TREC- Promulgated Contracts Exam Questions and Correct Answers Latest Update 2024 (Already
Passed)
Owner-Provided Contract Forms - Answers There is, however, one exception to this rule. When it comes
to contracts for property sales or leases, license holders must use the appropriate TREC-promulgated
form UNLESS another contract form has been prepared by, and is REQUIRED by, the property owner.
It's important to note that in this instance, the property owner must require the use of their own
contract form (or a contract prepared by their attorney) in order for a license holder to be excused from
using the appropriate TREC-promulgated form. If a property owner does NOT require their own contract
form (or a contract from their attorney), then the license holder is still bound to use all TREC-
promulgated forms required by the transaction.
A license holder should - Answers disclose all material facts to the client
Consideration - Answers A valuable item that each party exchanges in order to demonstrate that they
agree to the contract terms
Five Elements of a Valid Contract - Answers Competent Parties
Mutual Agreement
Lawful Objective
Consideration
In Writing
Majority laws - Answers protect minors from entering into agreements that they may not have the
experience or knowledge to understand. This means that if anyone under the age of 18 enters into a
contract, the contract is considered voidable.
Once the minor reaches the age of majority, all contracts entered into with a minor as one of the parties
may be either ratified or voided.
void - Answers contract means that the contract has no legal effect. In essence, it cannot be enforced or
carried out because the terms of the contract do not create legal rights or the terms call for illegal acts.
voidable - Answers contract has all of the essential elements of a legally enforceable contract, but one or
more of the parties has the authority to rescind the contract. Usually, in a voidable contract, one party is
either mentally incompetent, or a minor, or the contract involves fraud or duress.
Mutual agreement! - Answers In order for a contract to be legally enforceable, there must be mutual
assent (that is, agreement) among the parties in the contract. If either party disagrees to any terms or
provisions within the contract, there is no contract.
,Typically, prior to the creation of a contract, there must be a meeting of the minds — this means that all
parties that are to be bound by the contract must meet and come to mutually acceptable terms.
mutual assent - Answers All parties in a contract can express mutual assent through their actions and
words. Therefore, mutual assent can be expressed or implied through actions.
For a contract to exist, there must be some form of mutual assent, either through a written agreement
or actions. And if the contract is for real estate in Texas, it must always be written.
Elements of mutual agreement: - Answers There must be an offer and acceptance
There can be an offer and a counteroffer
The contract must not contain any form of fraud, misrepresentation, or duress
There cannot be mistakes in the terms and conditions of the contract
Misrepresentation: - Answers A false statement of fact made by one party to another party to induce
that party into a contract. If the other party depends on misrepresented information and then
experiences a loss, the party that committed the misrepresentation is guilty.
Fraud: - Answers A situation where the misrepresentation is intentional in order to influence someone
to enter into a contract
Duress - Answers When a party is acting while under threat or in some manner is being forced into the
contract
lawful objective - Answers This means that the contract cannot call for any illegal activities. When a
contract contains lawful objectives, it takes all necessary laws and statutes into consideration.
. Lawful Objective: Legal Purpose - Answers A legally valid contract adheres to all federal and state laws.
For example, if a seller wishes to sell property that has been declared hazardous by the EPA due to a
leaking underground storage tank, the property cannot be sold until the seller mitigates the hazardous
condition.
If a buyer buys the property and learns of the condition, it would be found out that the contract was
void from the beginning.
Consideration - Answers Consideration is something valuable that each party exchanges in order to
demonstrate that they agree to the contract's terms. It can be a promise, money, property, forbearance,
or services.
In most real estate transactions, consideration is met in the form of a promise for a promise. However,
most people consider money to be the most popular form of consideration.
,Consideration - Answers If there is no consideration, then the contract is not legally binding. The legal
philosophy is that a person cannot do something of value without receiving something in turn. This
basically means that each individual (or party) must suffer a detriment in order to gain a benefit.
In a real estate contract, the exchange of promises acts as consideration. The buyer promises to pay a
monetary amount for the property and the seller promises to give a deed. Earnest money given at the
beginning of a transaction is not the consideration. The promise of the entire sum is the consideration.
Property Management Trust Accounts - Answers Brokers who practice property management or allow
their agents to practice property management will need to establish a trust account.
