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Real Estate Contracts and Agency is the heaviest content area on the national portion of the Texas sales agent exam. It accounts for 16 of 80 scored national items: nine on contracts and seven on agency. Pearson VUE divides those items among seven subtopics, A through G, with a cognitive mix of seven knowledge, six application, and three analysis items.

EXAM PREP ONLY

This is study material for the Texas sales agent exam, not legal advice. National contract and agency principles come from the common law. Texas-specific points are tied to the Texas Occupations Code, TREC rules, and current promulgated forms. Those sources can change, so verify them before using this information in a real transaction.

16 items
this area's national scored weight
7 subtopics
the official outline sections, A through G
80 / 56
national scored items, and the number to pass
9 applied
six application and three analysis items

Contracts and agency on the Texas real estate exam answer two questions that appear in nearly every transaction: who does the license holder represent, and what makes the parties' agreement valid and enforceable? The exam rarely keeps those questions in separate boxes. An offer can test contract formation, while the license holder's handling of that offer can test agency duties.

Use this page as the map. Learn the rules, follow the linked lessons where you need more depth, then work the contracts and agency practice questions. Because nine of the 16 items require application or analysis, recognition alone is not enough. You need to know which fact changes the answer.

What Pearson VUE tests in Contracts and Agency

The current Pearson VUE Texas Real Estate Content Outlines, publication #094401 dated January 2026, keep the national salesperson outline effective March 1, 2025. The outline assigns exact item counts to all seven subtopics. The details in the third column below are Pearson's tested concepts, not a list invented for this guide.

Official subtopic Items What the outline names Best lesson
A. Types of contracts 1 Express versus implied; unilateral versus bilateral Contract law fundamentals
B. Required elements of a valid contract 3 Voluntary agreement or promise; legally competent parties; lawful consideration; legal act or purpose Contract law fundamentals, then offer and acceptance
C. Contract performance 3 Executed versus executory; valid, void, voidable, and unenforceable; breach, rescission, termination, damages, Statute of Frauds, electronic signatures, and time is of the essence Performance, contingencies, and assignment, plus breach and remedies and contract fundamentals
D. Sales contract 2 Offer and counteroffer; earnest money and liquidated damages; equitable title; contingencies; disputes and breach; option and installment sales contracts Sales contract coverage on this page, then the linked topic lessons
E. Types of agency and licensee-client relationships 2 Agency classifications and the client relationship Agency relationships and types
F. Creation and termination of agency 2 How agency begins and how it ends Agency relationships and types
G. Licensee obligations to parties 3 Duties owed to clients and duties owed to other parties Fiduciary duties and OLD CAR

NATIONAL BLUEPRINT VERSUS TEXAS OVERLAY

The 16-item count belongs to Pearson VUE's National or General Contracts and Agency area. Texas-specific rules in this guide, including intermediary practice, 2026 buyer agreements, and TREC contract forms, help Texas candidates connect national concepts to the state-law portion. They do not change the 16-item national allocation.

The national portion also contains five unscored pretest items. They look like scored questions, so answer every item. Representation agreements and net listings are formally listed under Real Estate Practice, but representation agreements create agency and still belong in a useful study sequence. Pair the national blueprint with the IABS disclosure, Texas intermediary brokerage rules, minimum services, and current One to Four Family Residential Contract.

Agency: relationships, types, and duties

Agency is a fiduciary relationship. The client authorizes the agent to act on the client's behalf, and the agent owes the client loyalty and the other fiduciary duties. A customer is a party the license holder assists but does not represent. That one distinction decides many exam questions.

Authority can make an agent special, general, or universal. A real estate broker hired for one sale is normally a special agent. The six common-law fiduciary duties are remembered as OLD CAR: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care. Honest and fair treatment, however, is owed to every party, not just the client.

How Texas assigns agency to the broker

Texas adds an important structure. Section 1101.557(a) makes the broker the party's agent, while a sales agent acts through the sponsoring broker. If a broker agrees to represent both the buyer or tenant and the seller or landlord, Section 1101.561(b) requires the broker to act as an intermediary. Texas does not offer "dual agency with disclosure" as a separate answer.

