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Flashcards in Real Estate Practice Deck (65)
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Earnest Money

An amount of money, deposited by a prospective buyer as evidence of good faith under the terms of the contract, that is to be forfeited if the buyer defaults but is applied to the purchase price if the sale is closed. The amount of earnest money is set by agreement of the
parties. Earnest money is a non-judicial remedy. If earnest money is liquidated or returned then
neither party can file a lawsuit. If either party wants to sue the other for default, the earnest money
stays on deposit in an escrow account until the lawsuit is settled. It takes the signature of the buyer
and seller to liquidate earnest money.



This is the placing money of other parties in the brokers business or personal account. All money
collected and being held by the broker must be in a separate account designed only for holding the
money of others. This would be earnest money held, deposits held, and owner’s money held if you
are doing property management. If earnest money is collected and will be held by the title company,
this money should be received by the title company within 48 hours or within two business days after
the signing of a contract or other agreement.


Conversion of Funds

Conversion refers to using money that is being held by the broker or agent that is being held by the
broker for another party. By depositing other person money into the business or personal account
and commingling the money and then writing a check from that account to pay a business expenses
(although there was more than enough to reimburse the other parties money) you have committed


Printed or published advertisements

cannot include language that indicates a
preference, limitation, or discrimination of any protected class, such as “adult community, Catholic, no wheelchairs, integrated”.


Pictorial representations

using human models that depict one segment of the population while not including others is discriminatory


Media Targeting

The media used for promoting property cannot target one population to the exclusion of others


In Trust

Ownership by a third person for the benefit of another. The Trustor covey’s property to a trust, the trustee holds and manages the trust for the benefit of the beneficiary. The trustee is a fiduciary to the beneficiary and must act in the beneficiary’s best interest. If the Trustor coveys real property to a trust it is a Deed in Trust. Don’t confuse this term with a Deed of Trust



An association of two or more people who operate a business as co-owners and share in the business profits and losses.


Limited Partnership

One party (the general partner) organizes, operates and is responsible for the entire syndicate. The other members of the partnership are passive investors with no voice in the organization and direction of the organization (limited partners). Each limited partner stands to lose only as much as he/she invested. The general partner is totally responsible for any excess losses
incurred by the investment.


General Partnerships

All partners participate in the operation of the business and may be held personally liable for business losses and obligations.


Limited Liability Company

Not a corporation, partnership, or limited partnership. Neither, members or managers are liable for company debts, obligations, or liabilities. Regarding licensure,
a limited liability company must designate one of its managers to act for it. The designated manager must (as with the corporation) be a licensed broker as shown in the records of the commission.


Independent Contractor

under the “qualified real estate agent” category in the
IRS Code, meeting three requirements can establish independent contractor status: Individual must have a current real estate license.


Percent of income based on sales production

90% or more


A broker shall maintain, on a current basis, written policies and procedures to ensure

(1) Each sponsored salesperson is advised of the scope of the salesperson’s authorized activities
and is competent to conduct such activities.
(2) Each sponsored salesperson maintains their license in active status at all times while they are
engaging in real estate activities.
(3) Any and all compensation paid to a sponsored salesperson for acts or services paid by, though,
or with the written consent of the sponsoring broker.
(4) Each sponsored salesperson is provided on a timely basis, before the effective date of the
change, notice of any change to the Act, Rules, or Commission promulgated contract forms.
(5) In addition to completing continuing education requirements, each sponsored salesperson
receives such additional educational instruction the broker may deem necessary to obtain and
maintain, on a current basis, competency in the scope of the sponsored salesperson’s practice.
(6) Each sponsored salesperson complies with the Commission’s advertising rules.
(7) All trust accounts, including but not limited to property management trust accounts, and other
funds received from consumers are maintained by the broker with appropriate controls
(8) Records are properly maintained


Recruiting License Holders from Other Brokerages

There is no provision in the Act or the TREC Rules prohibiting a broker from recruiting a salesperson or
broker-associate affiliated with another broker. Generally, however, recruitment of a salesperson by a
broker is not regulated with the exception that instructors or other persons associated with a school may not recruit or solicit prospective salespersons or brokers in a classroom during class time


Leasing Agent Responsibilities

Many brokers list homes for lease without providing property management services. Even when the lease
form states the broker won’t be providing property management services, landlords and tenants are often
confused. The duty of the broker and the sponsored salesperson ends when the lease is signed between
the landlord and the tenant. Situations arising after the lease is signed, such as rekeying the home, and
tenant walk through should not concern the broker


