Contracts and Agency in Texas: Exam Guide

This area answers two linked questions: who does an agent work for, and how does a deal come together and hold up? Agency and contracts are separate national content areas, but they run through the same transaction, so we cover them together. Learn the topics below, then drill them in contracts and agency practice questions.

The area at a glance

Snippet answer: This area has two halves. The agency half covers who an agent represents: agency types, fiduciary duties, the IABS notice, and the Texas intermediary. The contracts half covers how deals work: contract law, offer and acceptance, listing and buyer agreements, earnest money and the option period, performance and transfer, and breach and remedies. Several topics carry Texas-specific rules the exam rewards.

The existing IABS disclosure, Texas intermediary, minimum services, and one-to-four family contract guides round out the area.

Agency: relationships, types, and duties

Snippet answer: Agency is who an agent represents. Agents are classed by authority as special, general, or universal, and a real estate agent is usually a special agent. The agent owes the client the six fiduciary duties, remembered as OLD CAR. Texas prohibits dual agency and uses the intermediary instead, and the broker is the agent while sales agents act under the broker.

Start with who works for whom. The agency relationships and types spoke covers the agent classifications and the big Texas rule that dual agency is not allowed, replaced by the intermediary. The fiduciary duties spoke covers what the agent owes the client, using the OLD CAR mnemonic, and the client-versus-customer line. Together they answer the representation question that everything else builds on.

Contract law and formation

Snippet answer: A valid contract needs competent parties, mutual agreement, consideration, a legal purpose, and, for real estate, a written form. Every contract is valid, void, voidable, or unenforceable. A contract forms when a valid offer is accepted exactly and the acceptance is communicated, and a counteroffer rejects the original offer so it can no longer be accepted.

Next comes how a deal is built. The contract law fundamentals spoke covers the essential elements, the four status labels, and the classifications like bilateral versus unilateral. The offer, counteroffer, and acceptance spoke covers the mirror-image rule and how a counteroffer kills the original offer. These two set the foundation for the specific Texas agreements.

Listing and buyer-representation agreements

Snippet answer: A listing agreement creates the seller-broker agency, and the four types are exclusive right to sell, exclusive agency, open, and net. Texas restricts net listings and requires a definite termination date. As of January 1, 2026, SB 1968 requires a written buyer representation agreement before showing homes. Commission is always negotiable.

These are the agreements that create agency in practice. The listing and buyer-rep agreements spoke covers the four listing types, the Texas net-listing limits, the definite-termination-date rule, and the new SB 1968 written buyer-representation requirement effective in 2026. This is one of the most current and Texas-specific corners of the area.

Earnest money and the option period

Snippet answer: Earnest money is a refundable good-faith deposit held by the escrow agent, and it is not required for a valid contract. The option fee buys the buyer's unrestricted right to terminate during the option period for any reason. In the current TREC contract, both are delivered to the escrow agent within 3 days of the effective date, and the option fee is credited to the sales price at closing.

This is a signature Texas topic. The earnest money and option period spoke keeps the two payments straight: earnest money is the deposit that comes back to the buyer, while the option fee buys the right to walk away and generally stays with the seller. It also covers the 3-day delivery rule and the 15-day earnest-money dispute process.

Performance, transfer, and breach

Snippet answer: Contracts are meant to end by performance, but a contingency can let a party terminate if a condition fails, and real estate contracts are time is of the essence. A contract can transfer by assignment, where the assignor may stay liable, or novation, which releases the original party with everyone's consent. If a party breaches, remedies include specific performance, liquidated damages, and rescission.

The last stretch covers how deals end. The performance, contingencies, and assignment spoke covers conditions, time is of the essence, and the assignment-versus-novation distinction. The breach and remedies spoke covers specific performance, which applies because land is unique, liquidated damages through the earnest money, and the Texas four-year limitations period.

How to study this area

Snippet answer: Study the agency half first, since representation frames everything: agent types, OLD CAR duties, and the Texas no-dual-agency rule. Then work the contract timeline: formation, the agreements, earnest money and the option period, performance and transfer, and breach and remedies. Give extra attention to the Texas-specific rules, like SB 1968, the option period, and no dual agency.