The 2026 written-agreement rule

The 2026 written-agreement rule also needs precise wording. Section 1101.563 requires a license holder who performs buyer-side brokerage for a prospective buyer of residential property to have a written agreement before a showing, or before presenting an offer if no property will be shown. The agreement may create representation, but it can also be a non-representation, showing-only agreement. A showing-only agreement must be nonexclusive, may last no more than 14 days, and must be replaced if the license holder later provides more brokerage services. A member of the listing broker's office who hosts the seller's open house does not need an agreement with each visitor because that license holder is acting for the seller, not performing brokerage for the buyer.

Read agency relationships and types for agency creation, classifications, termination, intermediary, and the 2026 agreement rule. Use fiduciary duties and OLD CAR for the client-versus-customer line and the duties attached to each relationship.

Contract law and formation

A contract question becomes easier when you ask three things in order:

  1. Did the parties form a contract?
  2. How should the contract be classified?
  3. What is its present status?

Formation requires a voluntary agreement, legally competent parties, consideration, and a lawful purpose. On the exam, mutual assent means a valid offer was accepted exactly and acceptance was communicated. A counteroffer is not an acceptance. On ordinary exam facts, it terminates the original offer and proposes new terms; an offer or the parties' manifested intent can preserve a different result.

Writing does different work. The Statute of Frauds generally makes an oral agreement for the sale of real estate unenforceable, not automatically void, although narrow equitable exceptions can matter in a real dispute. When the parties agree to transact electronically and the governing law applies, an attributable electronic record and signature can satisfy writing and signature requirements. Keep formation and enforceability separate: a missing element means no valid contract, while a missing required writing usually means a court will not enforce the agreement.

The contract law fundamentals lesson explains the elements, contract types, status labels, Statute of Frauds, and electronic signatures. The offer, counteroffer, and acceptance lesson handles the offer timeline and the mirror-image rule.

Sales contract subtopic D

Pearson assigns two questions to the sales-contract subtopic, but it names six concepts. Do not reduce this row to earnest money and the option period.

The six concepts subtopic D names

  1. Offer and counteroffer. A listing is normally an invitation to submit an offer, not the seller's offer to sell. An acceptance must match the offer. Unless the offer or manifested intent says otherwise, a counteroffer terminates the original offer.
  2. Earnest money and liquidated damages. Earnest money shows good faith but is not required to form a valid sales contract. Under the current Texas resale form, the seller may receive it as liquidated damages only after a buyer default and the seller's election to terminate under Paragraph 15(b).
  3. Equitable title. Once a binding sales contract exists, the buyer holds equitable title while the seller keeps legal title until closing. Review equitable title and equitable interest for the exam distinction.
  4. Contingencies. A contingency makes performance depend on a stated event or condition. Read the wording closely. Some rights require timely notice and supporting documents; others terminate the contract automatically.
  5. Disputes and breach. Default and termination are not synonyms. One party can breach while the other chooses among contract remedies. The form and the facts determine which remedy is available.
  6. Option and installment sales contracts. An option contract gives the option holder a unilateral right within the option term. In an installment sales contract, often called a contract for deed, the buyer pays over time while the seller retains legal title until the contract requirements are met.

How subtopic D connects to the forms

That list is the boundary of subtopic D on the current outline. The One to Four Family Residential Contract guide shows where the main Texas rules live in TREC No. 20-19.

Earnest money and the option period

Earnest money is a good-faith deposit, not an element required for contract formation. Its treatment depends on how the transaction ends. A proper option-period termination generally returns the earnest money to the buyer, while a buyer default can allow the seller to terminate and elect the earnest money as liquidated damages under Paragraph 15(b).

The option fee serves a different purpose: it supports the buyer's unrestricted Paragraph 5 termination right during the option period. Under TREC No. 20-19, effective July 1, 2026, the buyer delivers both payments to the escrow agent within three days after the effective date. If no option-fee amount is stated or the fee is late, Paragraph 5D removes that unrestricted right. The contract does not disappear, and another contractual termination right may still apply.

For the delivery clock, weekend and legal-holiday rule, 5:00 p.m. termination deadline, closing credit, and earnest-money demand process, use the earnest money and option period guide.

This area is fact-pattern heavy, so drilling beats memorizing. Run the free contracts and agency question set and check your instincts against the rationales.

Performance, transfer, and breach

An executory contract still has obligations left to perform. An executed contract has been fully performed. A contingency can create a right to terminate if its condition fails, but that right may expire unless the protected party follows the required steps.