This is usually a non-interest bearing account in which the broker will hold security deposits received
from tenants. If the broker chooses to, they could also keep earnest money in the account, but from a
liability standpoint it is easier to have the title company hold the funds.
The broker is NOT allowed to place any of their own funds into this account. That would be considered
commingling, and is a violation of TREC rules.
What Does E-Sign Mean For the Statute of Frauds? - Answers The Electronic Signatures in Global and
National Commerce Act (ESIGN) was signed by Congress in 2000 to regulate e-signatures in interstate
and foreign transactions. And while this particular law is at the federal level, every state has at least one
state law dealing with e-signatures.
ESIGN states that:
(1) a signature, contract, or other record relating to such transaction may not be denied legal effect,
validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such
transaction may not be denied legal effect, validity, or enforceability solely because an electronic
signature or electronic record was used in its formation.
Parol Evidence Rule - Answers The parol evidence rule prevents a party to a written contract from
presenting additional evidence that adds to the written terms of the contract. The contracting parties
have made their agreement to a single and final writing, and evidence of past agreements or terms
should not be considered when interpreting that writing, as the parties ultimately decided to leave them
out of the contract.
In other words, you can't use evidence made prior to or after the written contract to contradict the
writing. Whatever is in writing is what will be accepted in court.
EPA Real Estate Partnership v. Hee Duk Kang - Answers As an example of how parole evidence rule is
viewed by the court, we will look at the case of EPA Real Estate Partnership v. Hee Duk Kang.
EPA Real Estate Partnership was the owner of an apartment complex. EPA signed a listing agreement
with commercial broker Feher Young to market the property. The listing agreement had a clause which
entitled Young to a commission if EPA agreed to sell the property during the listing period. Shortly
, before the listing period was over, Kang went directly to EPA and made an offer in writing to buy the
complex from EPA. But EPA told Kang that they could not accept the offer because of their obligation to
pay a commission to Young.
Kang agreed to change his offer to include a promise to hold EPA harmless if Young sued EPA for his
commission. But it wasn't until after the listing agreement expired that Kang and EPA signed an
agreement for Kang to buy the property. However, this agreement did not contain the "hold harmless"
section (known as an indemnity provision). Kang did buy the complex from EPA, and EPA did not pay a
commission to Young. Young sued EPA and received almost $300,000. EPA turned around and sued Kang
because of the hold harmless clause that was in the first offer to buy.
The trial court rejected EPA's claims and made a judgment in favor of Kang. EPA appealed and affirmed
the decision of the lower court, citing the parol evidence rule that the "hold harmless" clause was not in
the second offer made to purchase the property, which was the agreement that transferred the
ownership of the property.
So, EPA lost the case and the appeal simply because the clause wasn't integrated into the second
agreement for Kang to purchase the apartment complex. Important information should always be
included in the written contract.
Q: We tried to buy a house but our loan application was not approved. Our $500 earnest money had
been deposited with a title company and they said they wouldn't return it without a release signed by
the seller, which the seller won't sign. What can you do to help us? - Answers A: The Commission does
not have jurisdiction over title companies. While a license holder is encouraged to assist the parties in
the exchange of the necessary earnest money release and need to sign the release as appropriate, there
is nothing in TRELA or the Rules to determine who is entitled to the earnest money. You will need to
consult a private attorney.
How long does an agent have to deposit the earnest money once a binding contract has been
negotiated? - Answers The earnest money must be deposited by the close of business on the second
working day after execution of the contract by the principals, unless a different time is agreed upon in
writing by the principals to the transaction. [Rule 535.146(b)(3)]
Q: When a contract falls through, can part of the earnest money be held to pay the commission fee for
the other real estate license holder? - Answers A: No, unless the parties agree in writing otherwise.
Bilateral Contract - Answers A contract in which one party must promise to do something for another
party and that party must promise to do something for the first party
Unilateral Contract - Answers A contract made between two or more parties in which only one of those
parties makes a promise or otherwise accepts an obligation
Examples of Unilateral Contracts - Answers Party A makes a commitment and Party B accepts this
commitment. This contract is completed or fulfilled when Party A has carried out the commitment.
