Understanding Real Estate Contracts and Disclosures, Exams of Advanced Education

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Texas Promulgated Contract -Real

Estate Express Questions and Answers

TRELA changed from REDLA - ANS-Texas legislature passed the Real Estate Dealer's License Act (REDLA), which required real estate agents to obtain licenses. KEY CONCEPT This act was administered by the Secretary of State until 1949 when the Texas Real Estate Commission (TREC) assumed the administrative responsibilities associated with it. In 1949, the REDLA was changed into the Texas Real Estate License Act (TRELA) Contract law is based on the principle expressed in the Latin phrase, pacta sunt servanda, - ANS-agreements are to be kept" What are the four basic elements of a contract? - ANS-Agreement, competency, consideration, and legal objective What group administers the Texas Real Estate License Act? - ANS-TREC Acceptance - ANS-"must be absolute and must be entered into freely and voluntarily. The contract cannot contain: Misrepresentation - ANS-an error Fraud - ANS-- intentional misrepresentation Duress - ANS-- use of force Menace - - ANS-threat of violence Undue Influence - - ANS-use of power two types of consideration, - ANS-valuable consideration and good consideration. Valuable consideration is something of value. It is usually cash, but it could be anything of monetary value. Good consideration is "love and affection." What is misrepresentation? - ANS-An error What is a court's primary objective when interpreting a contract? - ANS-To ascertain and give effect to the intent of the parties What is duress? - ANS-Use of force What is it called when all terms in a contract are agreed to by all the parties of the contract? - ANS-Mutual agreement

What is it called when someone listens to both sides of the situation and makes a decision? - ANS-Arbitration A valid contract - ANS-is legally binding and enforceable A contract is valid when all of these five conditions are met: - ANS-"The written agreement is legal, the parties to the contract have a legal right to enter the contract The written agreement is legal, the parties to the contract have a legal right to enter the contract Every item is completely agreed to The buyer and seller are sane and of legal age There is nothing in the document that is illegal or against public policy, the contract is for legal purposes All of the applicable addenda to a contract are included in the document void contract - ANS-is invalid and completely without legal force or binding effect. When all of the items for a valid contract are not met, the contract is void. Void translates - ANS-as "absence of", meaning the contract never existed. A common cause of a void contract - ANS-is the inclusion of contract terms that are illegal or become illegal due to changes in law. a contract can become voidable - ANS-by mistake or error in the contract? However, failure to read the contract doesn't make a contract voidable. between the causes that can make a contract void, and the causes that can make a contract voidable. - ANS-The fundamental difference between these two types of contracts is that a void contract is not legally valid or enforceable at any point. A voidable contract can be legal and enforceable depending on how the contract is used. A legally binding agreement that is clear and definite is an - ANS-xpress contract Any contract that is not clear, but where agreement is indicated through the actions of the parties, is an - ANS-implied contract. In a unilateral contract - ANS-one side has all the rights and no obligations. The other side has all the obligations and no rights. Option contracts and feasibility studies are examples of unilateral contracts. Reasonable time - ANS-s defined as that amount of time which is fairly necessary, conveniently, to do what the contract requires to be done, as soon as circumstances permit. It is the period determined from trade practice, custom, or from circumstances. What legal status does a void contract have? - ANS-A contract that never existed

What is the definition of an executory contract? - ANS-Contract for deed, lease option, or purchase option longer than 180 days An amendment - ANS-is a modification to an existing document An addendum - ANS-is adding to an existing contract. If the addendum is not on the list, - ANS-then it should be written into the line that says "Other" and that box should be checked. Any amendments must be in writing and - ANS-signed by both parties to comply with the Statute of Frauds. One item that cannot be changed by using an amendment is the - ANS-brokerage fee, also called a commission. If a contract is modified before it is signed, - ANS-such changes are not "amendments If the parties wish to handwrite a change on a contract that has been printed out for signature, - ANS-you can use a pen to do so and have both parties initial it. The most common amendment to the One to Four Family Residential Contract (Resale), - ANS-is the Amendment to Contract Form 39-8 - ANS-Amendment to Contract A different addendum should be used by the buyer to cancel the contract. It is called the

• ANS-Notice of Buyer's Termination of Contract. Third Party Financing Addendum. Paragraph 8 - ANS-In this addendum, the buyer agrees in paragraph 2A to some number of days in which they would let the seller know if financing could not be obtained.By using paragraph (8) of the Amendment, the buyer is asking for a longer period of time before closing. How can an agent determine the terms of the buyer's loan when completing the Third Party Financing Addendum? - ANS-The lender will provide this information after negotiations with the buyer Alicia is set to close on her new home in three days, but today she received a phone call from her agent stating that the lender needs to push closing back seven days. What, if any, action needs to be done? - ANS-submit an "Amendment to Contract" with the new closing date to the seller's agent In completing a sales contract, the sale price should equal what? - ANS-down payment and the loan amount are added together

Performance - ANS-is the fulfillment of one's obligations required by contract. Specific performance - ANS-compels a party to execute the agreement according to its terms where monetary damages would be inadequate compensation for the breach of an agreement. This is the case with the sale of land. Specific performance of a contract may be demanded in a lawsuit Four Corners Doctrine. - ANS-his means that the interpretation of any disputed clause will be influenced by the document as a whole. No phrase will be lifted out of the document to determine the meaning but will be looked at in the total context of the document as a whole. This helps any person outside of the agreement evaluate what the two parties to the contract were agreeing to. parol evidence, a common-law rule. - ANS-prevents a party to a written contract from presenting oral evidence that contradicts, or adds to, the written terms of the contract that appears to be whole. The rationale is that since the contracting parties have reduced their agreement to a written contract, past oral agreements or terms should not be considered when interpreting that writing. For example, in verbal discussions, the seller may have stated they would paint the house prior to closing. If this information did not appear in the contract itself, the buyer could not later, during testimony, use this verbal statement to alter what the contract said. In Texas, both written and oral contracts have a statute of limitations - ANS-of four (4) years. What does the Four Corners Doctrine direct a judge to look at? - ANS-Document as a whole How long is the Statute of Limitations for a written contract in Texas? - ANS-4 yrs What are some examples of discharging a contract? - ANS-Contract could not be accomplished legally, fraud, or some action of the law Which of these forms is a Texas Real Estate Commission (TREC) promulgated form? - ANS-New Home Contract (Completed Construction) TREC does not govern either the seller, the party of the first part, nor the buyer, the party of the second part. - ANS-TREC only gets involved when one person is acting in a third party position. Broker-Lawyer Committee. - ANS-he purpose of this committee is to draft and revise contracts and forms for use by agents. There are 13 members on the Broker-Lawyer Committee. It is made up of: - ANS-Six lawyers appointed by the president of the state bar of Texas

