Tennessee real estate practice test, state law first

Incorrect: Commissions are negotiated; TREC does not set them.

Incorrect: Fee disputes are settled privately or in court, not before TREC.

Correct: Rule 1260-02-.02(8) states the Commission will not intervene in debts, loans, draws or commission disputes between firms, brokers or affiliates.

Incorrect: No TREC rule orders mediation of commission disputes.

Correct: T.C.A. § 62-13-201 has the governor appoint all nine members, three from each grand division.

Incorrect: Licensees do not vote for commissioners.

Incorrect: The General Assembly created the Commission by statute; appointments belong to the governor.

Incorrect: TREC sits within the Department of Commerce and Insurance, but the department does not choose its members.

Incorrect: License discipline does not wait for a civil judgment; the two run separately.

Incorrect: The governor appoints members but does not trigger investigations.

Correct: Most TREC cases begin with a written complaint under T.C.A. § 62-13-313, which the licensee must answer; other evidence, such as audit findings, can also open an investigation.

Incorrect: TREC does audit, for example E&O coverage at random under Rule 1260-01-.15(3), but audits are not the only path into a case.

Incorrect: Newspaper publication is not part of the process.

Incorrect: Final actions are public, but no rule requires notifying every licensee individually.

Correct: Under the Uniform Administrative Procedures Act, a contested case ends in a written order with findings of fact and conclusions of law.

Incorrect: No federal reporting step is part of a TREC hearing.

Incorrect: The published reports describe the violation and penalty, not just a name.

Correct: TREC publishes its final disciplinary actions, naming the licensee, the violation and the penalty, in its disciplinary action reports.

Incorrect: Final orders are public records.

Incorrect: Affiliate brokers' discipline is published the same way as brokers'.

Incorrect: Consent orders come from the Commission and the licensee, not from a court.

Incorrect: Branch offices need their own firm license, not a consent order.

Correct: A consent order settles a case informally: the licensee agrees to terms such as a civil penalty, and a formal hearing becomes unnecessary (see Rule 1260-01-.16(2)(c)).

Incorrect: The term has nothing to do with closing a sale.

Incorrect: Leaving out the street address is common and does not make an ad blind.

Correct: A blind ad conceals that a licensee is advertising; Rule 1260-02-.12(3)(a)-(b) forbids that by requiring the firm name and phone in every ad.

Incorrect: Targeting ads by group raises fair housing issues, but that is not what a blind ad means.

Incorrect: A wordless image ad is unusual, but the term refers to missing identification.

Incorrect: Naming the agent does not replace the firm name and phone the rule requires.

Incorrect: Making a reader ask defeats the one-click standard.

Correct: Rule 1260-02-.12(6)(b) requires the firm name and firm phone to be no more than one click away from the viewable social media page.

Incorrect: Social media is advertising under Rule 1260-02-.12(1), so the firm details must be reachable from the post itself.

Incorrect: Professional photos are ordinary, accurate marketing.

Incorrect: Accurate, substantiated claims are what Rule 1260-02-.12(7)(a) expects.

Correct: Rule 1260-02-.12(3)(f)3 treats a webpage linking to an unlicensed entity that is, or appears to be, doing licensed activity as false, misleading or deceptive.

Incorrect: The rule sets a minimum size for the firm name relative to licensee and team names; larger is fine.

Correct: Rule 1260-02-.02(3)(a) makes the online transfer valid only if the receiving principal broker first verified an active Tennessee license and current errors and omissions insurance.

Incorrect: Listings stay with the old firm unless its principal broker authorizes otherwise in writing (Rule 1260-02-.02(4)); they are not a transfer condition.

Incorrect: Continuing education is checked at renewal, not as a condition of an online transfer.

Incorrect: The online process needs an electronic signature and payment, not a notarized release.

Incorrect: Advocacy for the seller requires a listing agreement; a facilitator has none.

Incorrect: Pushing for the buyer's price is advocacy, which a facilitator does not do.

Correct: Under T.C.A. § 62-13-102 a facilitator may advise either or both parties but is not a representative or advocate of either.

Incorrect: No licensee's duty in a transaction runs to the brokerage over the parties.

Correct: A designated agent under T.C.A. § 62-13-406 represents one party to the exclusion of other firm licensees; a dual agent has agency agreements with parties whose interests are adverse.

Incorrect: It is the reverse: the managing broker appoints, and any affiliated licensee can be appointed.

Incorrect: Section 62-13-406(c) bars imputing knowledge between designated agents and the broker, so client information is not shared.

Incorrect: A designated agent owes the client the duties in § 62-13-404, such as loyalty and obeying lawful instructions.

