then deposit $500 after the 10-day option period expires. What should be inserted in paragraph 5 of the TREC One to Four Family Residential Contract?

A. $100 in 5A, and $500/11 days in 5A(1).
B. $600 in the first blank, and 11 in the blank before “days.”
C. $600 in the first blank, and NA in the remaining blanks.
D. $100 in the first blank and “$500 additional earnest money in 11 days” under paragraph 11 Special Provisions.

A

Correct Answer: A. $100 in 5A, and $500/11 days in 5A(1).
Explanation: The contract specifies blanks for earnest money and any additional deposits; this amount and time should be recorded in 5A and 5A(1).

31
Q

Question 71
Restrictive covenants address all of the following EXCEPT:

A. Easements
B. Setbacks
C. Fencing rules
D. Zoning

A

Correct Answer: D. Zoning
Explanation: Restrictive covenants are deed restrictions that address issues like easements, setbacks, fencing, and architectural design but do not deal with zoning, which is regulated by government ordinances.

31
Q

Question 68
Which Texas state agency promulgates the Residential Real Property Affidavit?

A. Real Estate Commission
B. Department of Savings and Mortgage Lending
C. Surveyors Board
D. Department of Insurance

A

Correct Answer: D. Department of Insurance
Explanation: The Department of Insurance is responsible for promulgating the Residential Real Property Affidavit.

31
Q

Question 70
A seller and buyer agree that the buyer will purchase a home “as is” with an option period of five days using the TREC One to Four Family Residential Contract. Paragraph 7D includes a lengthy list of repairs. What are the buyer’s choices during the option period?

A. The buyer may negotiate additional repairs.
B. The buyer may have the property inspected.
C. The buyer may terminate the contract.
D. All of these.

A

Correct Answer: D. All of these.
Explanation: The contract allows the buyer to inspect, negotiate repairs, or terminate within the option period even when purchasing “as is.”

32
Q

Question 72
Seller and buyer enter into a contract where the buyer will take out a loan to purchase a home. The lender requires the roof to be replaced before it will issue a loan to the buyer. Both the seller and buyer refuse to pay to replace the roof. What happens to the earnest money if the buyer terminates the contract under the One to Four Family Residential Contract?

A. The earnest money is paid to the seller.
B. The earnest money is refunded to the buyer.
C. The buyer and seller split the earnest money.
D. The earnest money is paid to the lender.

A

Correct Answer: B. The earnest money is refunded to the buyer.
Explanation: If lender-required repairs are not agreed upon by either party, the buyer may terminate the contract and receive the earnest money back.

33
Q

Question 74
A buyer purchases property “as is” under the One to Four Family Residential Contract. “As is” means which of the following?

A. The present condition of the property with any and all defects, and without warranty except for the warranties of title and the warranties in the contract.
B. The future condition of the property with any and all defects cured, and without warranty except for the warranties of title and the warranties in this contract.
C. The present condition of the property with any and all defects cured, and with all warranties including warranties of title and the warranties in the contract.
D. The future condition of the property with any and all defects, and with complete warranties including warranties of title and the warranties in the contract.

A

Correct Answer: A. The present condition of the property with any and all defects, and without warranty except for the warranties of title and the warranties in the contract.
Explanation: “As is” in this context means the buyer accepts the property in its current state, with existing defects, and without additional warranties beyond title assurances and any warranties specified in the contract.

33
Q

Question 75
Under the TREC One to Four Family Residential Contract, how long does the seller have to complete required repairs?

A. Three days before closing
B. Three days after closing
C. Within the option period
D. Until closing

A

Correct Answer: D. Until closing
Explanation: The TREC contract specifies that the seller must complete required repairs by closing unless there is an alternative written agreement.

34
Q

Question 76
In the Earnest Money paragraph, the One to Four Family Residential Contract:

A. Requires the buyer to pay the earnest money in full within 10 days after the effective date of the contract.
B. Gives the parties the option to negotiate for the buyer to pay the earnest money in two installments.
C. Requires the buyer to pay the earnest money in two installments.
D. Requires the earnest money to be 3% of the sales price.