Six real estate brokers appointed by the Texas Real Estate Commission One public member who is appointed by the governor exas Real Estate License Act (TRELA). - ANS-his is the main law that governs the real estate industry in Texas. TRELA dictates what you can and cannot do as an agent. What is the main law that governs the real estate industry? - ANS-is authorized to regulate and monitor TRELA. f a principal directs you to use a different form, you may do so because it is an - ANS- exception under the TRELA. A licensee may not: - ANS-practice law, (2) offer, give or attempt to give legal advice, directly or indirectly; (3) give advice or opinions as to the legal effect of any contracts or other such instruments which may affect the title to real estate; (4) give opinions concerning the status or validity of title to real estate; or (5) attempt to prevent or in any manner whatsoever discourage any principal to a real estate transaction from employing a lawyer. Licensee Disclosures - ANS-c) Nothing in this section shall be deemed to limit the licensee's fiduciary obligation to disclose to the licensee's principals all pertinent facts which are within the knowledge of the licensee, including such facts which might affect the status of or title to real estate. To be an acceptable listing contract, TREC requires that the listing form contains what items? - ANS-A provision informing the parties to the contract that commissions are negotiable Which of the following is an exception to an agent using a TREC promulgated form? - ANS-The form is prepared and required by the property owner In what year was the TRELA written? - ANS- (d) A licensee may not undertake to draw or prepare documents fixing and defining the legal rights of the principals to a real estate transaction. - ANS-"This paragraph directs you not to draw up documents affecting the legal rights of the principals. Rescission - ANS-Contract rescission is where the contract is completely canceled and the parties restored to their position before the contract was entered into. Rescission is only available if the non-mistaken party knows or should have known about the unilateral mistake. Reformation - ANS-"Contract reformation is where the written agreement is changed to reflect the parties' original understanding. Reformation is granted only if one party was not aware that the writing does not conform to the actual agreement.

It makes a significant difference whether the non-mistaken party is aware that the other party does not understand a term in the contract. If the non-mistaken party knows that the other party has made a unilateral mistake, the result is usually contract rescission. On the other hand, if the other party was not aware of the mistake, the contract can usually be reformed." - ANS- The Casualty Loss paragraph in the One to Four Family Residential contract (Resale) - ANS-the buyer would not have to buy the house An agent acting properly should: - ANS-Keep the contract neat. Be sure that all the blanks are filled in correctly. Always use full names for the parties of a contract. Double-check all the numbers, figures and dates. Be sure their clients initial each page, and any changes, sign the appropriate places. Be sure their clients receive a copy of everything signed. Ensure that all addendums necessary to the contract are with the contract. Double-check the legal description to make sure it is written correctly. Explain the contract to their clients, but not interpret the legal ramifications. Not promise the contracts can do anything except put the parties' desires in writing. Not accept poorly written contracts from other agents. What are some actions that would be considered practicing law without a license? - ANS-Modifying a 2012 TREC promulgated contract to fit the buyer's current situation Giving advice about the legal consequences of the purchase Offering a client an opinion regarding the validity of the title Which paragraph in the One to Four Family Residential Contract (Resale), typically creates the potential for legal problems for an agent? - ANS-Special provisions (n) A licensee shall advise the principals that the instrument they are about to execute is binding on them. - ANS-You should orally express that the document the buyers and sellers are about to sign will bind them to the details contained in the document. KEY CONCEPT When two parties agree to purchase and sell a real property, there are no days for automatic rescission. The contract becomes effective upon signatures by both parties, and the notification of that agreement. Remember: when you are selling or buying property for yourself, you are - ANS-not required to use a promulgated form. If an attorney draws up a form for which TREC has a form promulgated, - ANS-you would be required to use the TREC form. (4) computer-driven printers following these guidelines: - ANS-(A) The computer file or program containing the form text must not allow the end-user direct access to the text of

the form and may only permit the user to insert language in blanks in the forms or to strike through language at the direction of the parties to the contract. (B) Typefaces or fonts must appear to be identical to those used by the commission in printed copies of the particular form. (C) The text and number of pages must be identical to that used by the commission in printed copies of the particular form. (D) The spacing, length of blanks, borders and placement of text on the page must appear to be identical to that used by the commission in printed copies of the form. (E) The name and address of the person or firm responsible for developing the software program must be legibly printed below the border at the bottom of each page in no less than six-point type and in no larger than 10 point type the buyer may wish to make an offer to lease the property for one year prior to the purchase. - ANS-There is not a promulgated form that will accomplish this so an attorney would be necessary. Which of the following is an exception to an agent using a TREC promulgated form? - ANS-The form is prepared and required by the property owner Under the Texas Real Estate License Act (TRELA), a real estate agent will not be in violation of practicing law without a license if they do what? - ANS-Fills in the blanks on a standardized contract Which of the following types of sellers would most likely use a contract prepared by an attorney? - ANS-A new home builder All of the following actions would be considered practicing law without a license except which one? - ANS-Tell the client known facts about the property that might affect the title When can an agent use their own forms in a transaction? - ANS-When they are buying properties for themselves TREC has not created some forms commonly used by licensees - ANS-These include listing agreements, and buyer representation agreements that create relationships between clients and brokers. You may also get some of these forms through the use of software programs. - ANS- Members of Texas REALTORS® will probably use ZipForm, which comes with membership in Texas REALTOR If a seller changes one item on an offer, what does that offer become? - ANS-Rejection of the entire offer What is another term for "cancellation"? - ANS-Rescission