A simple order works. First learn who the agent represents and the duties owed. Then follow a deal from formation to closing to any breach. Keep the two national areas connected, since agency and contracts meet in every transaction. Focus your Texas energy on the intermediary rule, the buyer-representation requirement, and the option period, then test yourself in the free practice test and the app.

Original practice questions

Use these to check yourself. They span the area and are not copied from any real exam.

Question 1. A Texas broker obtains both the buyer and the seller as clients in one transaction. The broker may:

• A) Act as a dual agent with disclosure
• B) Act as an intermediary under written consent
• C) Represent neither party
• D) Secretly favor the seller

Answer: B. Texas prohibits dual agency, so the broker uses the intermediary process with written consent. Dual agency is not permitted, and favoring one party violates the intermediary rules. (Original question.)

Question 2. A buyer offers to purchase, and the seller responds by raising the price. The buyer then wants to accept the seller's original price instead. Can they?

• A) Yes, the original offer is still open
• B) No, the counteroffer rejected and ended the original offer
• C) Yes, within three days
• D) Only if the seller agrees

Answer: B. A counteroffer rejects the original offer, taking it off the table so it can no longer be accepted. The buyer would have to make a new offer at those terms. (Original question.)

Question 3. During the option period, a buyer terminates the contract for personal reasons. What happens to the earnest money?

• A) The seller keeps it as liquidated damages
• B) It is refunded to the buyer
• C) It is split evenly
• D) The buyer owes additional damages

Answer: B. During the option period, the buyer may terminate for any reason and the earnest money is refunded. The option fee generally stays with the seller. (Original question.)

Frequently Asked Questions

For quick answers to every common Texas exam question, see the Texas real estate exam FAQ.

What topics are in the Contracts and Agency area?

Agency relationships and types, fiduciary duties, contract law fundamentals, offer and acceptance, listing and buyer-representation agreements, earnest money and the option period, performance and assignment, and breach and remedies. It bridges the national General Principles of Agency and Contracts areas.

How important is this area on the Texas exam?

Very. Agency and contracts are two of the national content areas, and the national portion has 80 scored items requiring 56 correct to pass. These topics also appear across the Texas state-law portion in agency, brokerage, and contract-forms questions, so the concepts show up throughout the exam.

What are the most Texas-specific points in this area?

Several stand out. Texas prohibits dual agency and uses the intermediary, and SB 1968 requires a written buyer representation agreement as of January 1, 2026. Listings need a definite termination date, net listings are restricted, and the option period gives the buyer an unrestricted right to terminate. These are details national study guides often miss.

How do agency and contracts connect?

They meet in every deal. Agency decides who the agent represents and the duties owed, while contracts decide how the transaction is formed and enforced. A listing or buyer agreement is both an agency relationship and a contract, and an agent's fiduciary duties shape how they handle offers, earnest money, and remedies.

Sources and Methodology

This guide was reviewed on July 21, 2026. It summarizes the Contracts and Agency topics for the Texas sales agent exam and links to a full, separately sourced guide for each one. The exam structure reflects the Pearson VUE Texas Real Estate Candidate Handbook and the national content outline: 80 scored national items, with 56 correct required to pass. The rules in the summaries come from the common law of agency and contracts and the Texas statute of frauds in Business and Commerce Code Section 26.01. They also come from the Texas Occupations Code Chapter 1101, including the SB 1968 buyer-representation and dual-agency rules. Other sources are the four-year limitations period in the Civil Practice and Remedies Code, and TREC rules and promulgated contract forms. Each is cited in full in the linked guide for that topic. Statutes, rules, and exam materials can change, so verify the current sources before relying on any point in practice.

Official Source Links

• Pearson VUE Texas Real Estate Candidate Handbook
• Texas Occupations Code Chapter 1101 (TRELA)
• TREC, Contracts and Forms
• Texas Business and Commerce Code Section 26.01 (Statute of Frauds)

This post is educational content for Texas real estate sales agent candidates. It is not legal advice. Each topic in this area carries consequences that depend on individual facts and current law, so confirm the current statutes, TREC rules, and forms and consult a licensed professional before you rely on any point in a real transaction.