TX Principles of Real Estate II — Final Exam Prep: 300 Questions & Answers
TEXAS PRINCIPLES OF REAL ESTATE II ULTIMATE EXAM PREP -
VERIFIED ANSWERS AND QUESTIONS - MOST RECENT EDITION 2026
TX Principles: Texas Principles of Real Estate II Final Exam Prep
300 Questions & Answers
Topics Covered: Contracts • Finance • Appraisal • Property Management •
Closing • Fair Housing • Agency • Investment • Land Use • Environmental •
Market Economics • Commercial RE • Texas-Specific Laws • Ethics
Q1. What is the purpose of the Statute of Frauds in Texas real estate?
ANSWER It requires that real estate contracts be in writing and signed by
the party to be bound in order to be enforceable.
Q2. What is 'earnest money' in a Texas real estate transaction?
ANSWER Earnest money is a deposit made by the buyer to demonstrate
good faith and is applied toward the purchase price at closing.
Q3. Under the Texas REALTORS® One to Four Family Residential Contract,
who typically holds the earnest money?
ANSWER The title company or escrow agent named in the contract typically
holds the earnest money.
Q4. What happens to earnest money if the buyer defaults on a real estate
contract in Texas?
ANSWER If the buyer defaults, the seller may be entitled to retain the
earnest money as liquidated damages, depending on the contract terms.
Q5. What is an 'option period' in a Texas real estate contract?
TX Principles of Real Estate II — Exam Prep
,TX Principles of Real Estate II — Final Exam Prep: 300 Questions & Answers
ANSWER An option period is a negotiated time frame during which the buyer
pays an option fee for the unrestricted right to terminate the contract for any
reason.
Q6. What is the option fee in a Texas contract, and how does it differ from
earnest money?
ANSWER The option fee is paid directly to the seller for the right to terminate
during the option period; earnest money is held in escrow and applied to the
purchase price.
Q7. What is a 'contingency' in a real estate contract?
ANSWER A contingency is a condition that must be met for the contract to
become binding; if it is not met, the contract may be voided.
Q8. What does 'time is of the essence' mean in a real estate contract?
ANSWER It means that the deadlines in the contract are strict and material;
failure to meet a deadline may constitute a breach of contract.
Q9. What is a 'backup contract' in Texas real estate?
ANSWER A backup contract is a secondary contract that becomes effective
if the primary (first) contract falls through.
Q10. What is the Third Party Financing Addendum used for?
ANSWER It is used when the buyer is obtaining a loan; it outlines financing
terms and gives the buyer the right to terminate if financing cannot be
obtained on specified terms.
Q11. What must a seller disclose using the Seller's Disclosure Notice in
Texas?
ANSWER The seller must disclose known material defects, conditions, and
other facts affecting the property that could influence the buyer's decision.
Q12. Is the Seller's Disclosure Notice required for all transactions in Texas?
ANSWER No; there are exemptions, such as sales between family
members, foreclosure sales, and new construction sold by a builder.
Q13. What is 'specific performance' as a remedy in a real estate contract?
ANSWER Specific performance is a court-ordered remedy that requires the
breaching party to complete the transaction as agreed in the contract.
Q14. What is the difference between 'void' and 'voidable' contracts?
ANSWER A void contract has no legal effect from inception; a voidable
contract is valid but may be canceled by one party due to factors such as
fraud or lack of capacity.
TX Principles of Real Estate II — Exam Prep
,TX Principles of Real Estate II — Final Exam Prep: 300 Questions & Answers
Q15. What are the essential elements of a valid real estate contract in
Texas?
ANSWER The essential elements are: competent parties, mutual agreement
(offer and acceptance), lawful object, consideration, and it must be in writing
and signed.
Q16. What is 'mutual assent' in contract law?
ANSWER Mutual assent is the agreement of both parties to the same terms,
demonstrated through an offer by one party and acceptance by the other.
Q17. What is a 'counteroffer' in a real estate transaction?
ANSWER A counteroffer is a response to an original offer that changes one
or more of the original terms; it effectively rejects the original offer and creates
a new one.
Q18. What does 'as-is' mean in a Texas real estate contract?
ANSWER It means the buyer agrees to purchase the property in its current
condition without requiring the seller to make repairs; the buyer still has the
right to inspect.
Q19. What is a 'promissory note' in real estate?