There are no promulgated contracts that exist for - ANS-commercial properties. Do not put anything on either line other than the names and the relationship. To add anything further could constitute a practice of law. - ANS-Do not put the effects of title if one of the parties dies; that is to be left for a will. LICENSE HOLDER DISCLOSURE is simply a disclosure paragraph. If a party to the transaction, whether the seller or the buyer, is a licensee, then they must disclose this fact. - ANS-Also, if any of the parties are related to any of the agents, this must also be disclosed. The TREC One to Four Family Residential Contract (Resale) should be used in which of the following transactions? - ANS-A duplex A title commitment - ANS-is necessary to disclose to a buyer what the title policy will show once this transaction closes, and the new owner's title policy will be issued T-47 Residential Real Property Affidavit, - ANS-seller provides to buyer claiming that the survey is correct. TITLE POLICY AND SURVEY - SURVEY paragraph 2 - ANS-This paragraph states that the buyer will obtain and pay for and furnish a new survey This paragraph states that the buyer will obtain and pay for and furnish a new survey - ANS-This paragraph states that the seller will obtain and pay for and furnish a new survey to the buyer. This block is to be used if the seller does not have a survey, which is referred to in paragraph 1 in that section. ITLE NOTICES - Abstract or Title Policy KEY CONCEPT This relates to the fact that the agent must tell the buyer to have a title policy. Or, if the buyer insists on a history of title abstract, - ANS-the agent must tell the buyer that the abstract will be examined by an attorney he Restrictive Covenants governing the use and occupancy of the property, and a dedicatory instrument governing the establishment, maintenance, and operation of the residential community, is recorded in the - ANS-Real Property Records of the county. Addendum for Property Subject to Mandatory Membership - ANS-in a Property Owners Association, Using the One to Four Family Residential Contract - (Resale), who is required to pay for the title insurance policy? - ANS-It is negotiable What is the purpose of paragraph 6.D, in the One to Four Family Residential Contract (Resale)? - ANS-Objections

What is the difference between a title policy and a title commitment? - ANS-A title commitment is issued prior to closing to describe the items on the title policy which will be issued after closing. STATUTORY TAX DISTRICTS - ANS-There are also known as Municipal Utility Districts (MUD). These are water and sewer providers that are not owned by the city. Privately-owned districts can charge fees that can be unmonitored. The buyer must be provided disclosures if the property is in a MUD. A private transfer fee created after June 17th, 2011, - ANS-is not binding or enforceable. Now, there will not be any new transfer fees established. Developers who created transfer fees before June 17th, 2011, - ANS-must file a "Notice of Private Transfer Fee Obligation" to continue collecting the fee. They must re-file every three years. Disclosure of a transfer fee is required in the One to Four Family Residential Contract (Resale), which is done in Paragraph 6.E.8. The Transfer Fee law does not prevent a property owner's association from - ANS- charging a transaction fee each time a new member buys a property in their area. There may be some private transfer fees that will continue. One of those types involves fees that were created on or before - ANS-January 31st, 2012 To continue to be valid, a notice of transfer fees must be re-filed no earlier than - ANS- 30 days before the third anniversary of the original filing date, and in that same time period every third year thereafter. The financial penalties may not exceed - ANS-two times the amount of the transfer fee. If the court decides that the person receiving the fees violated this chapter of the law with a frequency that shows a pattern, - ANS-the court could include a civil penalty not to exceed $250,000. KEY CONCEPT These collected funds will be deposited in the general revenue fund of the state. Seller's Disclosure Notice Pursuant to §5.008, Texas Property Code - The Seller's Disclosure Notice (SDN) - ANS-is a statement of the items and systems a property has and whether those work properly or not. ROPERTY CONDITION - SELLER'S DISCLOSURE OF LEAD-BASED PAINT AND LEAD-BASED PAINT HAZARDS - requires a pamphlet be provided to the buyers concerning lead-based paint if the property was built prior to 1978. - ANS-More than 80% of houses used lead-based paint prior to 1978. Buyers should have the disclosures given to them prior to making an offe PROPERTY CONDITION - ACCEPTANCE OF PROPERTY CONDITION - is a paragraph that is for "As-Is" acceptance. Box D.1, is for "As-Is," and the second box is

for when there are specific repairs the buyer wants the seller to complete. - ANS-Box D. (2), allows the buyer to request the seller to repair a specific item Private transfer fees are considered what? - ANS-Not binding or enforceable What happens to the penalty funds collected from transfer fee violators? - ANS-They are placed in the general revenue fund of the state What is the Seller's Disclosure Notice? - ANS-It is a statement of the items and systems a property has and whether those work properly or not There may be some private transfer fees that will continue, assuming they were created on, or before, what date? - ANS-January 31st, 2012 SPECIAL PROVISIONS - ANS-is used to put in items that have no other paragraph addressing them. Do not put anything in this paragraph if there is an addendum that covers it. Many licensees have lost their license because they have written incorrect items in this blank. Keys cannot be given to buyers until closing nor before funding, per the - ANS- POSSESSION paragraph POSSESSION paragraph - ANS-" An option fee Earnest money - ANS- Contracts - ANS- Additional earnest money" - ANS- paragraph - termination of contract and responsibility of title company if the contract treminates - ANS-Demand How many days does buyer or agent have to deliver the term option check to the seller or the listing agent - ANS- If buyer does not receive the sellers disclosure notice, and transaction terminated by buyer, what happends to earnest money - ANS-returned to buyer if seller fails to make repairs that were agreed to, how many days may the buyer extend the closign date to give seller time to repair - ANS-5 days paragrah- indicates the possibility of athe buyer assuming the seller's existing loan - ANS-loan assumption addendum