Incorrect: The duty belongs to the owner; a licensee cannot sign it for the seller.

Correct: T.C.A. § 66-5-205 lets the owner, at or before closing, either disclose any material change or certify that the condition is substantially the same as when the disclosure was given.

Incorrect: A home warranty is a sales incentive, not a substitute for the statute's certification.

Incorrect: An inspection report is not the statutory step; the seller's own certification is.

Incorrect: Affiliation changes have nothing to do with a closing attorney.

Correct: Rule 1260-02-.02(1) requires the principal broker to retain a copy of the executed release form or the online submission confirmation.

Incorrect: Staff may file it, but the rule names the principal broker.

Incorrect: A team leader at the new firm has no role in the old firm's release record.

Incorrect: TREC does not need a court order to review a licensee's records.

Incorrect: There is no annual audit of every firm, though records must always be ready for inspection.

Incorrect: Renewal is handled with fees and CE; it does not involve producing transaction files.

Correct: File requests usually come with a complaint investigation, when staff need the transaction record to test the allegation.

Incorrect: Ten days is the deadline for other TREC notices, such as a principal broker's death, not for records.

Incorrect: Three days is longer than the rule allows.

Incorrect: A month would defeat the purpose of on-demand inspection.

Correct: Rule 1260-02-.40(1)(a) requires electronic records to be readily accessible in an organized format within 24 hours of any inspection request.

Correct: Fee simple absolute is the largest estate: unlimited in duration, freely transferable and inheritable, with no conditions attached.

Incorrect: A leasehold is a tenant's right of possession for a term, not ownership.

Incorrect: A fee simple determinable ends automatically if a stated condition occurs, so it carries a limitation.

Incorrect: A life estate ends at the death of the measuring life and cannot pass by the holder's will.

Incorrect: Right-to-use gives occupancy for a period without ownership, the opposite of a fractional deed.

Correct: Fractional ownership conveys a deeded fee interest in a share of a specific property, recorded like other real estate.

Incorrect: A points program is a booking and exchange currency, not a deeded share of a property.

Incorrect: A lease with an option to buy is a rental arrangement until the option is exercised.

Incorrect: A minor's contract is voidable by the minor, not void.

Correct: A contract with an illegal purpose is void from the start; no party can enforce it.

Incorrect: Duress makes a contract voidable by the pressured party.

Incorrect: Misrepresentation gives the deceived party a right to rescind, which makes the contract voidable rather than void.

Correct: Contra proferentem resolves an ambiguous term against the party who drafted it.

Incorrect: Substantial performance asks whether a party performed enough to enforce the contract, not how to read unclear terms.

Incorrect: A merger clause states that the writing is the whole agreement; it does not read ambiguity against anyone.

Incorrect: The parol evidence rule limits outside evidence that contradicts a complete written contract; it is not a tiebreaker against the drafter.

Incorrect: Disclosure covers passing material information to the client, not handling funds.

Incorrect: Confidentiality protects private information, not deposits.

Incorrect: Loyalty means putting the client's interests first; mishandled funds breach accounting directly.

Correct: Accounting is the duty to safeguard and account for all money and property received on behalf of others.

Incorrect: A departing licensee cannot take the firm's listings or buyer agreements without written authorization (Rule 1260-02-.02(4)); the closed files stay with the firm as well.

Incorrect: The new firm had no part in those deals and has no claim to the files.

Correct: Transaction files belong to the firm where the deal happened; that principal broker keeps them for the three-year retention period.

Incorrect: TREC can inspect files but does not take custody of them.

Incorrect: Owner-occupied buildings of four or fewer units have a limited exemption, though discriminatory advertising is still barred.

Correct: No Fair Housing Act exemption permits refusing to sell based on race, and the Civil Rights Act of 1866 bars racial discrimination in all property sales.

Incorrect: Religious organizations may prefer members in noncommercial housing, unless membership is restricted by race.

Incorrect: Qualified housing for older persons is exempt from the familial status rules.

Incorrect: Innocent misrepresentation requires that the speaker believed the statement; this agent knew it was false.

Incorrect: Puffery is vague sales opinion like great neighborhood; sewer service is a checkable fact.

Correct: Knowingly stating a false material fact is intentional, or fraudulent, misrepresentation, and it can support rescission and damages.

Incorrect: Negligence describes a careless mistake; a known falsehood is more than careless.

Incorrect: Past water damage can mean hidden mold or repairs, which a buyer would want to know.

Correct: Dated cabinets are a matter of taste, visible to any buyer, and do not affect structure, health or legal use.

