Standards of Conduct Practice Questions
Standards of conduct is 9 scored items on the Texas state-law portion. It covers professional ethics, grounds for discipline, the unauthorized practice of law, trust accounts, commingling and conversion, fee splitting, rebates, and advertising rules under TRELA and the TREC Rules. Work the questions below, then read every explanation.
Exam prep only
These questions test the line between conduct that is allowed and conduct that brings TREC discipline. The classic distinctions are commingling versus conversion, completing a form versus drafting one, and advertising that identifies the broker versus advertising that hides it.
Use the name-the-violation read. Before you answer, name the exact prohibited act the facts describe, then confirm whether the conduct crosses it. Several items use Texas-specific figures; confirm exact thresholds against current TREC Rules when applying the rule outside exam practice.
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Standards of Conduct Practice Questions
15 scenario-based questions on standards of conduct, scored, each with a full explanation after you answer. Every question is also written out below if you would rather study at your own pace.
Every question explained
Prefer to study at your own pace? Here are all 15 questions. Read each one and pick your answer, then reveal the correct answer, the reasoning, and the trap that catches most candidates.
1. A buyer wants an unusual clause added to a TREC-promulgated contract. The sales agent drafts new contract language to accomplish it. This is
- A.proper, because the agent is helping the client
- B.the unauthorized practice of law, because drafting contract language is reserved to attorneys
- C.required by TREC
- D.permitted if the broker approves
Show answer and explanation
Correct answer: B. the unauthorized practice of law, because drafting contract language is reserved to attorneys
Why B is correct: A Texas license holder may only fill in the blanks on a promulgated or approved form. Drafting new contract language is the unauthorized practice of law. The client should be referred to an attorney for custom language.
Trap: Filling in blanks is allowed; drafting clauses is the unauthorized practice of law. Helping the client does not excuse it.
Source: TRELA (Texas Occupations Code Ch. 1101); unauthorized practice of law
2. A broker deposits a buyer's earnest money into the brokerage's general operating account, where it sits unused. This is
- A.conversion
- B.commingling, mixing trust funds with the broker's business funds
- C.no violation, because the money was not spent
- D.a permissible practice
Show answer and explanation
Correct answer: B. commingling, mixing trust funds with the broker's business funds
Why B is correct: Placing trust funds in the same account as the broker's business funds is commingling, even if the money is never spent. Conversion is the more serious violation of actually using trust funds for the broker's benefit.
Trap: Commingling does not require spending the money. Mixing trust funds into a business account is enough.
Source: TREC Rules; trust accounts
3. A broker uses earnest money held in trust to pay the brokerage's office rent. This is
- A.commingling only
- B.conversion, using trust funds for the broker's own benefit
- C.permitted with later repayment
- D.a clerical error, not a violation
Show answer and explanation
Correct answer: B. conversion, using trust funds for the broker's own benefit
Why B is correct: Conversion is using trust funds that belong to others for the broker's own benefit, such as paying business expenses. It is a more serious violation than commingling and is grounds for discipline.
Trap: Spending the trust money is conversion, the more serious violation. Commingling is merely mixing it into the wrong account.
Source: TREC Rules; trust accounts and conversion
4. A sales agent runs an online ad for a listing showing only the agent's name and phone number, with no broker information. Under Texas advertising rules, this ad is
- A.acceptable, because social media is not regulated
- B.prohibited, because advertising must not be misleading and must identify the broker
- C.acceptable if the agent has fewer than 100 followers
- D.acceptable because the agent gave a phone number
Show answer and explanation
Correct answer: B. prohibited, because advertising must not be misleading and must identify the broker
Why B is correct: Texas advertising rules require that advertising not be misleading and that it identify the sponsoring broker. An ad in only the sales agent's name, without the broker, is prohibited. The rule applies to online and social media advertising.
Trap: Advertising must identify the broker. A sales-agent-only ad is prohibited, and social media is not exempt.