how many days does the buyer have to terminate the contract after receiving the sellers disclossure notice, if the disclosure was not provided on the eff. Date? - ANS-7 days The buyer backs out of contract before closing, what 3 options does seller have? - ANS- enfore specific perfomrance, seek other relief by the law paragraph- extraterritorial jurisdiction - ANS-Title policy and survey annexation endagered speicies - ANS-Title policy and survey enrivonmental matters paragrah- most likely to get licensee into difficulaty for practicing law - ANS-special provisions days title company have after reciving a title insurance commitment - ANS-20 days buyer may be required to pay special costs before they can have water services - ANS- title policy and survey - property located in the certified service area of utlity provider TREC contract form number located - ANS-lower right corern of each page Tornado destroys the improvements on the property prior to closing day, which paragaph - ANS-casualty loss chandeliers will be staying with home - ANS-property improvements if buyer sues the seller for something related to contract, who pays the attorney fee - ANS-Mediation- the losing party paragraph-Seller continues to show home while under contract - ANS-representations paragraph- possible need for statement from seller, may be influenced by costal water - ANS-Title policy and survey - title notices- tide waters paragaph- wans the buyer property may have special assessment tax - ANS-prorations paragraph- whether the parties have to pay lender required repairs - ANS-property condition- lender required repaird and treatment When would the secdtion for option fee receipt be filled out - ANS-when the option fee is delivered to the seller or listing agent if title commitment is not delivered to the buyer in time, what is the length of exention days - ANS-15 days how many day does seller have to deliver the sellers disclosure notice to the buyer after the eff. Date of contract - ANS-it's negotiable

When will the section "Contract receipt and earnest money receipt" be filled out - ANS- when the contract and earnest money check Is delivered to the title company TYPE OF FINANCING AND DUTY TO APPLY AND OBTAIN APPROVAL - ANS-deals with the type of financing, and the duty to apply and obtain approval. The Third-Party Financing Addendum is to be used if the buyer is applying for multiple types of financing - ANS-These include Conventional, Texas Veterans, FHA Insured, VA Guaranteed, USDA Guaranteed and Reverse Mortgage, or other forms of financing. If Conventional financing is the only financing involved, - ANS-this amount will match SALES PRICE - B on the One to Four Family Residential Contract (Resale). In some transactions, you may have to check both TYPE OF FINANCING AND DUTY TO APPLY AND OBTAIN APPROVAL - CONVENTIONAL (1) and (2). - ANS-For example, if the buyer wishes to pay with an "80-10-10 loan program", they will put 10% of the sales price down, borrow 80% of the sales price from a primary lender, and then 10% more from another lender. In some cases, that last 10% loan might be provided by the seller. - ANS-In that situation, only TYPE OF FINANCING AND DUTY TO APPLY AND OBTAIN APPROVAL - CONVENTIONAL A.(1), would be checked off here and then the Seller's Financing Addendum would be attached to the One to Four Family Residential Contract (Resale) as well. If the seller is financing part of the loan, be sure and check off that on the line SALES PRICE - B of the One to Four Family Residential Contract (Resale). or a Federal Housing Administration (FHA) loan, mark the box next to paragraph TYPE OF FINANCING AND DUTY TO APPLY AND OBTAIN APPROVAL - FHA INSURED FINANCING. The first blank needs to contain the FHA loan type by number. - ANS-The FHA 203 (B) loan is most common because it allows the borrower to have a lower down payment. 203 (K) FHA loan - ANS-loan to buy and repair home The amount of the loan excluding any financed Funding Fee is entered in the first blank.

• ANS-The Funding Fee is what the VA charges to protect the lender from default by the buyer APPROVAL OF FINANCING is deemed to have been obtained - ANS-when Buyer Approval and Property approval are obtained. Time is of the essence for this paragraph. BUYER APPROVAL - ANS-If the first box is marked, it states that the buyer must obtain financing within a specified number of days. If the second box is marked, the contract will not be contingent upon financing. If the buyer could not obtain financing, then the buyer would be required to pay cash.

PROPERTY APPROVAL - ANS-This paragraph will verify that the Property has satisfied the lender's underwriting requirements for the loan, including but not limited to, appraisal, insurability, and lender required repairs. If Property Approval is not obtained, the buyer may terminate this contract by giving notice to the seller before closing. Earnest money will be refunded to the buyer. Time is of the essence for this paragraph too, and strict compliance with the time for performance is required. If the property does not appraise according to FHA or VA terms, - ANS-then the buyer can terminate the contract. In which of the following situations would a temporary lease be inappropriate? - ANS- When the buyer moves in six months prior to the closing date Which FHA loan is typically the lowest down payment loan for a buyer? - ANS-203 (b) Many lenders write their due on sale clause, also called an alienation clause, - ANS-"in such a way that a borrower would not be allowed to have someone assume the loan. If seller does not repond to buyer within 7 adys about creditworthiness, - ANS-its assumed that the seller has given his approval. Agent needs to be aware of time restrictions and notify client Ad Valorem - ANS-according to value. As part of a loan, a lender may have a clause that keeps another person from assuming the loan. What is this clause called? - ANS-Due on sale The Seller Financing Addendum is needed when the - ANS-seller carries a note for a buyer for all or a portion of the sales price UYER'S CREDIT APPROVAL states if the credit documentation described in Paragraph A is not delivered within the specified time, - ANS-Seller may terminate the contract by a notice to buyer within 7 days after expiration of the time for delivery, and the earnest money will be paid to Seller. DEED OF TRUST - ANS-"secures the note and the items the deed of trust provides. DEED OF TRUST- PROPERTY TRANSFERS deals with the matter of consent upon transfer, whether the buyer can sell, lease, or otherwise convey the property without the seller's consent while the original note is still in place. To avoid risk with a new unknown person, the seller may not want the buyer to allow another person to take over the note." - ANS-secures the note and the items the deed of trust provides. DEED OF TRUST- PROPERTY TRANSFERS deals with the matter of consent upon transfer, whether the buyer can sell, lease, or otherwise convey the property without the