Incorrect: Code problems in the wiring affect safety and cost, which makes them material.

Incorrect: Structural defects are the textbook example of a material fact.

Correct: The rate must drop 0.75 percentage points; at 0.25 per point that takes 0.75 ÷ 0.25 = 3 points.

Incorrect: Two points lower the rate by only 0.50, to 5.25%.

Incorrect: Four points would lower the rate by 1.00, to 4.75%.

Incorrect: Five points overshoot, dropping the rate to 4.50%.

Correct: Discrimination is a ground for TREC discipline, and revocation is the most serious sanction available.

Incorrect: A verbal warning is not a TREC sanction and would understate the violation.

Incorrect: Education can be part of a settlement, but knowing racial discrimination puts the license itself at stake.

Incorrect: Tennessee has its own Human Rights Act and license discipline; fair housing is not only federal.

Incorrect: No ink signature is needed once the parties agreed to deal electronically.

Incorrect: The buyer has nothing to do; the seller's e-signed acceptance completed the contract.

Correct: Under the federal E-SIGN Act and the Uniform Electronic Transactions Act, adopted in Tennessee, an electronic signature counts like ink once the parties transact electronically.

Incorrect: Electronic form is not a defect under E-SIGN or UETA.

Incorrect: No rule requires a duplicate set in a second format.

Incorrect: Electronic recordkeeping has been allowed since Rule 1260-02-.40 took effect in 2015.

Incorrect: Paper files are still permitted; electronic storage is an option.

Correct: Rule 1260-02-.40(1) lets licensees keep required records electronically if they are accessible within 24 hours and kept on a retention schedule; paper remains acceptable.

Correct: Agency is the relationship in which an agent acts for a principal with the principal's consent.

Incorrect: A guardian is appointed by a court for someone who cannot consent, so it does not rest on permission.

Incorrect: Partners co-own a business for profit; acting for each other is incidental to that.

Incorrect: Tenancy in common is co-ownership of property, not a representation relationship.

Incorrect: No doctrine makes the agent solely responsible for condition.

Incorrect: Brokers do not guarantee a property's condition under any doctrine.

Incorrect: Seller disclosure duties are the modern limit on caveat emptor, not its meaning.

Correct: Caveat emptor is Latin for let the buyer beware, the old rule that buyers discover defects themselves; modern disclosure laws narrow it.

Incorrect: The developer's identity and background are core contents of the public offering statement.

Incorrect: A description of the time-share property and its units is required.

Correct: Neighboring property values are not among the contents the Time-Share Act requires; the statement covers the developer, the project and the buyer's rights.

Incorrect: The cancellation right is a required part of the statement, so buyers know their window.

Incorrect: The 60-hour principles course comes before the exam, so it is already done by this point.

Incorrect: Sixteen hours of CE is the renewal requirement for each two-year cycle after licensing.

Incorrect: The 6-hour Core Course belongs to continuing education for renewal, not to prelicensing.

Correct: TREC requires the 30-hour Course for New Affiliates before licensure, after the 60-hour principles course that qualifies the candidate for the exam (PSI bulletin p.2; T.C.A. § 62-13-303).

Incorrect: Working before a transfer is processed is a disciplinary matter for ordinary proceedings.

Incorrect: No complaint count triggers a summary suspension; the standard is imminent danger.

Incorrect: Late renewal leads to penalty fees or expiration under Rule 1260-01-.21, not summary suspension.

Correct: The UAPA, T.C.A. § 4-5-320(c), allows summary suspension only when public health, safety or welfare imperatively requires emergency action, with proceedings promptly to follow.

Incorrect: Who pays the fee does not decide representation; a buyer's agent is often paid from the seller's side.

Incorrect: Experience has nothing to do with the distinction.

Incorrect: Either a buyer or a seller can be a client or a customer, depending on the agreement.

Correct: A client is the party the licensee represents under an agency agreement; a customer is a party the licensee serves without representing.

Correct: Like any contract, an agency agreement can end early by mutual agreement, as well as by performance, expiration or operation of law.

Incorrect: Either party can seek to end the relationship, and mutual agreement needs both.

Incorrect: Parties can always agree to end early; a one-sided early cancellation is what may carry contract consequences.

Incorrect: Expiration, mutual agreement, death or incapacity can all end the agency without a sale.

Incorrect: Tying price to appraisal is an appraisal contingency or gap clause, a different provision.

Incorrect: Changes to the deposit for delays are negotiated terms, not an escalation clause.

Incorrect: Commission terms live in the listing agreement, not in the purchase contract.

Correct: An escalation clause raises the buyer's price by a set increment over any competing offer, up to a stated maximum.

