Contracts & Agency Practice Questions

Every question explained

Prefer to study at your own pace? Here are all 25 questions. Read each one and pick your answer, then reveal the correct answer, the reasoning, and the trap that catches most candidates.

1. 1. A buyer and seller shake hands on the sale of a vacant lot for $90,000, but nothing is put in writing. Before closing, the seller backs out. Can the buyer force the sale?

   • A.Yes, because a verbal agreement on price and property is a binding contract
   • B.Yes, because the buyer relied on the seller's promise
   • C.No, because under the Statute of Frauds a contract for the sale of real property must be in writing and signed to be enforceable
   • D.No, because vacant land cannot be sold without a survey
   ▸Show answer and explanation

   Correct answer: C. No, because under the Statute of Frauds a contract for the sale of real property must be in writing and signed to be enforceable

   Why C is correct: Business & Commerce Code §26.01(a) makes an agreement listed in §26.01(b) unenforceable unless it, or a memorandum of it, is in writing and signed by the person to be charged. §26.01(b)(4) lists a contract for the sale of real estate, so this oral agreement cannot be enforced and the buyer cannot force the sale.

   Trap: The oral contract is unenforceable, not automatically void. The parties could still choose to perform; a court just will not force it.

   Source: Texas Business & Commerce Code §26.01(a), (b)(4)

2. 2. Which set lists the four essential elements every valid contract must have?

   • A.Earnest money, a licensed broker, a survey, and a closing date
   • B.Competent parties, mutual assent (offer and acceptance), a lawful purpose, and consideration
   • C.A written document, a notary, two witnesses, and recording
   • D.Offer, counteroffer, acceptance, and contingency
   ▸Show answer and explanation

   Correct answer: B. Competent parties, mutual assent (offer and acceptance), a lawful purpose, and consideration

   Why B is correct: A valid contract requires competent parties, mutual assent through offer and acceptance, a lawful purpose, and consideration. Writing sits outside that list and does different work: §26.01(a) makes an unwritten real estate contract unenforceable, not invalid, which is why an oral land deal is labeled unenforceable rather than void.

   Trap: Earnest money is not an essential element. Consideration is required, but the deposit itself is not. Writing is not an element either; it governs enforceability.

   Source: Contract law, essential elements; Texas Business & Commerce Code §26.01(a)

3. 3. A buyer offers $320,000. The seller responds with a counteroffer at $335,000. The buyer then says, I accept your original $340,000 list price. Does a binding contract exist?

   • A.Yes, because the buyer agreed to a higher price than the seller asked in the counteroffer
   • B.Yes, because the list price is a standing offer the buyer can accept anytime
   • C.No, because the seller's counteroffer terminated the buyer's original offer, and the buyer's statement is itself a new offer the seller is free to accept or reject
   • D.No, because the buyer already rejected the counteroffer, ending all negotiation permanently
   ▸Show answer and explanation

   Correct answer: C. No, because the seller's counteroffer terminated the buyer's original offer, and the buyer's statement is itself a new offer the seller is free to accept or reject

   Why C is correct: When the seller countered, the buyer's original offer was terminated. A list price is an invitation to negotiate, not an offer the buyer can accept. The buyer's statement accepting $340,000 is a brand-new offer that the seller is free to accept or reject.

   Trap: A counteroffer kills the original offer. The buyer cannot reach back and accept something that is no longer on the table.

   Source: Contract law, offer and acceptance

4. 4. A 16-year-old signs a contract to buy a home. Under contract law, this agreement is

   • A.void, because a minor has no legal capacity to contract
   • B.voidable at the option of the minor, who may enforce it or disaffirm it
   • C.valid and fully binding on the minor
   • D.void, because real property cannot be sold to a minor
   ▸Show answer and explanation

   Correct answer: B. voidable at the option of the minor, who may enforce it or disaffirm it

   Why B is correct: A contract with a minor is voidable, not void. The minor may choose to enforce the contract or to disaffirm it. A void contract was never valid at all; a voidable contract is valid until the protected party elects to void it.