There is nothing Party B must do to execute such a contract. Party A does not have to agree to the
Passed)
Owner-Provided Contract Forms - Answers There is, however, one exception to this rule. When it comes
to contracts for property sales or leases, license holders must use the appropriate TREC-promulgated
form UNLESS another contract form has been prepared by, and is REQUIRED by, the property owner.
It's important to note that in this instance, the property owner must require the use of their own
contract form (or a contract prepared by their attorney) in order for a license holder to be excused from
using the appropriate TREC-promulgated form. If a property owner does NOT require their own contract
form (or a contract from their attorney), then the license holder is still bound to use all TREC-
promulgated forms required by the transaction.
A license holder should - Answers disclose all material facts to the client
Consideration - Answers A valuable item that each party exchanges in order to demonstrate that they
agree to the contract terms
Five Elements of a Valid Contract - Answers Competent Parties
Mutual Agreement
Lawful Objective
Consideration
In Writing
Majority laws - Answers protect minors from entering into agreements that they may not have the
experience or knowledge to understand. This means that if anyone under the age of 18 enters into a
contract, the contract is considered voidable.
Once the minor reaches the age of majority, all contracts entered into with a minor as one of the parties
may be either ratified or voided.
void - Answers contract means that the contract has no legal effect. In essence, it cannot be enforced or
carried out because the terms of the contract do not create legal rights or the terms call for illegal acts.
voidable - Answers contract has all of the essential elements of a legally enforceable contract, but one or
more of the parties has the authority to rescind the contract. Usually, in a voidable contract, one party is
either mentally incompetent, or a minor, or the contract involves fraud or duress.
Mutual agreement! - Answers In order for a contract to be legally enforceable, there must be mutual
assent (that is, agreement) among the parties in the contract. If either party disagrees to any terms or
provisions within the contract, there is no contract.
,Typically, prior to the creation of a contract, there must be a meeting of the minds — this means that all
parties that are to be bound by the contract must meet and come to mutually acceptable terms.
mutual assent - Answers All parties in a contract can express mutual assent through their actions and
words. Therefore, mutual assent can be expressed or implied through actions.
For a contract to exist, there must be some form of mutual assent, either through a written agreement
or actions. And if the contract is for real estate in Texas, it must always be written.
Elements of mutual agreement: - Answers There must be an offer and acceptance
There can be an offer and a counteroffer
The contract must not contain any form of fraud, misrepresentation, or duress
There cannot be mistakes in the terms and conditions of the contract
Misrepresentation: - Answers A false statement of fact made by one party to another party to induce
that party into a contract. If the other party depends on misrepresented information and then
experiences a loss, the party that committed the misrepresentation is guilty.
Fraud: - Answers A situation where the misrepresentation is intentional in order to influence someone
to enter into a contract
Duress - Answers When a party is acting while under threat or in some manner is being forced into the
contract
lawful objective - Answers This means that the contract cannot call for any illegal activities. When a
contract contains lawful objectives, it takes all necessary laws and statutes into consideration.
. Lawful Objective: Legal Purpose - Answers A legally valid contract adheres to all federal and state laws.
For example, if a seller wishes to sell property that has been declared hazardous by the EPA due to a
leaking underground storage tank, the property cannot be sold until the seller mitigates the hazardous
condition.
If a buyer buys the property and learns of the condition, it would be found out that the contract was
void from the beginning.
Consideration - Answers Consideration is something valuable that each party exchanges in order to
demonstrate that they agree to the contract's terms. It can be a promise, money, property, forbearance,
or services.
In most real estate transactions, consideration is met in the form of a promise for a promise. However,
most people consider money to be the most popular form of consideration.
,Consideration - Answers If there is no consideration, then the contract is not legally binding. The legal
philosophy is that a person cannot do something of value without receiving something in turn. This
basically means that each individual (or party) must suffer a detriment in order to gain a benefit.
In a real estate contract, the exchange of promises acts as consideration. The buyer promises to pay a
monetary amount for the property and the seller promises to give a deed. Earnest money given at the
beginning of a transaction is not the consideration. The promise of the entire sum is the consideration.
Property Management Trust Accounts - Answers Brokers who practice property management or allow
their agents to practice property management will need to establish a trust account.