Incorrect: Buyers still need inspections because sellers report only what they know.

Incorrect: A disclosure form does not shift liability for the seller's misstatements to the buyer.

Correct: Disclosure forms, Tennessee's included, report the seller's knowledge and are not a warranty or a substitute for inspections.

Incorrect: Disclosure duties turn on property type, not price.

Correct: Religion is a protected class under the Fair Housing Act; the agent must refuse, explain why, and withdraw if the client insists.

Incorrect: Covert screening is still discrimination, and the agent would share the liability.

Incorrect: Dropping the client without a word skips the explanation the law's refusal duty calls for.

Incorrect: The duty of obedience covers lawful instructions only (T.C.A. § 62-13-404(1)).

Incorrect: TREC does not license or approve teams; it licenses firms and branch offices.

Correct: Rule 1260-02-.41(1) bars a team from establishing a physical location separate from the firm's location of record; another office would have to be the firm's own licensed branch.

Incorrect: The leader's license level does not matter under Rule 1260-02-.41(1).

Incorrect: A team sign would make it worse, suggesting a separate firm.

Incorrect: A client decides whether to sign an agency agreement, but the designated agent is appointed by the broker.

Incorrect: A team leader appointing agents is exactly what Rule 1260-02-.41(5) forbids.

Incorrect: TREC licenses people; it does not appoint agents in transactions.

Correct: Rule 1260-02-.41(5) says teams may not designate members as designated agents; that stays with the principal broker, in line with T.C.A. § 62-13-406.

Incorrect: Sixty days is about when a replacement must be in place if an extension is granted (by the 61st day); notice is due long before.

Correct: Rule 1260-02-.38(1) requires notice within ten days of a principal broker's death, resignation, termination or incapacity, with a plan for continuing operations.

Incorrect: Ninety days has no basis in the rule.

Incorrect: Thirty days is the longest the Commission may let the firm run without a principal broker before any extension, not the notice deadline.

Incorrect: The commission was earned under the former principal broker; the transfer does not route it through the new firm.

Incorrect: The rule exists so that a transfer does not wipe out an earned commission.

Correct: Rule 1260-02-.39 lets commissions earned under a principal broker be paid after the affiliate transfers, retires, enters broker release, lets the license expire or dies.

Incorrect: No Commission approval is needed, and TREC stays out of commission disputes (Rule 1260-02-.02(8)).

Incorrect: Cancellation terms come from the contract; they are not among the rule's three written points.

Correct: Rule 1260-02-.36(3) requires written confirmation of whether the buyer owes a commission after buying through another licensee or directly from an owner.

Incorrect: A buyer's agent keeps the client's price limit confidential; nothing in the rule says otherwise.

Incorrect: The rule says the opposite: the buyer should view properties through the licensee and not contact other licensees directly.

Correct: Section 62-13-405(e) exempts the lease or rental of residential property, along with commercial deals, auctions and residential buildings of more than four units.

Incorrect: The exemption starts above four units; a fourplex sale still needs the disclosure.

Incorrect: A home sale is the core case the disclosure rule covers.

Incorrect: A lot sale is not on the exemption list, so the status disclosure is still required.

Correct: Section 62-13-404(3)(B) requires the agent to advise in writing that the client may not expect or seek help from other licensees in the transaction for the waived duties.

Incorrect: The statute does not tie a waiver to the commission; fees are negotiated in the agreement.

Incorrect: No automatic expiration appears in the statute.

Incorrect: Waivers are between client and agent; TREC does not approve them.

Incorrect: That is the common-law idea Tennessee's agency statute replaced (§ 62-13-408).

Incorrect: Section 62-13-407 expressly keeps the managing broker's liability for its licensees' misrepresentations.

Incorrect: Written or spoken makes no difference; what matters is the seller's knowledge.

Correct: Section 62-13-407 shields a client from damages for the licensee's misrepresentations unless the client knew or had reason to know of them.

Incorrect: Pumping may be negotiated, but no rule puts it in the offer.

Correct: Rule 1260-02-.37 requires a licensee preparing an offer to include, and point out, that a septic system inspection letter is available for a fee from the Tennessee Department of Environment and Conservation.

Incorrect: Known septic problems are disclosed like any other defect; there is no exemption.

Incorrect: The letter comes from the state, and it carries a fee.

Incorrect: A signed release is another basis under (7)(b), but it is not needed when the offer was never accepted.

Incorrect: The 21-day rule is a deadline after a written request, not a waiting period.

Incorrect: Court orders and interpleader are for disputes; an unaccepted offer leaves nothing to dispute.