seller's consent while the original note is still in place. To avoid risk with a new unknown person, the seller may not want the buyer to allow another person to take over the note. he buyer's responsibility for the loan continues unless the seller releases the buyer's liability? - ANS-This is usually done when the loan is paid off. You may have a buyer and a seller who want to negotiate financing through a contract for deed, - ANS-No TREC form for this RESTORATION OF SELLER'S ENTITLEMENT FOR VA LOAN of the Addendum For Release of Liability on Assumed Loan And/Or Restoration Of Seller's VA Entitlement, - ANS-quirements to be approved to assume a VA loan. They must: be a veteran have sufficient unused entitlement are otherwise qualified When should the Seller Financing Addendum be used? - ANS-If the seller is carrying a note for a buyer for all or a portion of the sales price At closing, the earnest money will be applied toward - ANS-the buyer's closing costs and their down payment. Many agents mistakenly believe earnest money is consideration of a real estate contract. - ANS-Make sure your clients understand that it is not consideration, but instead is one of the terms of the contract. option period - ANS-number of days is negotiable but funds need to be delvered to seller within 3 days. The option period begins on the first full day after the effective date of the contract - ANS-he option to terminate is located in the Termination Option paragraph, of the One to Four Family Residential Contract (Resale). During the option period, the buyer should have the home inspected by a home inspector. This will help them understand whether there are any problems with the condition of the property, and whether they find such problems unacceptable. If so, and they choose to end the contract, they must do so by 5:00 PM local time on the last day of the option period he option to terminate is located in the Termination Option paragraph, of the One to Four Family Residential Contract (Resale). - ANS-They could agree with the owner to pay for a time period, such as two years, to decide if they will go through with the purchase later What is the minimum amount of earnest money needed to make a contract valid? - ANS-None, earnest money is not a requirement of the sale

What are damages that are agreed to in advance? - ANS-Liquidated. Unlike other forms of insurance, the original premium is the only cost as long as the original buyers own the property. - ANS-There are no additional payments to keep the Owner's Title Insurance Policy in force. The title officer - ANS-is a neutral third party who ensures that all conditions of a real estate transaction are met. The title officer is normally the closing agent, and handles all paperwork including the transfer of funds involved in the closing. T Title attorneys - ANS-are the ones who put together all the legal papers to transfer title from one person to another. Most of the papers used at closing will require an attorney The Title Commitment - ANS-provides the terms and conditions on which the title company will be issuing a title policy.t is a commitment for title insurance. Title insurance is usually paid for by the seller and protects the buyer, should a lawsuit arise due to a claim of ownership or lien, against the property. The title company will seek to clear up the title issues, or pay for losses. Endorsements are clauses in insurance policies detailing exemptions from, or changes in coverage. Each endorsement will add costs to the title insurance policy coverage. - ANS-The cost of each endorsement is set by the Texas Department of Insurance, which regulates the title industry. Some lenders will require that certain endorsements are necessary to fund a transaction What contingencies will be covered by the title insurance policy? - ANS-Forgery Confusion due to similar names Error in the records Who is the mortgagee's title policy issued to? - ANS-Lender What entity regulates the title industry? - ANS-Texas Department of Insurance What clause in an insurance policy details an exemption from or a change in coverage?

• ANS-Endorsement The Metes and Bounds States include - ANS-nnecticut, Delaware, Georgia, Hawaii, Kentucky, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, and West Virginia. Survey error - ANS-is caused by use of flat, square grids to map the spherical earth. This creates inaccuracy between survey lines and actual locations on land. most legal descriptions use the - ANS-"lot and block" system. It is one of the most widely used systems. In this system, property is described by registered lot number and

designated block on a plat. The property description includes a reference to the registered plat. The Notice to Prospective Buyer - ANS-form is used to notify buyers to obtain an abstract or title policy. "NOTICE TO BUYER REGARDING ABSTRACT OR TITLE POLICY. - ANS-It states, when an offer to purchase real estate is signed, the agent shall advise each buyer, in writing, that the buyer should: KEY CONCEPT (1) have the abstract covering the real estate that is the subject of the contract examined by an attorney chosen by the buyer; or (2) be provided with or obtain a title insurance policy. In most transactions, the lender is going to require a title search, an abstract of title, and/or a title insurance policy. However, in a transaction involving owner financing, or where the buyer is paying cash for the property, there is no lender. Therefore, there is no requirement for a title policy. - ANS-For this reason, you should protect the buyer a little more by using this document Notice to Prospective Buyer our broker should not allow you to proceed with a One to Four Family Residential Contract (Resale) - ANS-without a title policy. Notice to Prospective Buyer form - ANS-is to be dated and signed by the agent and buyer. KEY CONCEPT The seller does not sign this form. The buyer signs and you will give them a copy, then keep the original in the file in case it is needed for future reference. The nature of this form is to help the buyer know how they can be better protected when purchasing a property. As mentioned, KEY CONCEPT the seller must disclose all information they know about property condition. The only way to disclose all information is by using the Seller's Disclosure Notice. - ANS-There are two versions of this form. The State Legislature of Texas has set into law exactly what verbiage must be used. TREC's version is 3-pages. It's the minimum of what the law requires. Texas REALTORS® has a 5-page disclosure notice. If your broker is a member of the REALTOR® Association, you will be able to use the 5-page form. Latent Defects - ANS-These are defects about the property that may not be readily observable, but would materially affect the value of the home or a buyer's decision to purchase it. What is a professional analysis of a property and its location relative to other property? - ANS-Survey How are buyers notified to obtain an abstract or a title policy? - ANS-There is a form to notify buyers to obtain an abstract or a title policy