Safe Harbor Policy

TREC has adopted a safe harbor policy for staff and enforcement to use in directing license holders as to
what might be considered clear and conspicuous in advertising. On a sign or other advertising media, the
broker’s name or assumed name must be at least 50 percent of the size of the largest item of contact


Personal Information

Businesses are required to have procedures to protect against the unlawful use or disclosure of sensitive
personal information received in the regular course of business. It requires the business to destroy such
records that are not required or needed for business operations. Sensitive personal information includes
an individual’s first name or first initial and last name in combination with any one or more of the following:
Social Security number
Driver’s license number or government-issued identification number;
Credit or debit card number in combination with any required security code, access code, or password
that would permit access to an individual’s financial account


Receiving Compensation

A license holder may not receive compensation from someone other than the person whom the client
represents unless the license holder obtains the client’s consent. This does not apply to referral fees
between license holders.


Compensation from a Service Provider

If a license holder intends to accept compensation from a service provider, the license holder must also
obtain the consent of that person (non-client). As used in this rule, the term “service provider” is not
limited to Settlement Service Providers as defined by RESPA. It includes any person who provides a
service to a consumer.


Compensation from a Residential Service Company

A license holder must use Form RSC-1, Disclosure of Relationship with Residential Service Company if
the license holder (or the brokerage firm) will receive compensation from the residential service company.


License Holders Buying or Selling Their Own Property

A broker should maintain a policy related to transactions in which a license holder is involved in buying or
selling his or her own property. Items to consider when developing such a policy include


Sharing Fees with Attorneys

The Texas Real Estate License Act prohibits brokers from sharing fees received for services as a real
estate agent with anyone not licensed as a real estate broker or salesperson in Texas or any other state.
With such seemingly clear statutory prohibitions, why is this still an issue with many brokers?
It is permissible for listing brokers to reduce their fee agreement with a seller, so that the seller can pay
an attorney for his or her services, whether those services are performed for the seller or buyer.
Such a reduction of the listing fee would be a matter of private agreement between the listing broker and
the seller. While brokers are not required to forgo their contractual rights to compensation, some circumstances might require brokers to balance their right to a fee against the best interest of their client.


Text and Email Negotiations

Brokers and salespersons need to exercise care to avoid any statements in these communications that
may be later construed as “misrepresentations” of any type, including but not limited to misrepresentations about the intentions of the client(s) with respect to making or accepting offers.


Duty to Respond

A supervising broker, perhaps more so than other license holders, has a duty to respond to parties in a
transaction. A sponsoring broker must also promptly respond to a sponsored salesperson.
Promptness will be judged on the nature of the request, the time of day and the type of transaction. A
supervising broker should be reasonably available to supervised salespersons to provide needed advice
and counsel.
Being responsible for the supervised salesperson, the supervising broker should be available during all
normal business hours of the brokerage. The supervising broker should monitor transactions handled by salespersons.


Business Entity Requirements

If a license holder establishes a business entity, the entity must be licensed in order to be paid commissions. The legal entity must designate an individual broker who will be responsible for the actions of the
licensed business entity. The designated broker must bean officer of the corporation, a manager of the limited liability company, a general partner of the partnership.
If the designated broker owns less that 10 percent of the business entity, the business entity must obtain
and maintain E&O insurance of at least $1 million.



A false statement or concealment of a material fact made with the intention of inducing some action by another party


Implied Duty of Good Faith

In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in
good faith, so as to not destroy the right of the other party or parties to receive the benefits of the
Courts have found that the covenant of good faith and fair dealing calls for parties to a contract to
refrain from doing “anything which will have the effect of destroying or injuring the right of the other
party to receive the benefit of the contract.”


Due Diligence

in part as "making a reasonable effort to provide accurate, complete information."


Unauthorized Practice of Law

A person, not licensed to practice law, may not charge or receive, either directly or indirectly, any compensation for all or any part of the preparation of a legal instrument affecting title to real property, including a deed, deed of trust, note, mortgage, and transfer or release of lien.
(b) This section does not apply to:
(1) an attorney licensed in this state;
(2) a licensed real estate broker or salesperson performing the acts of a real estate broker pursuant to Chapter 1101, Occupations Code; or
(3) a person performing acts relating to a transaction for the lease, sale, or transfer
of any mineral or mining interest in real property.