ANSWER A promissory note is a written promise to repay a loan, stating the
principal amount, interest rate, payment terms, and maturity date.
Q20. What is the difference between a sales contract and a lease?
ANSWER A sales contract transfers ownership of property; a lease grants
the right to use and occupy property for a defined period without transferring
ownership.
TX Principles of Real Estate II — Exam Prep
, TX Principles of Real Estate II — Final Exam Prep: 300 Questions & Answers
Finance & Mortgages
Q21. What is the 'loan-to-value' (LTV) ratio?
ANSWER LTV is the ratio of the loan amount to the appraised value or
purchase price of the property, whichever is lower, expressed as a
percentage.
Q22. What is 'amortization' in mortgage lending?
ANSWER Amortization is the gradual repayment of a loan through
scheduled periodic payments that cover both principal and interest.
Q23. What is a 'conventional loan'?
ANSWER A conventional loan is a mortgage not insured or guaranteed by a
government agency; it conforms to standards set by Fannie Mae or Freddie
Mac.
Q24. What is an FHA loan?
ANSWER An FHA loan is a mortgage insured by the Federal Housing
Administration, allowing lower down payments and more flexible qualifying
criteria.
Q25. What is a VA loan?
ANSWER A VA loan is a mortgage guaranteed by the U.S. Department of
Veterans Affairs, available to eligible veterans and service members, often
requiring no down payment.
Q26. What is a USDA loan?
ANSWER A USDA loan is a government-backed mortgage for rural and
suburban buyers who meet income requirements, often with no down payment
required.
Q27. What is 'PMI' and when is it required?
ANSWER Private Mortgage Insurance protects the lender if a borrower
defaults; it is typically required when the LTV exceeds 80% on conventional
loans.
Q28. What is a 'fixed-rate mortgage'?
ANSWER A fixed-rate mortgage has an interest rate that remains constant
for the life of the loan, resulting in predictable monthly payments.
Q29. What is an 'adjustable-rate mortgage' (ARM)?
ANSWER An ARM has an interest rate that changes periodically based on a
market index, which can cause monthly payments to increase or decrease.
Q30. What is a 'balloon mortgage'?
TX Principles of Real Estate II — Exam Prep
TEXAS PRINCIPLES OF REAL ESTATE II ULTIMATE EXAM PREP -
VERIFIED ANSWERS AND QUESTIONS - MOST RECENT EDITION 2026
TX Principles: Texas Principles of Real Estate II Final Exam Prep
300 Questions & Answers
Topics Covered: Contracts • Finance • Appraisal • Property Management •
Closing • Fair Housing • Agency • Investment • Land Use • Environmental •
Market Economics • Commercial RE • Texas-Specific Laws • Ethics
Q1. What is the purpose of the Statute of Frauds in Texas real estate?
ANSWER It requires that real estate contracts be in writing and signed by
the party to be bound in order to be enforceable.
Q2. What is 'earnest money' in a Texas real estate transaction?
ANSWER Earnest money is a deposit made by the buyer to demonstrate
good faith and is applied toward the purchase price at closing.
Q3. Under the Texas REALTORS® One to Four Family Residential Contract,
who typically holds the earnest money?
ANSWER The title company or escrow agent named in the contract typically
holds the earnest money.
Q4. What happens to earnest money if the buyer defaults on a real estate
contract in Texas?
ANSWER If the buyer defaults, the seller may be entitled to retain the
earnest money as liquidated damages, depending on the contract terms.
Q5. What is an 'option period' in a Texas real estate contract?
TX Principles of Real Estate II — Exam Prep
,TX Principles of Real Estate II — Final Exam Prep: 300 Questions & Answers
ANSWER An option period is a negotiated time frame during which the buyer
pays an option fee for the unrestricted right to terminate the contract for any
reason.
Q6. What is the option fee in a Texas contract, and how does it differ from
earnest money?
ANSWER The option fee is paid directly to the seller for the right to terminate
during the option period; earnest money is held in escrow and applied to the
purchase price.
Q7. What is a 'contingency' in a real estate contract?
ANSWER A contingency is a condition that must be met for the contract to
become binding; if it is not met, the contract may be voided.
Q8. What does 'time is of the essence' mean in a real estate contract?
ANSWER It means that the deadlines in the contract are strict and material;
failure to meet a deadline may constitute a breach of contract.
