Grace is an affiliate broker in Tennessee representing a seller. The seller's home is under contract with a financing contingency that expires in 14 days. On day 12, the buyer's affiliate broker calls Grace and says 'I think we'll be fine on financing, but I haven't received the official commitment letter yet.' Grace does not follow up in writing and does not advise her seller client to request an extension or take any protective action. On day 16, the buyer formally terminates the contract citing failure to obtain financing and demands return of the earnest money. The seller believes Grace failed in her duties. Which of the following best describes Grace's potential liability under Tennessee law?
Correct Answer
B) Grace may have violated her fiduciary duties to her seller client by failing to advise the seller to take protective action when the contingency deadline was approaching without confirmation of financing
Under Tennessee law, a seller's affiliate broker owes fiduciary duties to the seller client, which include the duty of loyalty, disclosure, and reasonable care. When Grace learned on day 12 that financing had not been confirmed and the contingency deadline was approaching, she had a duty to advise her seller client of the situation and the potential risks—including the possibility that the contingency might expire without action or that the buyer might invoke it after the deadline. Failing to advise the seller to consider requesting a written extension or taking other protective action could constitute a breach of her duty of reasonable care under Tenn. Code Ann. § 62-13-401 et seq. and expose her to TREC disciplinary action.
Why This Is the Correct Answer
Why the Other Options Are Wrong
Deep Analysis of This Contracts Question
Background Knowledge for Contracts
Real World Application in Contracts
Common Mistakes to Avoid on Contracts Questions
Related Topics & Key Terms
Key Terms:
Related Concepts
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
More Contracts Questions
A Rhode Island salesperson asks about an owner is about to sign a purchase and sale agreement. What is the best answer?
For the Rhode Island state portion, how should a candidate analyze a seller asks the principal broker about commission split or distribution?
A Rhode Island principal broker reviews a licensee wants to enter a net listing contract. Which answer follows Rhode Island law?
A Rhode Island principal broker reviews a licensee takes a listing agreement. Which answer follows Rhode Island law?
Which Rhode Island rule applies when parties sign a listing, sale, lease, or other real estate contract?
- → A Rhode Island licensee encounters a listing contract is drafted. What should the licensee remember?
- → In Rhode Island, a licensee submits a written purchase or lease offer to an owner. Which statement is correct?
- → A Rhode Island salesperson asks about a listing agreement or contract for sale is prepared. What is the best answer?
- → Which Rhode Island rule applies when a listing agreement lists property with a multiple listing service?
- → A Rhode Island licensee encounters a listing agreement lets the principal broker retain a portion of deposit money upon buyer default. What should the licensee remember?
- → A Hawaii licensee is reviewing the commission asks to inspect escrow and trust records. What is the best answer?
- → A Hawaii broker asks a salesperson about a deed or lease is not recorded. Which answer follows Hawaii law?
- → For the Hawaii salesperson state portion, interest accrues on a trust-account deposit. Which statement is correct?
- → In a Hawaii real estate transaction, trust funds are placed with a neutral escrow depository for Hawaii property. What should the licensee remember?
- → For the Hawaii salesperson state portion, a licensee secures a party signature on a Hawaii listing or purchase contract. Which statement is correct?
People Also Study
Buyer Representation Agreement
8% of exam
Property Ownership
10% of exam
Land Use Controls and Regulations
8% of exam
Valuation and Market Analysis
10% of exam
Related Articles
Real Estate Exam Practice Questions by Topic (2026): Free Sets for Contracts, Agency, Financing
Get topic-based real estate exam practice sets and a simple sequence to move from learning to timed mocks.
Real Estate Exam Topics (2026): High-Yield Areas + Common Traps (Contracts, Agency, Financing, Fair Housing)
Learn the highest-frequency real estate exam topics and the traps that cause most wrong answers—plus how to study them.
Real Estate Exam Contracts: The Only Guide You Need (2026) + Practice Questions
Learn the contract rules the exam loves, common trick wording, and how to practice contract questions efficiently.