Source: TREC Rules; advertising
5. A broker wants to share part of a commission with another person. Under Texas law, the broker may generally split a fee only with
- A.anyone who refers business
- B.another license holder (with a limited exception for certain out-of-state brokers)
- C.any unlicensed assistant
- D.the buyer's accountant
Show answer and explanation
Correct answer: B. another license holder (with a limited exception for certain out-of-state brokers)
Why B is correct: A broker may generally split a brokerage fee only with another license holder. A limited exception allows paying certain out-of-state brokers who do not perform acts requiring a Texas license. Paying an unlicensed person for licensed activity is prohibited.
Trap: Fee splits go to license holders. Paying an unlicensed person for brokerage work is a violation.
Source: TRELA (Texas Occupations Code Ch. 1101); fee splitting
6. A broker wants to give a buyer client a rebate of part of the commission. In Texas, a rebate to a party in the transaction is
- A.always prohibited
- B.generally permitted within the rules, but a rebate or fee may not be paid to an unlicensed person for performing licensed acts
- C.permitted only with TREC approval
- D.the same as a kickback and therefore illegal
Show answer and explanation
Correct answer: B. generally permitted within the rules, but a rebate or fee may not be paid to an unlicensed person for performing licensed acts
Why B is correct: A rebate to a party in the transaction is generally permitted in Texas within the rules. What is prohibited is paying a rebate or fee to an unlicensed person for performing acts that require a license.
Trap: Rebating a client is allowed within the rules. The prohibition is paying unlicensed people for licensed acts.
Source: TRELA / TREC Rules; rebates
7. Which of the following is a ground for TREC disciplinary action against a license holder?
- A.Negotiating a commission rate with a client
- B.Making a material misrepresentation or engaging in dishonest dealing
- C.Providing the IABS notice
- D.Recommending a home inspection
Show answer and explanation
Correct answer: B. Making a material misrepresentation or engaging in dishonest dealing
Why B is correct: Grounds for discipline include misrepresentation, fraud, dishonest dealing, failing to disclose, commingling, and acting outside the scope of authority. Negotiating commission, giving the IABS, and recommending an inspection are proper activities.
Trap: Discipline targets dishonesty and misrepresentation, not ordinary, lawful brokerage activities.
Source: TRELA (Texas Occupations Code Ch. 1101.652); grounds for discipline
8. A license holder discovers a material defect in a listed property. Under standards of conduct, the license holder must
- A.conceal it to protect the seller
- B.disclose the known material defect and not misrepresent the property's condition
- C.disclose it only to the seller
- D.disclose it only after closing
Show answer and explanation
Correct answer: B. disclose the known material defect and not misrepresent the property's condition
Why B is correct: A license holder must not misrepresent or conceal a known material defect and must disclose it. Concealing or misrepresenting the condition of a property is dishonest dealing and a ground for discipline.
Trap: Loyalty to the seller does not authorize concealing a known material defect. It must be disclosed.
Source: TRELA / TREC Rules; disclosure and honesty
9. A broker wants to pay a $300 referral fee to an unlicensed friend who sent over a buyer. Under Texas law, this is
- A.allowed, since it is a small amount
- B.prohibited, because compensation for brokerage activity may be paid only to a licensed person
- C.allowed if disclosed at closing
- D.required by TREC
Show answer and explanation
Correct answer: B. prohibited, because compensation for brokerage activity may be paid only to a licensed person
Why B is correct: A broker may pay a fee for brokerage activity only to a licensed person or, through proper channels, to another broker. Paying an unlicensed person for referring or procuring real estate business is prohibited.
Trap: Referral fees for brokerage business go to licensed people only. The dollar amount does not make it legal.
Source: TRELA (Texas Occupations Code Ch. 1101); compensation to unlicensed persons
10. Which statement about handling a buyer's earnest money is correct?
- A.The broker may keep it in a personal account if it is repaid later
- B.It must be deposited and held according to TREC requirements, separate from operating funds
- C.It belongs to the broker once received
- D.It may be spent on marketing the property
Show answer and explanation
Correct answer: B. It must be deposited and held according to TREC requirements, separate from operating funds
Why B is correct: Trust money such as earnest money must be deposited and held according to TREC requirements, separate from the broker's personal or operating funds, and disbursed only as authorized. Mixing it with operating funds is commingling; using it is conversion.
Trap: Trust money is never the broker's to hold personally or spend. Keep it separate and disburse only as authorized.
