1.What happens to the option fee paid by the buyer in a residential contract if the buyer exercises the termination option?
(A)It is refunded to the buyer
(B)It is kept by the seller
(C)It is applied to the sales price
(D)It is used to pay for inspections
2.Can a broker draft a contract for the sale of a residential property?
(A)Yes, as long as it is a simple contract
(B)No, only attorneys can draft contracts
(C)Yes, but only if the broker has a law degree
(D)No, brokers can only fill in blanks on promulgated forms
3.What is the purpose of the termination-option period in a residential contract?
(A)To allow the buyer to back out of the contract
(B)To give the seller time to find another buyer
(C)To allow the buyer to conduct inspections and investigations
(D)To specify the closing date
4.What is the effect of an amendment to a residential contract?
(A)It voids the original contract
(B)It has no effect on the original contract
(C)It modifies the terms of the original contract
(D)It terminates the original contract
5.What is the broker's limited authority when working with promulgated forms?
(A)To draft new contracts
(B)To fill in blanks and check boxes on promulgated forms
(C)To modify the terms of the contract
(D)To negotiate the sales price
6.What is the primary purpose of the Third-Party Financing Addendum in a Texas real estate transaction?
(A)To provide an option fee to the seller
(B)To outline the terms of the buyer's financing
(C)To amend the original contract price
(D)To terminate the contract without penalty
7.A buyer and seller have executed a One to Four Family Residential Contract (Resale) with a termination-option period. What is the purpose of the option fee paid by the buyer?
(A)To secure the buyer's financing
(B)To compensate the seller for taking the property off the market
(C)To pay for inspections and tests
(D)To amend the contract price
8.When must a broker use a TREC promulgated form in a Texas real estate transaction?
(A)Only when the transaction involves a residential property
(B)Only when the transaction involves a commercial property
(C)When applicable and mandatory, as specified by TREC
(D)Never, as they are optional
9.What is the effect of a backup contract on a primary contract in a Texas real estate transaction?
(A)It terminates the primary contract
(B)It amends the primary contract
(C)It has no effect on the primary contract until the primary contract is terminated
(D)It increases the purchase price of the primary contract
10.A broker is assisting a buyer and seller in a Texas real estate transaction. What is the broker's authority regarding TREC promulgated forms?
(A)The broker may draft new forms
(B)The broker may fill in blanks on existing forms
(C)The broker may amend the forms without buyer or seller approval
(D)The broker has no authority to modify or complete forms
11.What is the purpose of an amendment to a One to Four Family Residential Contract (Resale) in a Texas real estate transaction?
(A)To terminate the contract without penalty
(B)To extend the termination-option period
(C)To change the terms of the contract, such as the price or closing date
(D)To add a new party to the contract
12.A buyer is using a One to Four Family Residential Contract (Resale) with a third-party financing addendum. What happens if the buyer's financing is not approved?
(A)The buyer's earnest money is forfeited
(B)The contract is automatically terminated
(C)The buyer may terminate the contract and receive a refund of their earnest money
(D)The seller may sue the buyer for specific performance
13.When may a broker assist in completing a TREC promulgated form in a Texas real estate transaction?
(A)Only when the form is not mandatory
(B)Only when the buyer and seller are present
(C)When the broker is filling in blanks on an existing form, as directed by the buyer or seller
(D)Never, as brokers are not authorized to complete forms
14.Which of the following statements is true regarding the use of TREC promulgated forms in Texas?
(A)They are optional and can be modified by the parties
(B)They are mandatory when applicable, but can be modified by the parties
(C)They are mandatory when applicable and should not be modified
(D)They are only used for commercial transactions
15.What is the effect of the termination-option period in a Texas real estate contract?
(A)It allows the buyer to terminate the contract without penalty
(B)It requires the buyer to purchase the property within a certain timeframe
(C)It provides an option fee to the seller
(D)It amends the original sales contract
16.A buyer and seller have entered into a contract using the One to Four Family Residential Contract (Resale) form. What is the role of the broker in completing this form?
(A)To draft the contract from scratch
(B)To fill in the blanks with the parties' agreed-upon terms
(C)To negotiate the terms of the contract
(D)To provide legal advice to the parties
17.What is the purpose of an amendment to a Texas real estate contract?
(A)To terminate the contract without penalty
(B)To provide an option fee to the seller
(C)To change or add terms to the original contract
(D)To assign the contract to a third party
18.A backup contract is a type of contract that:
(A)Becomes effective immediately upon execution
(B)Is used to amend the original sales contract
(C)Becomes effective only if the primary contract fails to close
(D)Is used to terminate the primary contract
19.What is the effect of the option fee in a Texas real estate contract?
(A)It provides a non-refundable payment to the seller
(B)It requires the buyer to purchase the property within a certain timeframe
(C)It amends the original sales contract
(D)It terminates the contract without penalty
20.Which of the following statements is true regarding the use of backup contracts in Texas real estate transactions?
(A)They can only be used for cash transactions
(B)They must be executed simultaneously with the primary contract
(C)They can be used to circumvent the terms of the primary contract
(D)They can be used to provide a secondary agreement in case the primary contract fails to close
Answer key & explanations
1. B — The option fee is a non-refundable payment made by the buyer to the seller in exchange for the termination option, so it is kept by the seller.
2. D — Brokers are not authorized to draft contracts, but can only fill in blanks on promulgated forms as authorized by TREC.
3. C — The termination-option period allows the buyer to conduct inspections and investigations, and to terminate the contract if they are not satisfied with the results.
4. C — An amendment to a residential contract modifies the terms of the original contract, and must be in writing and signed by both parties.
5. B — The broker's limited authority when working with promulgated forms is to fill in blanks and check boxes, as authorized by TREC.
6. B — The Third-Party Financing Addendum is used to outline the terms of the buyer's financing, including the loan amount, interest rate, and lender information.
7. B — The option fee is paid by the buyer to the seller to compensate the seller for taking the property off the market during the termination-option period.
8. C — TREC promulgated forms are mandatory when applicable, and brokers must use them in specified transactions to ensure compliance with Texas real estate laws and regulations.
9. C — A backup contract has no effect on the primary contract until the primary contract is terminated, at which point the backup contract may become the primary contract.
10. B — The broker has limited authority to fill in blanks on existing TREC promulgated forms, but may not draft new forms or amend existing forms without buyer or seller approval.
11. C — An amendment is used to change the terms of the contract, such as the price or closing date, and must be executed by all parties to the contract.
12. C — If the buyer's financing is not approved, the buyer may terminate the contract and receive a refund of their earnest money, as specified in the third-party financing addendum.
13. C — A broker may assist in completing a TREC promulgated form when filling in blanks on an existing form, as directed by the buyer or seller, but may not draft new forms or provide legal advice.
14. C — TREC promulgated forms are mandatory when applicable and should not be modified, as they are designed to provide a standard and consistent format for real estate transactions in Texas.
15. A — The termination-option period allows the buyer to terminate the contract without penalty, providing a level of flexibility and protection for the buyer.
16. B — The broker's limited authority includes filling in the blanks with the parties' agreed-upon terms, but not drafting the contract from scratch or providing legal advice.
17. C — An amendment is used to change or add terms to the original contract, providing a formal process for modifying the agreement.
18. C — A backup contract becomes effective only if the primary contract fails to close, providing a secondary agreement that can move forward if the initial transaction falls through.
19. A — The option fee provides a non-refundable payment to the seller, which can be applied to the purchase price if the buyer exercises the option to purchase.
20. D — Backup contracts can be used to provide a secondary agreement in case the primary contract fails to close, offering a level of protection and flexibility for the parties involved.
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