What is critical about a metes and bounds survey? - ANS-It must start and end at the point of beginning Which of the following transactions require a Seller's Disclosure Notice to be provided? - ANS-When the transfer is from an investor in real estate When can a broker receive a fee from a Residential Service Company (RSC)? - ANS- When can a broker receive a fee from a Residential Service Company (RSC)? What does a Residential Service Company do? - ANS-It sells warranties to the buyers covering repairs of several listed items in the home like appliances, A/C, etc. A buyer is most likely to request an assessment on the TREC Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum for which of the following issues? - ANS-Environment, Threatened or Endangered Species, and Wetlands Special Provisions paragraph - ANS-Some agents list in this paragraph any personal items the buyer wants the seller to leave. Although not a direct violation, this could create problems if there are several personal property items, or the items are of great value. A better solution for this situation is use either a Bill of Sale or the Non-Realty Items Addendum and attach it to the original contract. expenses paragraph - ANS-how earnest money wll be paid out demand paragraph - ANS-how earnest money will be releastsed witin 15 days represenation - ANS-seller can still show property under contract "Note about Notices Paragraph - ANS- You should NOT use the Notices paragraph to fill in your personal information." - ANS- TREC uses the words "Buyer" and "Seller", not "Licensee" or "Agent". Buyer's Temporary Residential Lease - ANS-TREC does not allow agents to get involved in a transaction in which the buyer leases the property for a period of time and then either buys, or exercises an option to purchase the property at the end of that time. Texas law does not allow agents to write an executory contract such as this. You should refer these types of contracts to an attorney for proper legal advice and preparation of any documents needed. When is the rent due according to the Seller's Temporary Lease? - ANS-On the day of closing According to the Buyer's Temporary Lease, who is responsible for all repairs during the lease period? - ANS-Tenant

When using the Seller's Temporary Residential Lease, what rental rate should you place in paragraph 4? - ANS-daily rate Condos SURVEY - ANS-"from paint to paint, and floor to ceiling". Since the exterior of the condominium is not relevant to the sale, the survey of the property is not relevant. SETTLEMENT AND OTHER EXPENSES - ANS-There are differences in these forms. Paragraphs A.1, A.2, and B are the same on both contracts. However, paragraphs A. and A.4, are unique to the condominium contract. A.3 deals with the handling of the association fees. A.4 deals with requiring the buyer to pay for any deposits mandated by the Association. PRORATIONS - ANS-The Residential Condominium Contract (Resale) has additional language regarding condominium assessments and who is responsible for paying them. Prorations mean that certain charges will be divided between the seller and buyer. The title company will separate those charges involving the property. This paragraph affects the seller more than the buyer, but both need to understand how these expenses will be handled. To aid condominium purchasers in making informed decisions about their rights, responsibilities and risks as condominium owners - ANS-TREC requires a Condominium Resale Certificate to be used in all condominium transactions. KEY CONCEPT The certificate requires the appropriate condominium association, upon written request, to issue a resale certificate disclosing information about the financial, physical, and legal condition of the condominium. You should not complete the Condominium Resale Certificate - ANS-You should send it to the condominium owners' association's governing board. The board should fill it out and send it back failure to provide complete and accurate information regarding the condominium's financial or legal liabilities and physical condition could - ANS-legal claims against the condominium and its manager What form is used that says who must pay for any assessments mandated by the association? - ANS-Residential Condominium Contract (Resale) What does a condo owner own? - ANS-Airspace he following is information requested on the Subdivision Information, including Resale Certificate for Property Subject to Mandatory Membership in a Property Owners' Association: - ANS-The amount of special assessments The capital expenditures approved over the next year Unsatisfied judgments

Who completes the Condominium Resale Certificate? - ANS-Condominium owners' association governing board When purchasing a condominium, a buyer should carefully read over what document, as the information in it could affect the buyer willingness to live at the property? - ANS- Association's bylaws and rules Who issues the Condo Resale Certificate? - ANS-Condo Association Farm and ranch PROPERTY - RESERVATIONS - ANS-his paragraph discusses mineral rights but does not transfer or reserve any mineral rights. That is handled with an addendum that will be presented in a later chapter. However, if the seller is planning to reserve any water or timber rights, that desire needs to be communicated here. There may have to be additional information passed on to the buyer that may require an attorney to create the documentation. The next to last page of the F&R contract is a little different than the One to Four Family Residential Contract (Resale). KEY CONCEPT - ANS-The RATIFICATION OF FEE section is at the top of the page on the F&R contract, but is at the bottom of the Broker Information section of the One to Four Family Residential Contract (Resale). On the F&R, it is set off in its own box, and requires separate signatures. BROKER INFORMATION AND AGREEMENT FOR PAYMENT OF BROKER'S FEES box.In farm and ranch sales, licensees do not always have a written listing agreement to protect their compensation. - ANS-This area should be filled in and signed by the buyer and seller if the broker has an open listing on the ranch. What contract shows an area called the Ratification of Fee? - ANS-Farm and Ranch What is one reason that a survey may not be required in a Farm and Ranch transaction? - ANS-They are very expensive How does a buyer determine if property is located in a flood plain? - ANS-FEMA flood map What is a reason that a survey may not be required? - ANS-No lender is involved What would an agent need to do when writing a legal description for a large ranch? - ANS-Attach an addendum to completely describe the propert Which of the following is required to be able to sue for a commission? - ANS-The listing agreement must be in writing What type of lease is considered a hunting lease? - ANS-Surface lease