Source: TRELA / TREC Rules; trust money handling
11. A sales agent knowingly tells a buyer a home has never flooded, when the agent knows it has. This is
- A.acceptable salesmanship
- B.a material misrepresentation and a ground for discipline
- C.protected opinion
- D.only a problem if the buyer asks in writing
Show answer and explanation
Correct answer: B. a material misrepresentation and a ground for discipline
Why B is correct: Making a material misrepresentation or a false statement of material fact is a ground for TREC disciplinary action and can also create civil liability, including under the DTPA. Known flooding history is material.
Trap: Knowingly false statements of material fact are misrepresentation, not puffery, and are disciplinable.
Source: TRELA §1101.652; misrepresentation
12. A license holder is buying a home for the license holder's own account. Under Texas standards of conduct, the license holder must
- A.hide the license to get a better deal
- B.disclose in writing that they hold a real estate license
- C.do nothing special
- D.get TREC approval first
Show answer and explanation
Correct answer: B. disclose in writing that they hold a real estate license
Why B is correct: A license holder who buys or sells property for their own account must disclose their license-holder status to the other party. Failing to disclose that you are a license holder when acting as a principal violates the standards of conduct.
Trap: Acting as a principal does not switch off disclosure. You must reveal that you hold a license.
Source: TREC Rules, 22 TAC §535.144; license holder acting as principal
13. A net listing, in which the broker keeps everything above a price the seller sets, is
- A.encouraged in Texas for every listing
- B.permitted only in limited circumstances and disfavored because it invites conflicts of interest
- C.the standard Texas listing form
- D.illegal in all states
Show answer and explanation
Correct answer: B. permitted only in limited circumstances and disfavored because it invites conflicts of interest
Why B is correct: Net listings are disfavored because they can pit the broker's interest against the seller's. Texas permits them only in narrow circumstances and requires care to avoid taking advantage of the seller. The promulgated and standard listings are not net listings.
Trap: A net listing is a conflict-prone arrangement, allowed only in limited situations, not a normal listing type.
Source: TREC Rules, 22 TAC §535.16(b); net listings
14. A sponsoring broker is responsible for
- A.only the broker's own transactions
- B.supervising the sponsored sales agents and the acts of the broker's unlicensed assistants
- C.nothing once an agent is licensed
- D.the personal finances of each agent
Show answer and explanation
Correct answer: B. supervising the sponsored sales agents and the acts of the broker's unlicensed assistants
Why B is correct: A sponsoring broker is responsible for supervising sponsored sales agents and for the brokerage acts of unlicensed assistants. Inadequate supervision is itself a ground for discipline against the broker.
Trap: Supervision is the broker's job. The broker answers for the agents and assistants under the broker.
Source: TREC Rules, 22 TAC §535.2; broker supervision
15. A sales agent steers buyers to a particular inspector in exchange for an undisclosed payment from that inspector. This is
- A.fine, because the buyer can refuse
- B.a prohibited undisclosed kickback that must be disclosed
- C.required by TREC
- D.only an issue for the inspector
Show answer and explanation
Correct answer: B. a prohibited undisclosed kickback that must be disclosed
Why B is correct: Receiving a fee, rebate, or other compensation from a service provider in connection with a transaction without disclosing it to the client is a prohibited undisclosed kickback. Compensation from a third party must be disclosed.
Trap: Undisclosed compensation from a service provider is a violation. Disclosure to the client is required.
Source: TRELA §1101.652; undisclosed compensation
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Get the full question bankFrequently asked questions
What is the difference between commingling and conversion in Texas?+
Commingling is mixing client or trust funds with the broker's own business funds, even if the money is never spent. Conversion is the more serious act of using trust funds for the broker's own benefit. Both are grounds for TREC discipline.
Can a Texas license holder draft custom contract language?+
No. A Texas license holder may only fill in the blanks on TREC-promulgated or approved forms. Drafting new contract language is the unauthorized practice of law and must be left to an attorney.
Must Texas advertising identify the broker?+
Yes. Texas advertising rules require that advertising not be misleading and that it identify the sponsoring broker. An ad in only the sales agent's name, without the broker, is prohibited, including online and on social media.