Time is of the essence

"Time is of the essence" makes strict compliance material where the contract uses the phrase. Do not apply it to every date in a Texas form. TREC forms place the clause in specific provisions, including Paragraph 5E of the resale contract, Paragraph 2 of the Third Party Financing Addendum, and Paragraph E of the Addendum for Sale of Other Property by Buyer. Paragraph 9, the closing paragraph in TREC No. 20-19, does not contain that phrase.

Assignment, delegation, and novation

Assignment, delegation, and novation also look alike until you ask what moved and who remains liable. An assignment transfers contractual rights; a delegation shifts performance of duties but does not automatically release the delegating party. A novation substitutes a new party or obligation with the required consent and releases the original party.

Remedies for breach

For breach, distinguish the remedy from the wrong. Compensatory damages aim to cover the proven loss. Liquidated damages are an amount the parties fixed in advance, such as the earnest-money remedy in Paragraph 15(b) after buyer default. Punitive damages punish serious wrongful conduct and are generally not available for an ordinary breach without an independent basis. Specific performance can compel performance where money is inadequate, and rescission unwinds the agreement.

Use performance, contingencies, and assignment for conditions, deadlines, assignment, and novation. Use breach of contract and remedies for default, damages, specific performance, rescission, and Texas limitation periods.

How to study this area

Give this area more time than any other national area, but do not spend that time rereading. Build a decision routine and use it on fact patterns.

  1. Start with agency. Identify the client, customer, broker, and sales agent. Learn OLD CAR and the intermediary rule.
  2. Build the contract. Check the elements, then offer, acceptance, communication, and the Statute of Frauds.
  3. Classify the contract. Express or implied, bilateral or unilateral, valid or void, voidable or unenforceable, executory or executed.
  4. Follow the money and deadlines. Separate earnest money from the option fee. Read contingencies for notice, documents, and timing.
  5. End with breach and remedies. Ask who defaulted, what election the nondefaulting party made, and what the contract says happens next.

After each lesson, answer questions without looking at your notes. For every miss, write one sentence beginning with "The deciding fact was..." That habit trains the application and analysis skills Pearson says make up nine of this area's 16 scored items. Finish with the free practice test and the full topic checkpoint below.

Practice questions

Use these to check yourself. They span the area and are original Pass Texas constructions, not copied from any real exam.

1. A Texas broker agrees to represent both the buyer and the seller in one transaction. Under TRELA, the broker must: A. Act as a dual agent, with written disclosure to both parties B. Agree to act as an intermediary, with written consent from each party C. Represent neither party D. Represent both without appointments, since appointments are prohibited

Answer: B. Section 1101.561(b) requires a broker who agrees to represent both a buyer or tenant and a seller or landlord to act as an intermediary. Consent must be written and must state the source of any expected compensation under Section 1101.559(a). Dual agency is not available (A), the broker need not withdraw (C), and appointments under Section 1101.560 are permitted rather than prohibited (D).

2. A buyer offers $350,000 for a home. The seller counters at $360,000. The buyer rejects the counteroffer, then announces that the seller has accepted the buyer's original $350,000 offer. Is there a contract at $350,000? A. Yes, because the buyer's original offer remains open B. No, because the seller's counteroffer rejected the original $350,000 offer C. Yes, if the buyer responds within three days D. No, because a counteroffer makes the property unavailable for sale

Answer: B. A counteroffer rejects the original offer and replaces it with a new proposed bargain. The buyer can submit a new $350,000 offer, but the seller must accept that new offer before a contract exists at that price. Option C invents a three-day rule that does not govern offer acceptance.

3. During the option period, a buyer terminates the contract for personal reasons. What happens to the two payments? A. The seller keeps the earnest money as liquidated damages B. The earnest money is refunded to the buyer and the option fee is not C. Both are refunded to the buyer D. Both stay with the seller

Answer: B. Paragraph 5B of TREC No. 20-19 states both halves: the option fee will not be refunded and the escrow agent releases any option fee still held to the seller, while any earnest money will be refunded to the buyer. Liquidated damages arise only on a buyer default under Paragraph 15 (A), and the buyer paid for the termination right, so the option fee does not come back (C).