A

Correct Answer: B. Gives the parties the option to negotiate for the buyer to pay the earnest money in two installments
Explanation: The Earnest Money paragraph includes blanks that allow the buyer to deposit additional earnest money if they cannot make the full deposit at the time of signing.

34
Q

Question 73
Under the One to Four Family Residential Contract, what should the buyer do if she wants to build a swimming pool in the backyard of the home she wants to purchase and is concerned about existing easements?

A. List the pool as an exception under paragraph 2.
B. Use the Realty Items Addendum.
C. List the pool as an objection under paragraph 6D.
D. Do nothing since this is a future construction issue.

A

Correct Answer: C. List the pool as an objection under paragraph 6D.
Explanation: Paragraph 6D allows buyers to list future property uses, such as building a pool, that may be impacted by easements or other restrictions, allowing the buyer to address this before committing.

35
Q

Question 77
A license holder represents a buyer in a transaction that is not using a TREC-promulgated contract form. To provide to the buyer the notice included in paragraph 6E1 of the promulgated contract forms, the license holder should:

A. Use the TREC form, Notice to Prospective Buyer
B. Tell the buyer about the notice
C. Use the TREC form, Information About Brokerage Services
D. Request that the title company provide the notice to the buyer

A

Correct Answer: A. Use the TREC form, Notice to Prospective Buyer
Explanation: License holders can provide the notice required in 6E(1) using a TREC form like the Notice to Prospective Buyer, which meets the Real Estate License Act’s requirements.

35
Q

Question 78
In which of the following situations is a seller required to provide the seller’s disclosure notice referenced in the Property Condition paragraph of the One to Four Family Residential Contract?

A. Sale by a trustee in a bankruptcy situation
B. Sale between spouses as a result of a divorce settlement
C. Sale by an investor who never lived in the house
D. Sale pursuant to a court order

A

Correct Answer: C. Sale by an investor who never lived in the house
Explanation: Under Texas Property Code, investors and relocation companies are required to provide the seller’s disclosure notice, while certain other sellers (such as trustees in bankruptcy) are exempt.

36
Q

Question 79
Which of the following is NOT an item that must be disclosed by a real estate license holder under paragraph 8 of the contract?

A. Acting on behalf of a business entity in which the license holder owns more than 5%
B. Acting on behalf of the agent’s child
C. Acting on behalf of a trust of which the agent is a trustee
D. Acting on behalf of a business entity in which the license holder owns more than 10%

A

Correct Answer: A. Acting on behalf of a business entity in which the license holder owns more than 5%
Explanation: Disclosure is required if the license holder owns more than 10% of a business entity involved in the transaction, or if the license holder acts on behalf of a close family member or a trust.

36
Q

Question 80
If the effective date of the contract is July 5, and the earnest money is not delivered to the escrow agent until July 7, the seller:

A. May terminate the contract
B. May exercise seller’s remedies under paragraph 15
C. May require additional funds to be paid by the buyer as earnest money
D. Has none of the remedies specified here

A

Correct Answer: D. Has none of the remedies specified here
Explanation: The contract allows three days from the effective date for the buyer to deliver earnest money; thus, July 7 is within this timeframe.

37
Q

Question 84
If the right to terminate under paragraph 5 is about to expire, and we know the paragraph contains a time is of the essence clause, which of the following might a buyer’s agent suggest as a way to extend the deadline?

A. Additional option money to extend the deadline
B. Termination of the contract if the deadline cannot be extended
C. Preservation of a single-issue termination right
D. Any of these

A

Correct Answer: D. Any of these
Explanation: The seller is not required to extend the deadline, but if motivated to close the deal, they may consider one of these options to extend.

37
Q

Question 82
If the buyer and the seller have agreed upon an option to terminate under paragraph 23 of the contract, which of the following would be an invalid reason to terminate, resulting in loss of earnest money?

A. Failure to give notice to terminate by the time and date specified
B. Unexpected loss of employment
C. Spouse’s discovery that a former spouse lived next door to the property
D. Local municipality passing ordinance prohibiting ownership of the type of dog owned by buyer

A

Correct Answer: A. Failure to give notice to terminate by the time and date specified
Explanation: Failing to provide notice within the specified timeframe causes the buyer to lose the right to terminate, and they may forfeit earnest money.

