Unit 2: Laws, Rules, and Regulations

What can a license holder add to a promulgated form?

Factual statements

License holders are required to use a promulgated form

The answer is if a promulgated form suitable for the transaction exists. An agent is required to use a promulgated form if a suitable form is available for the transaction that is being contemplated. There are exceptions to this general rule, but the agent is required to use the form unless one of the exceptions applies.

For which of the following actions may the Texas Real Estate Commission NOT suspend a license holder's license?

The answer is the license holder explains to the principals the meaning of the factual statements or business details contained in the contracts. License holders are free to explain to principals the meaning of factual statements or business details contained in contracts as long as no legal advice is offered or given.

Promulgated Contracts:

Unimproved Property Contract One to Four Family Residential Contract (Resale) New Home Contract (Incomplete Construction) New Home Contract (Completed Construction) Farm and Ranch Contract Residential Condominium Contract (Resale)

The Broker-Layer Committee ____________ for use by Texas brokers.

drafts and revises forms

A license holder representing a seller is asked by that seller, "What does paragraph 5 of this TREC promulgated contract mean to me?" What is the best answer by that agent?

"I'm not an attorney, but here is what it means..."

The seller says the neighbor has, for years, been using the path across the back part of the property to access his (the neighbor's) pond on adjacent property because it is more convenient, though there is no formal agreement. The title insurance policy does not show a recorded easement or easement agreement. The buyer asks his agent if this is a problem. The agent should answer,

"It sounds as if it could be, but you should definitely check with your attorney to determine if there is any concern."

How many members are on the Broker-Lawyer Committee?

The answer is 13. The committee is composed of 6 Real Estate Commission appointees (who are licensed real estate brokers) and 6 lawyers, appointed by the president of the State Bar of Texas, and 1 public member, appointed by the governor. They serve staggered six-year terms.

Once the offer has been accepted, each of the parties are to receive a(n)

copy of the final signed contract.

A license holder is representing a buyer in a transaction and creates an addendum for a purpose for which TREC has already promulgated an addendum. Which of the following is TRUE regarding the license holder's actions?

The agent could face disciplinary actions because TREC has an addendum that would work in this transaction.

If the offer is acceptable to the seller, the offer is signed and dated and returned to the buyer. It is now a contract for sale. If the offer is rejected, the offer is returned to the buyer marked

The answer is "rejected." The offer should be returned and marked as rejected by the seller to let the buyer know that the seller did not accept the offer.

that you can direct him to the TREC website, where promulgated forms can be downloaded and printed.

The answer is accept it after making a counteroffer. A counteroffer is a rejection of the initial offer. The initial offer no longer exists; therefore, it can no longer be accepted.

Of the 13 members on the Broker-Layer Committee, the breakdown is

6 brokers, 6 lawyers and 1 public member.

The Real Estate Commission has promulgated and approved these forms for license holders' use:

6 promulgated contracts 17 promulgated addenda (including 2 temporary leases) 1 promulgated amendment (which is shown on the TREC site as a contract form) 2 promulgated resale certificates 2 promulgated notices 3 promulgated consumer disclosures 7 approved forms (including approved addenda)

Which of these describes the Non-Realty Items Addendum?

Approved addendum

Promulgated Consumer Disclosures:

Consumer Protection Notice Disclosure of Relationship with Residential Service Company Information About Brokerage Services

When should an offer be presented?

Immediately

A Texas license holder is selling his own custom-built home. Due to the complexity of the contract, he has elected to prepare his own contract to be sure all of the inclusions and exclusions are properly identified. Promulgated forms exist that would adequately document the deal. Does he run the risk of penalties from TREC as a result of not using a promulgated form?

No, because he is acting as a principal in the transaction and not as an agent.

he seller reviews and signs the offer at 6:00 pm Saturday. She texts her acceptance to her broker. The broker does not read the text until 7:00 am Sunday, and then immediately forwards it to the buyer's broker. Meanwhile, the buyer changes her mind and texts a withdrawal of the offer directly to the seller. A few minutes later, the seller's broker texts the original notice of acceptance to the seller. Is there a binding contract?

No, because the withdrawal of the offer was made and communicated to the seller before the buyer was notified of the acceptance.

Promulgated Notice:

Notice of Buyer's Termination of Contract Notice of Seller's Termination of Contract

Approved Optional/Voluntary Use Forms:

Notice to Prospective Buyer Seller's Disclosure Notice Texas Real Estate Consumer Notice Concerning Hazards or Deficiencies Lead-Based Paint Addendum Non-Realty Items Addendum Notice Concerning Easements and Rights-of-Way Property Inspection Report

Who appoints the lawyers to the Broker-Lawyer Committee?