Correct: Rule 1260-02-.09(7)(e) lists the withdrawal of an offer not yet accepted as a proper basis for disbursing trust money.

Incorrect: Until the money reaches the title company, the firm still answers for it.

Incorrect: Three years is the records-retention period, not the end of responsibility for the money.

Incorrect: Responsibility ends earlier, on delivery to the named holder, not at closing.

Correct: Rule 1260-02-.09(6) relieves the principal broker of responsibility once the escrow agent named in the contract receives the trust money.

Correct: Rule 1260-02-.32(2) lets TREC assess $0 to $1,000 for each violation against a person who must be licensed as a broker but is not, and each day can count separately.

Incorrect: Probation is a criminal sentence; TREC's tool here is an administrative civil penalty.

Incorrect: Unlicensed brokerage is within TREC's reach; Rule 1260-02-.32(2) is written for exactly that case.

Incorrect: TREC does not award money to consumers; recovering fees is a matter for the courts.

Correct: Rule 1260-01-.02(3) says an applicant detected cheating forfeits the right to grading and may face further Commission action.

Incorrect: Forfeiture applies to the examination taken, not just one portion.

Incorrect: No point deduction exists; the exam is simply not graded.

Incorrect: A 30-day wait is PSI's retake spacing after a second failed attempt, not the cheating rule.

Correct: Rule 1260-02-.12(3)(c) requires an ad that refers to an individual licensee to list that licensee's name as licensed with TREC, which here is Katherine M. Doyle.

Incorrect: A team name never replaces the licensee's licensed name, and it must be no larger than the firm name.

Incorrect: Initials shorten the licensed name; the rule asks for the name as licensed.

Incorrect: A nickname alone is not the name on file with TREC, even if the firm name appears.

Incorrect: Routing money through a leader's company is payment from someone other than the principal broker.

Correct: Rule 1260-02-.41(2) says team members may receive compensation for licensed acts from no one other than their principal broker.

Incorrect: Buyers paying the team directly would also bypass the principal broker.

Incorrect: Disclosure does not open the door; payment from anyone but the principal broker is barred.

Correct: Rule 1260-02-.03(3)(b) keeps a model home out of branch licensing only if its location or phone is advertised in conjunction with the main firm office, among other conditions.

Incorrect: Advertising its own number separately is what turns a location into a branch under Rule 1260-02-.03(3)(a).

Incorrect: Rule 1260-02-.03(3)(b)3 bars a model home from being the firm's sole sales office.

Incorrect: Every ad needs the firm name and phone on file; a builder-only ad also hides the licensee.

Incorrect: Money disputes between brokers and affiliates are outside the release rule, and TREC stays out of them (Rule 1260-02-.02(8)).

Correct: Rule 1260-02-.02(5) says a release demanded by a licensee shall be promptly granted, and the principal broker returns the license.

Incorrect: No notice period appears in the rule; the release is due promptly.

Incorrect: The rule does not let the broker delay the release for pending business.

Correct: Rule 1260-02-.09(5) requires the contract to state the terms and conditions for disbursing the trust money and the name and address of whoever actually holds it.

Incorrect: Interest-bearing accounts are optional; the rule asks for disbursement terms and the holder.

Incorrect: Payoff figures belong to the closing statement, not to the escrow clause.

Incorrect: License details are not among the contract terms this rule requires.

Correct: When the agent holds an interest in the property itself, such as a broker who co-owns it, the agency survives the principal's death and cannot be revoked at will.

Incorrect: Ratification means the principal approves an unauthorized act after the fact; the agency it confirms can still be revoked and ends at the principal's death.

Incorrect: Estoppel binds a principal whose conduct led others to rely on an apparent agent; it gives no protection against revocation or death, and Tennessee's § 62-13-401 bars implied agency for licensees anyway.

Incorrect: A special agent handles one transaction, like a listing; the principal can revoke it, and death ends it.

Correct: Rule 1260-01-.01(5)(d) says an applicant who appears and is denied is not eligible for reconsideration for six months from the denial.

Incorrect: Thirty days is far shorter than the rule's waiting period.

Incorrect: Two years echoes the waiting period after a sentence ends, not the reconsideration rule.

Incorrect: The rule sets a waiting period, so a denial is not permanent.

Incorrect: Relying on a side promise leaves the contract incomplete, which the rule forbids.

Correct: Rule 1260-02-.08 requires brokers and affiliate brokers to make certain all terms and conditions of the transaction are included in the contract to purchase.

Incorrect: An MLS note is not the purchase contract and binds no one.

Incorrect: Nothing is filed with TREC; the term goes into the contract.