37
Q

Question 83
The earnest money was paid on time. The effective date of contract is July 4. The notice to terminate specifies 10 days from effective date. What is the last date and time to give notice of termination under paragraph 23 of the contract?

A. July 14, 5:00 pm local time
B. July 14, midnight local time
C. July 15, 5:00 pm local time
D. July 15, midnight local time

A

Correct Answer: A. July 14, 5:00 pm local time
Explanation: Paragraph 23 specifies that notice to terminate must be given by 5:00 pm local time on the last day, which in this case is July 14.

37
Q

Question 81
What phrase in paragraph 5 of the contract eliminates the buyer’s flexibility in delivering earnest money?

A. “If the last day to deliver earnest money is a Saturday, Sunday, or legal holiday . . .”
B. “Within 3 days after the Effective Date . . .”
C. “Time is of the essence for this paragraph.”
D. All of these phrases provide the buyer some flexibility in the delivery of earnest money

A

Correct Answer: C. “Time is of the essence for this paragraph.”
Explanation: This phrase means that any failure to meet the exact deadline constitutes a breach, potentially allowing the nonbreaching party to pursue contract remedies.

37
Q

Question 85
The “trigger” year requiring the lead-based paint disclosure is:

A. 1987
B. No longer in effect
C. A result of TREC rules
D. 1978

A

Correct Answer: D. 1978
Explanation: Federal law requires disclosure of lead-based paint hazards for homes built before 1978, as lead-based paint was commonly used prior to that year.

37
Q

Question 87
Due to the number of repairs needed on the property, the buyer has determined that a residential service contract is necessary to protect against future repair costs. Who pays for this contract?

A. The buyer
B. The seller, as required by Texas law
C. The seller, up to the limit in paragraph 7H
D. The buyer’s broker

A

Correct Answer: C. The seller, up to the limit in paragraph 7H
Explanation: Paragraph 7H allows negotiation on who will pay for the residential service contract. It’s customary, but not required, for the seller to cover some or all of the cost up to a certain agreed amount.

38
Q

Question 88
The Leases paragraph of the One to Four Family Residential Contract requires the seller to disclose:

A. Whether the property was ever used as a rental property.
B. The rental income history of the property.
C. Whether rental properties are in the vicinity of the property.
D. Any residential, fixture, or natural resources leases that are in effect.

A

Correct Answer: D. Any residential, fixture, or natural resources leases that are in effect
Explanation: This paragraph requires the seller to disclose any existing leases on the property so that the buyer is fully aware of any lease agreements that will continue post-purchase.

38
Q

Question 86
Which addendum, if used, must be signed by the buyer, the seller, and both of their respective brokers?

A. Addendum for Coastal Area Property
B. Addendum for “Back-Up” Contract
C. Addendum for Sale of Other Property by Buyer
D. Lead-based paint addendum

A

Correct Answer: D. Lead-based paint addendum
Explanation: The lead-based paint addendum is the only promulgated or approved addendum that requires signatures from all parties, including both the buyer’s and seller’s brokers.

38
Q

Question 89
A property is subject to a residential lease. What is required in this case if a One to Four Family Residential Contract is being used for the transaction?

A. Nothing. The buyer will learn about the lease after closing.
B. The Residential Leases option must be checked and the Addendum Regarding Residential Leases is attached to the contract.
C. The seller has to tell the buyer about the lease within three days after the effective date of the contract.
D. The lease must be disclosed in the Special Provisions paragraph.

A

Correct Answer: B. The Residential Leases option must be checked and the Addendum Regarding Residential Leases is attached to the contract
Explanation: If there is an active residential lease, the Residential Leases option must be checked, and the Addendum Regarding Residential Leases should be attached to inform the buyer of the lease terms.

38
Q

Question 90
A seller is leasing a security system for a property. What is required in this case if a One to Four Family Residential Contract is being used for the transaction?