4. A contract states the number of option-period days but leaves the option fee amount blank. The buyer delivers a notice of termination on day four. The buyer: A. Terminated properly, because the option period was stated B. Has no unrestricted right to terminate, because no dollar amount was stated as the option fee C. Terminated, but forfeits the earnest money D. Voided the contract for lack of consideration

Answer: B. Paragraph 5D says that if no dollar amount is stated as the option fee, or the fee is delivered late, the buyer does not have the unrestricted right to terminate under Paragraph 5. The contract remains in force. The buyer could still have another termination right elsewhere in the contract, but the facts do not give one.

5. A sales agent from the listing broker's office hosts an open house for the seller. An unrepresented visitor enters to view the home. Must the host first sign a written buyer agreement with the visitor? A. Yes, every residential showing requires an agreement with the visitor B. No, because the host is acting for the seller through the listing brokerage C. Yes, but only a 14-day exclusive agreement D. No, because open houses are never subject to the 2026 rules

Answer: B. TREC's 2026 guidance says an agent from the listing broker's office does not need a written agreement with open-house visitors, but must disclose that the agent represents the owner. An outside agent who does not represent the seller must provide the IABS and enter into the required written agreement before showing the property. Option D is too broad.

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?

Seven subtopics, lettered A through G in the Pearson VUE outline: types of contracts; required elements of a valid contract; contract performance; sales contract; types of agency and licensee-client relationships; creation and termination of agency; and licensee obligations to parties of a transaction. The first four are contracts and carry nine items. The last three are agency and carry seven.

How important is this area on the Texas exam?

It is the heaviest single area on the national portion. Real Estate Contracts and Agency is one area worth 16 of the 80 scored national items, and the national portion requires 56 correct to pass. The exam also contains five national pretest items that do not count toward the score. Contract and agency concepts return on the Texas state-law portion, especially in Agency and Brokerage and Contracts and Forms.

What Texas-specific rules should I pair with this national area?

Five Texas rules pair well with the national concepts. A broker representing both sides must act as an intermediary under Section 1101.561(b). Section 1101.563 requires the correct writing before covered buyer-side residential brokerage reaches a showing or offer. A contract for licensed services generally needs a definite termination date under Section 1101.652(b)(12). Texas net-listing safeguards matter too, although Pearson places net listings under Real Estate Practice rather than this 16-item area. Finally, Paragraph 5 of TREC No. 20-19 governs earnest money and the buyer's unrestricted termination option.

Is earnest money always refunded to the buyer?

No. It is refunded after certain proper terminations, including a timely option-period termination. At closing, it is applied to the buyer's down payment and expenses, with any excess refunded. After a buyer default, the seller may terminate and receive the earnest money as liquidated damages under Paragraph 15(b). Always identify why the contract ended before deciding where the earnest money goes.

Does every residential showing require a buyer-representation agreement?

No. Section 1101.563 requires a written agreement before a license holder performs buyer-side residential brokerage through a showing, but the agreement can be a representation agreement or a non-representation, showing-only agreement. A license holder from the listing brokerage who hosts the seller's open house does not need an agreement with each visitor because the host represents the seller.

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.

DRILL THE WHOLE AREA

Seven subtopics, one study system.

Pass Texas has topic practice for the entire contracts and agency area, with explanations that show why each answer is right and a readiness check that tells you when you are ready. Native Texas exam prep. Original questions. No copied exam questions. Not affiliated with TREC or Pearson VUE. Not a 180-hour pre-license course or a pass guarantee.

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Sources and Methodology

This guide was reverified September 1, 2026. Exam structure and subtopic wording come from Pearson VUE publication #094401, dated January 2026, and the current Texas Real Estate Candidate Handbook, revision 08/2026 and labeled September 2026. The national salesperson outline remains effective March 1, 2025. It assigns 16 scored items to Real Estate Contracts and Agency, broken into seven knowledge, six application, and three analysis items.

Texas-specific rules were checked against the Texas Occupations Code Chapter 1101, including Sections 1101.557 to 1101.563 and 1101.652; TREC Rules Chapters 531, 535, and 537; TREC's January 2026 buyer and tenant representation guidance; and the One to Four Family Residential Contract (Resale), TREC No. 20-19, effective July 1, 2026. The Statute of Frauds comes from Business and Commerce Code Section 26.01, and electronic-record and signature treatment comes from the Texas Uniform Electronic Transactions Act, including Sections 322.005 and 322.007. Contract and agency doctrines without a numbered Texas authority are identified as common-law principles. No live exam questions are reproduced here.

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.