President of the state bar

Which of the following is an exception to using TREC promulgated contract forms?

The answer is when the license holder is acting as a principal and not as an agent. One of the exceptions for when a license holder must use a TREC promulgated contract form is in transactions in which the license holder is functioning solely as a principal, not as an agent.

The seller is concerned about some of the unusual requirements for the contract being made by the buyer and wonders if she should hire an attorney. The license holder assures her that his 25 years of experience and negotiating skill make that expense unnecessary. Is this a problem?

The answer is yes, a license holder should not discourage any principal from hiring a lawyer. The rules prohibit a license holder from in any manner discouraging a principal to a real estate transaction from employing a lawyer.

The Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in an Owners Association form is

a promulgated amendment.

Your neighbor asks if you, as a licensed broker, have access to a form he could use to write up a contract for the sale of vacant land to his brother. He has heard of promulgated forms but doesn't know how or where to find them. Your reply should be

that you can direct him to the TREC website, where promulgated forms can be downloaded and printed.

The buyer and her broker noticed a large crack in the unfinished basement floor, and the seller assured her it was many years old, had not increased in size, and would not be a problem, but that he would fix it later if it did become an issue. She trusts the seller but asks you as her broker to insert in the contract the representations the seller made, as well as the agreement to fix the crack later if it becomes an issue. You say

that you cannot insert that sort of agreement and that she should have her lawyer draw up or insert the appropriate language.

The phrase "highest and best" refers to

the request that the competing bidders make their best offer initially and not expect counteroffers.

A real estate broker modifies a 1992 TREC promulgated contract form and updates it to fit a particular transaction. Which of the following could happen?

The broker could have his license suspended or revoked for practicing law.

At the closing, the buyer raises a question about whether the special warranty deed offered by the seller has the sort of warranties that she, as the buyer, should be receiving under the contract, which calls for a general warranty deed. Her broker should

tell her the contract calls for a general warranty deed, which the seller is not providing.

Promulgated Amendment:

Amendment to Contract

Promulgated Addenda:

Unimproved Property Contract One to Four Family Residential Contract (Resale) New Home Contract (Incomplete Construction) New Home Contract (Completed Construction) Farm and Ranch Contract Residential Condominium Contract (Resale) Promulgated Addenda: Addendum for Sale of Other Property by Buyer Addendum for Back-Up Contract Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement Seller's Temporary Residential Lease Buyer's Temporary Residential Lease Seller Financing Addendum Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum Addendum for Coastal Area Property Addendum for Property Located Seaward of the Gulf Intracoastal Waterway Addendum for Property Subject to Mandatory Membership in an Owners' Association Third Party Financing Addendum Loan Assumption Addendum Addendum for Reservation of Oil, Gas and Other Minerals Short Sale Addendum Addendum to Property in a Propane Gas System Service Area Addendum Concerning Right to Terminate Due to Lender's Appraisal Addendum for Authorizing Hydrostatic Testing

Which of the following is an exception to using a TREC promulgated contract form?

Transactions in which a United States government agency requires a different form to be used

Promulgated Resale Certificates:

Condominium Resale Certificate Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in an Owners Association

Which of the following is a TREC promulgated contract?

The answer is Residential Condominium Contract. The Residential Condominium Contract is one of six TREC promulgated contracts.

Which of the following is NOT a TREC promulgated addendum?

The answer is Reverse Mortgage Financing Addendum. The Reverse Mortgage Financing Addendum is not a TREC promulgated addendum; it was approved for voluntary use for a time but no longer exists.

Which of the following forms of advice can a license holder give to an unrepresented buyer?

The answer is advice on having the abstract examined by an attorney. The TRELA specifically prohibits license holders from practicing law by giving opinions or counsel regarding the validity or legal sufficiency of an instrument that addresses real property rights or as to the status of title to real estate. Throughout the act, it is clearly established that, prior to signing a purchase contract, the license holder must give a buyer written advice to have the abstract covering the property examined by an attorney of the buyer's selection or to obtain an owner's title insurance policy prior to closing. Failure to do so may result in disciplinary action by the TREC.