   Trap: Void and voidable are different. A minor's contract is voidable, giving the minor the choice, not void.

   Source: Contract law, capacity

5. 5. A seller signs a valid contract to sell a unique waterfront home, then refuses to close because she received a higher offer. The buyer wants the house, not money. The remedy that forces the seller to complete the sale is

   • A.liquidated damages
   • B.specific performance
   • C.rescission
   • D.novation
   ▸Show answer and explanation

   Correct answer: B. specific performance

   Why B is correct: Specific performance is a remedy that forces a party to complete the agreed transaction. It is available because real property is considered unique and money damages may not make the buyer whole. The buyer who wants the property itself seeks specific performance.

   Trap: Liquidated damages give money. Specific performance gives the property. Match the remedy to what the wronged party actually wants.

   Source: Contract remedies; specific performance. Texas limitations: CPRC §16.004(a)(1)

6. 6. A property owner signs a written agreement authorizing a broker to market the property and represent the owner. This is an example of agency created by

   • A.ratification
   • B.estoppel
   • C.express agreement
   • D.implied conduct
   ▸Show answer and explanation

   Correct answer: C. express agreement

   Why C is correct: Agency created through a written or spoken agreement between the principal and the agent is express agency. A listing or representation agreement is the classic example. Agency can also arise by implication, ratification, or estoppel, but a signed authorization is express.

   Trap: A signed listing is express agency. Implied, ratified, and estoppel agency arise without that direct agreement. In Texas, §1101.563 separately requires a written agreement before a license holder performs specified buyer-side brokerage involving a residential showing or offer. Violating that writing rule does not make implied agency conceptually impossible.

   Source: Agency creation, common law; TRELA §1101.563

7. 7. An agent representing a seller learns the seller will accept far less than the list price, then quietly tells the buyer to lowball. Which fiduciary duty did the agent most clearly violate?

   • A.Accounting
   • B.Obedience
   • C.Confidentiality
   • D.Reasonable care
   ▸Show answer and explanation

   Correct answer: C. Confidentiality

   Why C is correct: An agent owes the principal fiduciary duties, often taught as OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care. Revealing the seller's bottom line to the buyer breaches the duty of confidentiality.

   Trap: Confidential information about a client's bargaining position stays protected. An agent cannot leak the principal's bottom line to the other side. TRELA §1101.651(d)(1) states it directly for an intermediary, and §1101.651(d)(3)(C) sets the limit: confidentiality never covers information that materially relates to the CONDITION of the property.

   Source: Fiduciary duties, common law; TRELA §1101.651(d)

8. 8. Buyer A assigns her purchase contract to Buyer B. Later, all three parties sign a new agreement that substitutes Buyer B for Buyer A entirely and releases Buyer A from any further liability. This release of the original party is accomplished through

   • A.assignment
   • B.novation
   • C.rescission
   • D.subrogation
   ▸Show answer and explanation

   Correct answer: B. novation

   Why B is correct: Novation substitutes a new party for an original party with the agreement of everyone involved, and it releases the original party from liability. A plain assignment transfers rights but usually leaves the assignor secondarily liable. The full release is what makes this a novation.

   Trap: The dividing line is the release. Assignment moves the rights; novation moves the party and ends the original party's liability.

   Source: Contract law, assignment and novation

9. 9. A contract entered for an illegal purpose is best described as

   • A.voidable by one party
   • B.void, with no legal effect from the start
   • C.fully enforceable
   • D.valid until a court acts
   ▸Show answer and explanation

   Correct answer: B. void, with no legal effect from the start

   Why B is correct: A contract for an illegal purpose is void; it has no legal effect from the start. A voidable contract is valid until the party with the right (such as a minor or a defrauded party) chooses to disaffirm it.

   Trap: Void means it never had effect. Voidable means one party can choose to cancel an otherwise valid contract.