This is usually a non-interest bearing account in which the broker will hold security deposits received
from tenants. If the broker chooses to, they could also keep earnest money in the account, but from a
liability standpoint it is easier to have the title company hold the funds.
The broker is NOT allowed to place any of their own funds into this account. That would be considered
commingling, and is a violation of TREC rules.
What Does E-Sign Mean For the Statute of Frauds? - Answers The Electronic Signatures in Global and
National Commerce Act (ESIGN) was signed by Congress in 2000 to regulate e-signatures in interstate
and foreign transactions. And while this particular law is at the federal level, every state has at least one
state law dealing with e-signatures.
ESIGN states that:
(1) a signature, contract, or other record relating to such transaction may not be denied legal effect,
validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such
transaction may not be denied legal effect, validity, or enforceability solely because an electronic
signature or electronic record was used in its formation.
Parol Evidence Rule - Answers The parol evidence rule prevents a party to a written contract from
presenting additional evidence that adds to the written terms of the contract. The contracting parties
have made their agreement to a single and final writing, and evidence of past agreements or terms
should not be considered when interpreting that writing, as the parties ultimately decided to leave them
out of the contract.
In other words, you can't use evidence made prior to or after the written contract to contradict the
writing. Whatever is in writing is what will be accepted in court.
EPA Real Estate Partnership v. Hee Duk Kang - Answers As an example of how parole evidence rule is
viewed by the court, we will look at the case of EPA Real Estate Partnership v. Hee Duk Kang.
EPA Real Estate Partnership was the owner of an apartment complex. EPA signed a listing agreement
with commercial broker Feher Young to market the property. The listing agreement had a clause which
entitled Young to a commission if EPA agreed to sell the property during the listing period. Shortly
, before the listing period was over, Kang went directly to EPA and made an offer in writing to buy the
complex from EPA. But EPA told Kang that they could not accept the offer because of their obligation to
pay a commission to Young.
Kang agreed to change his offer to include a promise to hold EPA harmless if Young sued EPA for his
commission. But it wasn't until after the listing agreement expired that Kang and EPA signed an
agreement for Kang to buy the property. However, this agreement did not contain the "hold harmless"
section (known as an indemnity provision). Kang did buy the complex from EPA, and EPA did not pay a
commission to Young. Young sued EPA and received almost $300,000. EPA turned around and sued Kang
because of the hold harmless clause that was in the first offer to buy.
The trial court rejected EPA's claims and made a judgment in favor of Kang. EPA appealed and affirmed
the decision of the lower court, citing the parol evidence rule that the "hold harmless" clause was not in
the second offer made to purchase the property, which was the agreement that transferred the
ownership of the property.
So, EPA lost the case and the appeal simply because the clause wasn't integrated into the second
agreement for Kang to purchase the apartment complex. Important information should always be
included in the written contract.
Q: We tried to buy a house but our loan application was not approved. Our $500 earnest money had
been deposited with a title company and they said they wouldn't return it without a release signed by
the seller, which the seller won't sign. What can you do to help us? - Answers A: The Commission does
not have jurisdiction over title companies. While a license holder is encouraged to assist the parties in
the exchange of the necessary earnest money release and need to sign the release as appropriate, there
is nothing in TRELA or the Rules to determine who is entitled to the earnest money. You will need to
consult a private attorney.
How long does an agent have to deposit the earnest money once a binding contract has been
negotiated? - Answers The earnest money must be deposited by the close of business on the second
working day after execution of the contract by the principals, unless a different time is agreed upon in
writing by the principals to the transaction. [Rule 535.146(b)(3)]
Q: When a contract falls through, can part of the earnest money be held to pay the commission fee for
the other real estate license holder? - Answers A: No, unless the parties agree in writing otherwise.
Bilateral Contract - Answers A contract in which one party must promise to do something for another
party and that party must promise to do something for the first party
Unilateral Contract - Answers A contract made between two or more parties in which only one of those
parties makes a promise or otherwise accepts an obligation
Examples of Unilateral Contracts - Answers Party A makes a commitment and Party B accepts this
commitment. This contract is completed or fulfilled when Party A has carried out the commitment.
There is nothing Party B must do to execute such a contract. Party A does not have to agree to the