In a Farm and Ranch Contract, what paragraph do you select information about a home warranty? - ANS-Residential Service Contract The PROPERTY section of the UPC - ANS-s drastically different from other forms. Simply put, it does not need the paragraphs dealing with improvements, accessories, and exclusions because there is no home and no improvements. On an unimproved property contract, there are no subparagraphs in the PROPERTY section. differences from upc and 1/2 form - ANS-water rights, and esastments, title and survery, acceptance of property condistion TREC has not created a sellers disclosure for unimproved properties, UPSsellers disclosure lists flooding, env. Hazards, wetlands, endagered speices, dumpsites, and landfiled, underground tans and litigation condemation a, residential service contract no need for home warranty on unimproved property Oil, Gas, Minerals Both F&R and UPC Unimproved Property Contract (UPC) will sometimes deal with mineral rights. - ANS-You can open the form TREC has created the Addendum for Reservation of Oil, Gas and Other Minerals. Both F&R and UPC Unimproved Property Contract (UPC) will sometimes deal with mineral rights. " - ANS-You can open the form TREC has created the Addendum for Reservation of Oil, Gas and Other Minerals. Paragraph A gives the definition of mineral estate. Because real estate can be severed laterally - ANS-it is possible for one person to own the surface of the land and someone else to own the minerals under the land 24-15 form - ANS-New home contract Builders have their own - ANS-New home contract There is a registration process using a form, that declares the Buyer as your client. This protects you from a builder taking your client and selling them a new home construction,

• ANS-and then not paying you, you should "register" your client before showing them a builders' model home Parties Both contracts require the buyer and the seller's legal names. The buyer's name is obtained by the buyer's agent asking them and the seller's legal name is obtained from the Multiple Listing Service or simply the builder's name. - ANS-Sometimes the builder has a Doing Business As (DBA) followed by their real name. Both should be included if warranted. sale price - ANS-his is the same on both contracts. It is the cash portion plus the sum of all financing equals the sales price.

new home before completion contract - ANS-no surverys since there are no impremevemtns on home being built, no residential service contract and no utlities turned on since its been built The New Home Contract (Incomplete Construction) is most commonly used to purchase what type of property? - ANS-Spec house If real estate can be severed laterally, who owns the minerals under the land? - ANS-"Owner Another party" When would the Unimproved Property Contract be used? - ANS-When there are no improvements on the property. An agent's client is interested in a builder's new home. How can the agent protect their commission in completing the transaction? - ANS-register their client before showing the model home. On the New Home Contract (Completed Construction), what two amounts equal the sales price? - ANS-The cash portion plus the sum of all of the financing On the New Home Contract (Completed Construction) which paragraph is the same as on a One to Four Family Residential Contract (Resale)? - ANS-The paragraph dealing with the buyer and seller's legal names What type of contract does not require a seller to provide a seller's disclosure notice? - ANS-New Home Contract (Completed Construction) When are rollback taxes required to be paid? - ANS-If the property changes from agricultural to residential In what paragraph of the Residential Condominium Contract (Resale) would you find items dealing with exclusions? - ANS-Property and Condominium Documents A resale certificate must have been prepared no more than how long before the date it is delivered according to the Residential Condominium Contract (Resale)? - ANS-3 months On Form 9-13 Unimproved Property Contract, in what paragraph would you find information regarding property liens? - ANS-Title Policy and Survey According to the TREC Farm & Ranch contract, how long does the buyer have to object if any portion of the property is on the FEMA flood map? - ANS-It's negotiable. In what paragraph of Residential Condominium Contract (Resale) is a note regarding environmental matters? - ANS-Property Condition

What paragraph of Residential Condominium Contract (Resale) deals with residential service contracts? - ANS-Property Condition he Addendum for Reservation of Oil, Gas, and Other Minerals addendum is in the AGREEMENT OF PARTIES paragraph of the One to Four Family Residential Contract (Resale) as a possible attachment needed in certain transactions. - ANS-This addendum is also mentioned in the PROPERTY - RESERVATIONS paragraph of the Farm and Ranch Contract. The biggest mistake that most agents make when it comes to mineral rights is that they

• ANS-o deal with the problem in the SPECIAL PROVISIONS paragraph, in the One to Four Family Residential Contract (Resale). Notice of Buyer's Termination of Contract. - ANS-terminates contrat during option period. Earnest money goes bk to buyer. This document should be used by the buyer to terminate the previously agreed to One to Four Family Residential Contract (Resale) for any reason. This form is only signed by the buyer(s) rescission - ANS-Discharging a contract by mutual agreement is called If deliberate deception, fraud, or false information was presented, the agreement, This can include lying, an act of commission, or an act of omission. is - ANS-not enforceable. Who signs the Notice of Buyer's Termination of Contract? - ANS-Only the buyer V - ANS- When does the buyer pay the seller any agreed-upon option money when using the Addendum For "Back-Up" Contract? - ANS-It is not required since it is a back-up contract What have property owners discovered In many communities concerning mineral rights? - ANS-They were previously reserved The Gulf Intracoastal Waterway is a 1,300-mile, - ANS-man-made canal that runs along the Gulf of Mexico coastline from Brownsville, Texas, all the way to St. Marks, Florida. The Waterway links Texas ports with the rest of the country and helps enable shipping traffic. Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in a Property Owners' Association form. - ANS-This form is usually given by the agent to the seller to take to the property owners' association. Otherwise, the association may charge you a fee for gathering this information and then providing it. KEY CONCEPT The purpose of this form is to request information from the association to give to the buyer.