   Source: Contract law, capacity and legality; void versus voidable

10. 10. An option contract, in which a seller is paid to hold an offer open while the buyer decides, is an example of a

    • A.bilateral contract
    • B.unilateral contract
    • C.void contract
    • D.implied contract
    ▸Show answer and explanation

    Correct answer: B. unilateral contract

    Why B is correct: An option is a unilateral contract: the optionor (seller) is obligated to keep the offer open, but the optionee (buyer) is not obligated to buy. A bilateral contract involves promises by both sides.

    Trap: An option binds only the seller to keep the offer open. The buyer makes no promise to purchase, so it is unilateral. Do not map this onto the Texas option period, which is a termination right inside a bilateral contract under TREC No. 20-19 ¶5B.

    Source: Contract law, offer and acceptance; unilateral contracts

11. 11. After both parties sign a sales contract but before closing, the contract is

    • A.executed
    • B.executory
    • C.void
    • D.rescinded
    ▸Show answer and explanation

    Correct answer: B. executory

    Why B is correct: Between signing and closing, obligations remain to be performed, so the contract is executory. Once everything is performed and the deal closes, the contract is executed.

    Trap: Executory means still to be performed; executed means fully performed. Signing is not the same as completing.

    Source: Contract law, contract classification; executory versus executed

12. 12. A buyer defaults and the contract states the seller may keep the earnest money as the agreed remedy. The earnest money here functions as

    • A.a penalty that courts will not enforce
    • B.liquidated damages agreed to in advance
    • C.a gift to the broker
    • D.a loan to the seller
    ▸Show answer and explanation

    Correct answer: B. liquidated damages agreed to in advance

    Why B is correct: When a contract provides that the seller may retain the earnest money on the buyer's default, the earnest money operates as liquidated damages, a remedy the parties agreed to in advance. The seller may have other remedies depending on the contract.

    Trap: Earnest money retained on default is liquidated damages, not an unenforceable penalty, when the contract so provides. Note which default: TREC No. 20-19 ¶15 uses the phrase "as liquidated damages" only on a BUYER default. On a seller default the buyer simply receives the earnest money back.

    Source: Contract law, breach and remedies; TREC No. 20-19 ¶15

13. 13. An agency relationship between a seller and a broker may be terminated by

    • A.performance, expiration, mutual agreement, or revocation
    • B.the buyer's preference alone
    • C.the weather
    • D.nothing; it lasts forever
    ▸Show answer and explanation

    Correct answer: A. performance, expiration, mutual agreement, or revocation

    Why A is correct: An agency can end by full performance (the sale closes), expiration of the term, mutual agreement, revocation, or operation of law such as death or incapacity. It is not a permanent relationship.

    Trap: Agency ends in several ordinary ways. A party generally cannot be locked into agency forever. In Texas, TRELA §1101.652(b)(12) makes it a disciplinary matter to omit a definite termination date not subject to prior notice.

    Source: Agency termination, common law; TRELA §1101.652(b)(12)

14. 14. A purchase contract is contingent on the buyer obtaining financing, and the buyer cannot get a loan despite a good-faith effort. The buyer generally may

    • A.be forced to buy with cash
    • B.terminate under the financing contingency and recover the earnest money per the contract
    • C.lose the earnest money automatically
    • D.sue the lender for the house
    ▸Show answer and explanation

    Correct answer: B. terminate under the financing contingency and recover the earnest money per the contract

    Why B is correct: When a financing contingency is not satisfied despite the buyer's good-faith effort, the buyer can typically terminate under that contingency and recover earnest money as the contract provides. The contingency exists to protect the buyer.

    Trap: A failed financing contingency protects the buyer's earnest money; it does not force a cash purchase. But the buyer must act: TREC No. 40-11 ¶2A requires a notice of termination plus the lender's written statement, and missing that deadline means the contract is no longer subject to Buyer Approval.

    Source: Contract law, breach and remedies; TREC No. 40-11 ¶2A, ¶2B

15. 15. Which agreement must be in writing to be enforceable under the statute of frauds?