A. Nothing. The buyer will learn about the lease after closing.
B. The Fixture Leases option must be checked and the Addendum Regarding Fixture Leases is attached to the contract.
C. The seller has to tell the buyer about the lease within three days after the effective date of the contract.
D. The lease must be disclosed in the Special Provisions paragraph.

A

Correct Answer: B. The Fixture Leases option must be checked and the Addendum Regarding Fixture Leases is attached to the contract
Explanation: When a property includes a leased fixture, like a security system, the Fixture Leases option should be selected, and the relevant addendum should be attached to the contract to fully inform the buyer.

38
Q

Question 93
According to the Leases paragraph, if the buyer terminates the contract within the agreed-upon number of days after receiving the natural resources lease:

A. The earnest money is split between the buyer and seller.
B. The seller receives the earnest money.
C. The escrow agent keeps the earnest money.
D. The earnest money is refunded to the buyer.

A

Correct Answer: D. The earnest money is refunded to the buyer
Explanation: If the buyer terminates the contract within the specified timeframe after receiving the natural resources lease, they are entitled to a refund of their earnest money.

39
Q

Question 91
A property is subject to an oil and gas lease. What is required in this case if a One to Four Family Residential Contract is being used for the transaction?

A. The seller has to tell the buyer about the lease within three days after the effective date of the contract.
B. Nothing. The buyer will learn about the lease after closing.
C. The lease must be disclosed in the Special Provisions paragraph.
D. The Natural Resource Leases option must be checked.

A

Correct Answer: D. The Natural Resource Leases option must be checked
Explanation: If a property has a natural resource lease, like an oil and gas lease, the Natural Resource Leases option should be checked, ensuring the buyer is informed and allowing for decisions regarding the lease.

39
Q

Question 95
Which of these situations does NOT require disclosure?

A. A license holder representing her good friend in the sale of a property.
B. A license holder representing his son in the purchase of a property.
C. A license holder acting on behalf of a business entity in which she is the sole owner.
D. A license holder acting on behalf of a trust in which the license holder’s son is a beneficiary.

A

Correct Answer: A. A license holder representing her good friend in the sale of a property
Explanation: Texas law requires disclosure when representing immediate family members or entities in which the license holder has a significant interest; however, it does not require disclosure for friends.

39
Q

Question 92
According to the Leases paragraph, if a natural resource lease is in effect for the property and the seller has not already provided it to the buyer, the seller must provide the lease within how many days of the effective date of the contract?

A. 2 days
B. 3 days
C. 5 days
D. 7 days

A

Correct Answer: B. 3 days
Explanation: If the natural resource lease has not yet been provided, the seller is required to deliver it within 3 days of the contract’s effective date.

39
Q

Question 94
A broker is representing her mother in the purchase of a property. This fact:

A. Is not required to be disclosed to the seller.
B. Must be disclosed to the seller.
C. Is irrelevant to the transaction.
D. Prohibits the broker from earning a commission in this case.

A

Correct Answer: B. Must be disclosed to the seller
Explanation: Texas law mandates disclosure if a broker is acting on behalf of a close family member, which includes the broker’s parents.

40
Q

Question 96
A license holder is the buyer in a transaction. This fact:

A. Is to be disclosed in the Special Provisions paragraph (11).
B. Is to be disclosed in the License Holder Disclosure Addendum.
C. Is to be disclosed in the Brokers and Sales Agents paragraph (8).
D. Is not required to be disclosed.

A

Correct Answer: C. Is to be disclosed in the Brokers and Sales Agents paragraph (8)
Explanation: Texas law mandates that a real estate license holder disclose if they are a principal in a transaction in paragraph 8 of the contract.

40
Q

Question 97
Which of these situations requires disclosure?

A. A license holder representing her good friend in the sale of a property
B. A license holder acting on behalf of a business entity in which she has no interest
C. A license holder representing his spouse in the purchase of a property
D. A license holder acting on behalf of a trust in which he has no interest

A

Correct Answer: C. A license holder representing his spouse in the purchase of a property
Explanation: Texas law requires disclosure if a license holder is acting on behalf of a spouse, close family member, or business entity in which they have a significant interest.

Real Estate Contracts Form and Addenda (6 decks)

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