When doing a short sale, keep in mind: - ANS-The seller may have to bring money at closing which they may not have. Calculations of closing costs need to be done in such a way that the lender takes on expenses the seller cannot pay. The closing date needs to be set as far out as possible to allow time to get the mortgage company's approval for the short sale. Otherwise, the seller and buyer may become frustrated and you will need to keep adjusting the closing date. The lender may push the seller into foreclosure if the owner has already received a "cure date", which is the date by which payments need to be made, or the foreclosure will go through. State law prohibits the use, encumbrance, construction, or placing of any structure in, on, or over state-owned submerged lands below the applicable tide line, without proper permission - ANS-Addendum for Coastal Area Property In a short sale, if the buyer is notified of the bank's approval before the date written in Paragraph (D) on the Short Sale Addendum, what will be the effective date of the contract? - ANS-It is amended to the date of the notification What is the best way to have a seller's name removed and a buyer's name added to the Property Owners Association's (POA's) records? - ANS-Pay a fee as specified in the Addendum for Property Subject to Mandatory Membership in a Property Owners Association Why does a Property Owners Association (POA) enforce deed restrictions? - ANS-To maintain the value of the homes What should a seller do to verify and clarify the boundaries of a coastal property? - ANS-Hire a surveyor "Texas Real Estate Consumer Notice Concerning Hazards or Deficiencies. - ANS-This form is not required on any specific type of transaction. As such, it does not have a place for signatures of either party. Ground Fault Circuit Interrupters - ANS-The first bullet is about GFCIs, Ground Fault Circuit Interrupters. Some people know that their home has these because on electric plugs near a water source there is a reset button that will help to prevent electric shock. Information about Brokerage Services Form (IABS). - ANS-"This form informs the buyer and the seller of the different types of representation an agent can perform. It lets them know how the agent will function if the seller is represented, if the buyer is represented, or if both the buyer and the seller are represented by the same brokerage firm in the same transaction. Give this form to your customers during the first substantial discussion about real estate. Sellers usually receive this when the agent is listing the property; buyers usually receive this form when they first meet an agent face-to-face to see a property. There is nothing on this form that discusses not having an agency relationship."

Information about Brokerage Services Form (IABS) - ANS-Give this form to your customers during the first substantial discussion about real estate. Sellers usually receive this when the agent is listing the property; buyers usually receive this form when they first meet an agent face-to-face to see a property. There is nothing on this form that discusses not having an agency relationship. Non-Realty Items Addendum - ANS-"This form is used when the seller agrees to convey personal property to the buyer. This form covers anything that is not real estate but will be left behind by the seller for the ownership and use of the buyer.KEY CONCEPT Failure of the seller to leave the agreed-upon items would be breach of contract by the seller and the buyer would have legal recourse even after the transaction has closed. You should be sure that the property agreed to is left by the seller to prevent problems Since there is not a Contract for Deed form - ANS-and since there is no way for an agent to manipulate the promulgated forms to accomplish this type of owner financing without violating TREC rules, it is vitally important for one of the parties to hire an attorney to create the paperwork necessary. It is equally important that the other party hire an attorney to review the paperwork and advise that party to its legal implications. There really is no need for a contract for deed - ANS-ince the seller can finance the transaction with a promissory note and deed of trust. However, some sellers feel better when they have possession of the title. TREC has never created, nor will it ever create, - ANS-a listing agreement that defines agency between the seller and the broker. TREC regulates licensees as a third party. The broker is a principal in a listing and is not directly regulated by TREC. However, TREC can mandate that a broker cannot sue for a fee unless an agreement is in writing. TREC cannot mandate a specific form to be used. There also is not a Residential Buyer/Tenant Representation Agreement created by - ANS-TREC. Just as in a listing agreement, TREC does not feel that it is their responsibility to assist in creating agency between the buyer and the broker. Therefore, the broker wishing to practice buyer agency should obtain these forms in the same way as above from the Texas REALTORS® Association, the local board, or an attorney property mgmt agreement - ANS-TREC does not provide, can be obtained by Texas Realtors© Residential Leasing and Property Management Agreement. residential leasing agreemnt - ANS-TREC does not proivde, get from Texas Realtors Commercial contracts - ANS-get from attorney What is the purpose of Ground Fault Circuit Interrupters (GFCI)'s? - ANS-Any electric plugs near a water source there is a reset button that will help to prevent electric shock

When should the Non-Realty Items Addendum be used? - ANS-When the seller wants to retain certain items that are attached to the real property If the broker wishes to practice buyer agency, who should they obtain the form from? - ANS-"Texas REALTORS© Local Board of REALTORS© Attorney" What is not discussed on the Information About Brokerage Services form (IABS)? - ANS-Non-agency What happens if the seller does not leave personal property that was agreed to in writing? - ANS-Buyer has legal recourse for the seller's breach of contract Which documents does TREC not make available? - ANS-"Contract for deed Listing representation agreement IABS Buyer/Tenant representation agreement Brokers/agent agreement" In what type of transaction is the Texas Real Estate Consumer Notice Concerning Hazards or Deficiencies required to be used? - ANS-Buyer has legal recourse for the seller's breach of contract According to the Addendum for "Back-Up" Contract, when must the option money be paid? - ANS-Upon execution During a short sale, how much is the maximum the seller can receive? - ANS-The seller cannot make any money on the sale. Is it possible in the state of Texas for one person to own the mineral rights and another person own the surface rights? - ANS-Yes, they can be severed laterally. Fraud has 3 elements - ANS-Relinace, intention and damage These three elements have the acronym of RID: Reliance, Intent, Damage. Broker fees are determined between brokers and their clients. - ANS-They are always negotiable between a broker and their client. Broker fees are not set by TREC and they are not set by a group of brokers. Doing so would be a violation of the Sherman Antitrust Act. Broker's fees should always be on a separate written agreement called - ANS-the Residential Real Estate Listing Agreement Exclusive Right to Sell. Broker's fees should not be included on One to Four Family Residential Contract (Resale). Purchase agreements are between - ANS-a buyer and a seller. A listing agreement is between a - ANS-seller and a broker and includes how the broker is to be paid by the seller.