A license holder who completes a contract for the sale of real property is not engaged in the unauthorized practice of law if the license holder uses a form that is

The answer is all of these. Notwithstanding any other law, a license or certificate holder who completes a contract form for the sale, exchange, option, or lease of an interest in real property incidental to acting as a broker is not engaged in the unauthorized or illegal practice of law in this state if the form was (1) adopted by the commission for the type of transaction for which the form is used; (2) prepared by an attorney licensed in this state and approved by the attorney for the type of transaction for which the form is used; or (3) prepared by the property owner or by an attorney and required by the property owner.

Which of the following persons would be eligible for appointment to the Broker-Lawyer Committee?

The answer is all of these. So long as they otherwise met either the broker, lawyer, or member of the public standard, all of the persons are eligible for appointment. The statute is clear that appointments must be made without regard to race, creed, sex, religion, or national origin.

Which of the following is NOT a promulgated TREC form?

The answer is bill of sale. A bill of sale transfers personal property rights. TREC only governs real property rights.

The forms drafted and revised by the Broker-Lawyer Committee are to be

The answer is capable of being standardized. The goal is to expedite real estate transactions and to minimize controversy.

Which of the following would NOT be considered the unauthorized practice of law by a real estate license holder?

The answer is completing blanks in a promulgated contract form. All the other actions described involve either drafting a document with legal consequences or altering a document in such a way as to alter the legal relationship between the parties. While completing the blanks in a promulgated form could be argued to be practicing law, it is an action that is specifically authorized by TREC.

Which of the following is NOT a TREC promulgated contract?

The answer is contract for deed. The other forms mentioned are three of the six promulgated contracts.

Which of the following is NOT an exception to the rule requiring use of promulgated contract forms in Texas?

The answer is custom form prepared by licensed broker with a minimum of five years' experience. The whole point of the promulgated form rules is that a broker, regardless of expertise or number of years of experience, is required to use a promulgated form if one is applicable.

A client (the seller) directs the broker to tell buyer A that the seller will accept the offer if the buyer will remove the home inspection contingency, and to tell buyer B that the seller will accept the offer if the buyer will offer $10,000 more than the asking price. The agent should

The answer is decline to do so and explain that the same information must be provided to all bidders. Telling bidders different things is clearly an ethical violation. Given the ethical obligations brokers have toward buyers, sellers, and their fellow license holders, the best practice is to voice understanding of what the client would like to accomplish, but to make it clear that it would be unethical to give different information to the bidders. Proceeding to tell the buyers exactly the same thing against the client's explicit instructions could result in a complaint to TREC.

Which of the following is legal for the license holder to draw up?

The answer is none of these. The TRELA clearly establishes that it is illegal for the license holder to draw a deed, note, deed of trust, will, or other written instrument that transfers or may transfer an interest in or title to real property. However, the act goes on to give permission for a license holder to complete a contract form that may bind the sale, exchange, option, lease, or rental of any interest in real property as long as the forms used have been prepared by or are required by the property owner or have been provided by the real estate commission, prepared by an attorney licensed by the State of Texas, and approved by that attorney for a particular type of transaction.

As the seller's agent, you believe one of the three offers received for the property is by far the most beneficial to your client. Realizing your duty to always put the client's interests first, you should

The answer is present all offers, but explain why you prefer one of the offers over all others. The rules clearly require you to present all offers to the seller. You can certainly explain why you think one offer is better than the others, but the ultimate decision on what to accept or reject is the client's.

The buyer's broker has given you an offer that is $10,000 lower than the minimum offer your client told you to entertain. You have decided not to even tell her about it. Which of these is TRUE in this instance?

The answer is this is okay as long as you have your client's instructions in writing. Agents are generally required to submit all offers unless they have instructions from the client no to do so, and for purposes of self-protection, the agent should have that instruction in writing.

Which of the following is an exception to the TREC rules on contract use?

The answer is when the buyer requires another form to be used. According to Section 537.11(a)(3), transactions for which a contract form has been prepared by a principal to the transaction are an exception to the rule that TREC promulgated forms must be used.

A seller wants to close using a contract for deed. Which of the following is MOST correct?

The listing agent could continue helping the seller, but this type of contract must be drafted by an attorney.

Which of these items does NOT constitute the unauthorized practice of law?

Which of these items does NOT constitute the unauthorized practice of law?

A variable commission is

a commission that changes in amount/percentage depending on whether it comes from within or from outside the listing broker's office.

The Seller's Temporary Residential Lease is

a promulgated addendum.

With respect to promulgated forms, a license holder

may fill in blanks but not add or strike matters.

The property is in a propane gas system service area, which means you would use

the promulgated addendum created for this purpose.