    • A.A lease for a six-month term
    • B.A lease for a three-year term and any contract for the sale of real estate
    • C.A verbal agreement to mow a lawn once
    • D.An oral promise to paint a fence
    ▸Show answer and explanation

    Correct answer: B. A lease for a three-year term and any contract for the sale of real estate

    Why B is correct: §26.01(b)(4) lists a contract for the sale of real estate and §26.01(b)(5) lists a lease of real estate for a term longer than one year, so both must be in writing and signed by the person to be charged. A six-month lease is not longer than one year, so it falls outside the statute and may be oral.

    Trap: Read for the words 'longer than one year.' A lease of exactly one year or less is outside §26.01(b)(5) and may be oral, so a 12-month lease and a 13-month lease give opposite answers.

    Source: Texas Business & Commerce Code §26.01(b)(4), (b)(5)

16. 16. A One to Four Family Residential Contract is signed with 7 filled in as the number of option-period days, but the option fee blank is left empty. On day 4 the buyer delivers a notice of termination. What is the buyer's position?

    • A.The buyer terminated properly, because the option period was 7 days
    • B.The buyer has no unrestricted right to terminate, because no dollar amount was stated as the option fee
    • C.The buyer may terminate but forfeits the earnest money
    • D.The contract is void for lack of consideration
    ▸Show answer and explanation

    Correct answer: B. The buyer has no unrestricted right to terminate, because no dollar amount was stated as the option fee

    Why B is correct: Paragraph 5D provides that if no dollar amount is stated as the option fee, or if the buyer fails to deliver the option fee within the time required, the buyer shall not have the unrestricted right to terminate under Paragraph 5. Filling in the days blank does not create the option; the fee does. The contract itself remains valid and binding, so it is not void, and the buyer is now terminating without a contractual right.

    Trap: The option period and the option fee are separate blanks, and only one of them creates the right. A filled-in day count with an empty fee amount looks like an option period and is not one. The same result follows under ¶5D if the amount is stated but delivered late.

    Source: TREC No. 20-19 ¶5B, ¶5D; 22 TAC §537.28

17. 17. A Texas broker already represents the seller under a listing. A buyer the broker has been working with now asks the broker to represent them on the same property. Under TRELA, the broker must

    • A.act as a dual agent, with written disclosure to both parties
    • B.agree to act as an intermediary, or decline to represent the second party
    • C.withdraw from the listing before representing the buyer
    • D.represent both parties without appointments, since appointments are prohibited
    ▸Show answer and explanation

    Correct answer: B. agree to act as an intermediary, or decline to represent the second party

    Why B is correct: §1101.561(b) provides that a broker MUST agree to act as an intermediary if the broker agrees to represent both a buyer or tenant and a seller or landlord in a transaction. Intermediary status requires written consent from each party stating the source of expected compensation under §1101.559(a). The broker may instead decline the second representation and work with that party as a customer. Withdrawing from the listing is not required, and appointments under §1101.560 are permitted, not prohibited.

    Trap: The phrase "dual agency" appears nowhere in TRELA or the TREC rules. Texas rules it out not by naming it but by leaving only one path: §1101.561(b) makes intermediary mandatory where the broker represents both sides, and §1101.561(a) makes those duties supersede common law.

    Source: TRELA §1101.561(a), (b); §1101.559(a)

18. 18. A buyer sends the escrow agent one check for less than the combined earnest money and option fee called for in the contract. Under Paragraph 5A(3), the escrow agent applies what it receives

    • A.to the earnest money first, then the option fee
    • B.to the option fee first, then the earnest money, then any additional earnest money
    • C.pro rata across both amounts
    • D.however the buyer later directs in writing
    ▸Show answer and explanation

    Correct answer: B. to the option fee first, then the earnest money, then any additional earnest money

    Why B is correct: Paragraph 5A(3) states the order: amounts the escrow agent receives under that paragraph are applied first to the option fee, then to the earnest money, then to the additional earnest money. The ordering matters because Paragraph 5D removes the unrestricted right to terminate if the option fee is short or late, so paying it first preserves the buyer's termination right before it protects the deposit.