Q9. What is a 'backup contract' in Texas real estate?
ANSWER A backup contract is a secondary contract that becomes effective
if the primary (first) contract falls through.
Q10. What is the Third Party Financing Addendum used for?
ANSWER It is used when the buyer is obtaining a loan; it outlines financing
terms and gives the buyer the right to terminate if financing cannot be
obtained on specified terms.
Q11. What must a seller disclose using the Seller's Disclosure Notice in
Texas?
ANSWER The seller must disclose known material defects, conditions, and
other facts affecting the property that could influence the buyer's decision.
Q12. Is the Seller's Disclosure Notice required for all transactions in Texas?
ANSWER No; there are exemptions, such as sales between family
members, foreclosure sales, and new construction sold by a builder.
Q13. What is 'specific performance' as a remedy in a real estate contract?
ANSWER Specific performance is a court-ordered remedy that requires the
breaching party to complete the transaction as agreed in the contract.
Q14. What is the difference between 'void' and 'voidable' contracts?
ANSWER A void contract has no legal effect from inception; a voidable
contract is valid but may be canceled by one party due to factors such as
fraud or lack of capacity.
TX Principles of Real Estate II — Exam Prep
,TX Principles of Real Estate II — Final Exam Prep: 300 Questions & Answers
Q15. What are the essential elements of a valid real estate contract in
Texas?
ANSWER The essential elements are: competent parties, mutual agreement
(offer and acceptance), lawful object, consideration, and it must be in writing
and signed.
Q16. What is 'mutual assent' in contract law?
ANSWER Mutual assent is the agreement of both parties to the same terms,
demonstrated through an offer by one party and acceptance by the other.
Q17. What is a 'counteroffer' in a real estate transaction?
ANSWER A counteroffer is a response to an original offer that changes one
or more of the original terms; it effectively rejects the original offer and creates
a new one.
Q18. What does 'as-is' mean in a Texas real estate contract?
ANSWER It means the buyer agrees to purchase the property in its current
condition without requiring the seller to make repairs; the buyer still has the
right to inspect.
Q19. What is a 'promissory note' in real estate?
ANSWER A promissory note is a written promise to repay a loan, stating the
principal amount, interest rate, payment terms, and maturity date.
Q20. What is the difference between a sales contract and a lease?
ANSWER A sales contract transfers ownership of property; a lease grants
the right to use and occupy property for a defined period without transferring
ownership.
TX Principles of Real Estate II — Exam Prep
, TX Principles of Real Estate II — Final Exam Prep: 300 Questions & Answers
Finance & Mortgages
Q21. What is the 'loan-to-value' (LTV) ratio?
ANSWER LTV is the ratio of the loan amount to the appraised value or
purchase price of the property, whichever is lower, expressed as a
percentage.
Q22. What is 'amortization' in mortgage lending?
ANSWER Amortization is the gradual repayment of a loan through
scheduled periodic payments that cover both principal and interest.
Q23. What is a 'conventional loan'?
ANSWER A conventional loan is a mortgage not insured or guaranteed by a
government agency; it conforms to standards set by Fannie Mae or Freddie
Mac.
Q24. What is an FHA loan?
ANSWER An FHA loan is a mortgage insured by the Federal Housing
Administration, allowing lower down payments and more flexible qualifying
criteria.
Q25. What is a VA loan?
ANSWER A VA loan is a mortgage guaranteed by the U.S. Department of
Veterans Affairs, available to eligible veterans and service members, often
requiring no down payment.
Q26. What is a USDA loan?
ANSWER A USDA loan is a government-backed mortgage for rural and
suburban buyers who meet income requirements, often with no down payment
required.
Q27. What is 'PMI' and when is it required?
ANSWER Private Mortgage Insurance protects the lender if a borrower
defaults; it is typically required when the LTV exceeds 80% on conventional
loans.
Q28. What is a 'fixed-rate mortgage'?
ANSWER A fixed-rate mortgage has an interest rate that remains constant
for the life of the loan, resulting in predictable monthly payments.
Q29. What is an 'adjustable-rate mortgage' (ARM)?
ANSWER An ARM has an interest rate that changes periodically based on a
market index, which can cause monthly payments to increase or decrease.
Q30. What is a 'balloon mortgage'?
TX Principles of Real Estate II — Exam Prep