    Trap: The order is not alphabetical, chronological, or pro rata. It is written into the paragraph, and it protects the right before the deposit.

    Source: TREC No. 20-19 ¶5A(3), ¶5D; 22 TAC §537.28

19. 19. A buyer misses the 3-day deadline to deliver earnest money. On day 5 the buyer wires it to the escrow agent. On day 6 the seller sends a Notice of Seller's Termination of Contract citing the late earnest money. Is the termination effective?

    • A.Yes, because the buyer breached the 3-day deadline
    • B.Yes, because time is of the essence under Paragraph 5E
    • C.No, because Paragraph 5C requires the seller's notice to be given before the buyer delivers the earnest money
    • D.No, because a seller may never terminate for late earnest money
    ▸Show answer and explanation

    Correct answer: C. No, because Paragraph 5C requires the seller's notice to be given before the buyer delivers the earnest money

    Why C is correct: Paragraph 5C lets the seller terminate or exercise the Paragraph 15 remedies, or both, on a late earnest money delivery, but only 'by providing notice to Buyer before Buyer delivers the earnest money.' The buyer delivered on day 5 and the seller gave notice on day 6, so the right was already cut off. Box (1) of the Notice of Seller's Termination of Contract, TREC No. 50-0, repeats the same timing condition on its face.

    Trap: The buyer really was late, and time really is of the essence under ¶5E, so A and B both feel right. The seller's remedy still expires the moment the money arrives. Late delivery that beats the seller's notice saves the contract.

    Source: TREC No. 20-19 ¶5C; TREC No. 50-0; 22 TAC §537.28, §537.57

20. 20. A broker obtains written consent from both the buyer and the seller to act as an intermediary. The consent describes the intermediary role but says nothing about who will pay the broker. Under TRELA, the consent is

    • A.sufficient, because both parties signed it
    • B.sufficient, because compensation is governed by a separate agreement
    • C.insufficient, because the written consent must state the source of any expected compensation
    • D.insufficient, because intermediary consent must be notarized
    ▸Show answer and explanation

    Correct answer: C. insufficient, because the written consent must state the source of any expected compensation

    Why C is correct: §1101.559(a) sets two requirements, not one: the broker must obtain written consent from each party, and that written consent must state the source of any expected compensation to the broker. Consent that is silent on compensation does not satisfy the section. Notarization is not required (D).

    Trap: Candidates remember 'written consent from each party' and stop there. The compensation-source requirement sits in the same subsection and is half the rule.

    Source: TRELA §1101.559(a)

21. 21. A broker acting as intermediary appoints one sponsored sales agent to the seller and another to the buyer. The parties' written consent authorizes the appointments, but the broker never tells the parties who was appointed. Under TRELA, the appointments are

    • A.valid, because the consent authorized appointments
    • B.valid, because appointment is an internal brokerage decision
    • C.not properly made, because the broker must give written notice of the appointment to all parties
    • D.not permitted at all, because an intermediary may not appoint
    ▸Show answer and explanation

    Correct answer: C. not properly made, because the broker must give written notice of the appointment to all parties

    Why C is correct: §1101.560(b) sets two conditions and both must hold: the written consent must authorize the broker to make the appointment, and the broker must provide written notice of the appointment to all parties involved. Authorization alone is not enough. Appointments are permitted, not prohibited (D), and once appointed a license holder may give opinions and advice during negotiations to the party they serve under §1101.560(c).

    Trap: Authorization and notice are separate steps in separate paragraphs. A question that supplies one and omits the other is testing whether you know there are two.

    Source: TRELA §1101.560(b), (c)

22. 22. A license holder wants to show a residential property to a prospective buyer who is not ready to commit to representation. The license holder prepares a showing-only written agreement that is exclusive and runs for 30 days. Under TRELA, this agreement

    • A.is proper, because a written agreement is all Section 1101.563 requires
    • B.violates two limits: a showing-only agreement may not be exclusive and may not exceed fourteen days
    • C.is proper only if the buyer initials the exclusivity clause
    • D.is unnecessary, because no agreement is required before merely showing property
    ▸Show answer and explanation

    Correct answer: B. violates two limits: a showing-only agreement may not be exclusive and may not exceed fourteen days

    Why B is correct: §1101.563(e) provides that a written agreement entered into for the sole purpose of showing property under §1101.562 may not be an exclusive agreement and may not state a termination date more than fourteen days from the date it is entered into. Both terms here fail. An agreement is required (D), and no initialing cures a term the statute forbids (C).

    Trap: Option D is the pre-2026 answer. Since January 1, 2026, §1101.563(b) requires a written agreement before showing any residential property to a prospective buyer.

    Source: TRELA §1101.563(b), (e); §1101.562

23. 23. Which of the following is NOT among the broker's minimum duties required by law, as printed on the Information About Brokerage Services notice?

    • A.Put the interests of the client above all others, including the broker's own interests
    • B.Inform the client of any material information about the property or transaction received by the broker
    • C.Keep the client's confidential information private after the transaction closes
    • D.Treat all parties to a real estate transaction honestly and fairly
    ▸Show answer and explanation

    Correct answer: C. Keep the client's confidential information private after the transaction closes

    Why C is correct: The IABS notice lists four minimum duties: the client's interests above all others; inform the client of material information received; answer the client's questions and present any offer or counter-offer; and treat all parties honestly and fairly. Confidentiality, obedience, and accounting are common-law fiduciary duties and do not appear among the statutory four.

    Trap: Confidentiality is a real duty, so it does not look like an outlier. The question is asking what the IABS notice prints, not what an agent owes as a fiduciary. Read for 'minimum duties required by law.'

    Source: TREC No. IABS 1-2, adopted at 22 TAC §531.20

24. 24. A sales agent representing the seller receives an email from the buyer's agent asking whether the seller will consider an extended closing date. Under TREC rules, the sales agent must respond within

    • A.two calendar days
    • B.two business days
    • C.three calendar days, matching the earnest money deadline
    • D.no fixed period, because the duty to respond runs only to the agent's own client
    ▸Show answer and explanation

    Correct answer: A. two calendar days

    Why A is correct: 22 TAC §535.157 requires a broker or sales agent to respond within two calendar days. The duty runs to the license holder's own principal, to a broker or sales agent representing another party to the transaction, and to an unrepresented party, so the buyer's agent is squarely covered. Calendar days, not business days (B).

    Trap: Option D states the intuition that duties flow only to your own client. The response deadline is one of the places TREC extends an obligation to the other side of the deal.

    Source: 22 TAC §535.157

25. 25. A seller is under contract and previously agreed in writing that offers need not be submitted after the seller enters into a contract. A new, higher offer arrives. Under TREC rules, the listing agent

    • A.must present the offer, because the fiduciary duty to convey information is absolute
    • B.has no duty to submit the offer, because the principal agreed in writing and has accepted an offer
    • C.must present the offer only if it exceeds the contract price
    • D.must present the offer and advise the seller to accept it
    ▸Show answer and explanation

    Correct answer: B. has no duty to submit the offer, because the principal agreed in writing and has accepted an offer

    Why B is correct: 22 TAC §535.156 makes the license holder a fiduciary and requires conveying all known information that would affect the principal's decision on whether to make, accept, or reject offers. The same section carves out an exception: where the principal has agreed in writing that offers are not to be submitted after the principal has entered into a contract, the license holder has no duty to submit offers once the principal has accepted one. Both conditions are met here.

    Trap: Two conditions must both hold, and both are in the stem: the agreement is in writing AND the principal is already under contract. Remove either one and the duty to convey returns. Advising the seller to accept (D) would also stray toward advice the seller did not ask for.

    Source: 22 TAC §535.156