Agency - Part 1 - Chapters 1-3

Question 1

Identify the activities requiring a Real Estate License

Answer 1

Activities requiring a RE License

• negotiate the sale, purchase, leases, sales contracts, mortgages or exchange of Real Estate or mobile home
• soliciting listings, buyers or sellers
• leasing or renting on behalf of owner or tenant

Question 2

What are the eligibility and education requirements for an AGENT to get their license?

Answer 2

For AGENT to qualify for test to get license, they must:

• complete THREE statutory courses or 3-semester/quarter equivalent, unless exempt
• pass the DRE agent licensing exam.

Question 3

What are the eligibility and education requirements for a BROKER to get their license?

Answer 3

For BROKER to qualify for test to get license, they must:

• they must have held a RE agent license for at least 2 years, within the last five years
• apply for a broker license
• complete EIGHT statutory courses or 3-semester/quarter equivalent, unless exempt
• pass the DRE agent licensing exam.

Question 4

What are the eligibility and education requirements for an AGENT and BROKER to RENEW their license?

Answer 4

An AGENT and BROKER license is valid for FOUR years and in order to renew their DRE license they must complete 45 hours of Continuing Education (CE) every four years.

Question 5

What is the function of the Real Estate Recovery Fund?

Answer 5

The Real Estate Recovery Fund aka the Consumer Recovery Account, makes funds/money available to individuals who have won a court case against an agent licensee and are unable to recover the judgement (get that money) from the agent. The threshold for recovery is $50,000 for one transaction and $250,000 for any one agent licensee.

Question 6

When is a Mortgage Loan Originator (MLO) license endorsement required of licensees who originate/provide mortgages?

Answer 6

Licensees who make or arrange residential mortgages are required to obtain a DRE Mortgage Loan Originator (MLO) license endorsement. A residential mortgage is any mortgage primarily for personal, family or household use secured by a deed or trust on a dwelling. (Loans made for business, investment or agriculture purposes are not made for consumer purpose and therefore do not trigger the endorsement requirement).

Question 7

bulk sale

Answer 7

A bulk sale is the transfer of more than 1/2 the inventory of a business’ materials or goods to a person other than the business’ customers. A bulk sale needs to comply with the Uniform Commercial Code (UCC) since it is the transfer of personal property.

Question 8

business opportunity

Answer 8

A business opportunity is the sale or lease of the operations and goodwill of an existing business enterprise or opportunity. Common types of BUSINESS OPPORTUNITIES include:

• liquor stores
• gas stations
• restaurants

The sale of a business opportunity consists of two transactions:

• the sale of the business, including inventory, trade fixtures and goodwill
• the sale of the real property itself, whether a fee or leasehold interest, including the building and land

Documents used in the sale of a business include:

• bill of sale (the inventory of bus is transferred to buyer by this bill of sale)
• Uniform Commercial Code (UCC) financing statement for the personal property
• a deed for the transfer of the real property

Question 9

Department of Real Estate (DRE)

Answer 9

The Department of Real Estate (DRE) is the government agency which oversees, regulates, administers, and enforces CA RE law as practiced by licensees. It was created to oversee licensing and police a minimum level of professional competency for individuals desiring to represent others as RE agents.

Question 10

Designated Officer (DO)

Answer 10

A Designated Officer (DO) is an individual who is the licensed officer qualifying a corporation for a corporate broker license. The corporation holds its license through the DO and the DO is responsible for supervising and controlling all agent and brokers employed by that corporate broker

Question 11

fictitious business name

Answer 11

A Fictitious Business Name (FBN) is the name under which a business or operation is conducted, also known as d.b.a “doing business as.” A FBN license will only be granted to a broker who has correctly filed for it and the DRE can refuse that license if dba is misleading, implies wrongful partnership, includes a RE agent name, violates CA Business and Professions Code, name of a RE Licensee whose license is revoked.

**The DBA, also known as a fictitious business name expires FIVE years from recordation and therefore needs to be renewed every FIVE years.

Question 12

mobile home

Answer 12

A mobile home is also known as a manufactured home and is classified as PERSONAL PROPERTY if it is:

• more than 320 square feet
• built on a permanent chassis
• designed to be used as a dwelling with our without a permanent foundation
• is NOT attached to a parcel of land/real estate

A mobile home is classified as REAL ESTATE or real property if it meets all requirement above and is:
* attached to a permanent foundation, since it is a permanent fixture or an improvement to real estate

Question 13

Mortgage Loan Originator (MLO)

Answer 13

A Mortgage Loan Originator (MLO) is a DRE licensee (agent or broker) who receives fees/money to arrange a consumer mortgage other than a carryback. A consumer purpose mortgage is any loan primarily for personal, family or household use, secured by a deed of trust (the paperwork you sign) when you buy a house.

Question 14

principal

Answer 14

The Principal is any person or individual or entity, acting as a buyer or seller, who is represented by a broker and their agents. The Principals were Jeff and me when we sold Milan.

Question 15

Real Estate Recovery Fund

Answer 15

The Real Estate Recovery Fund is also known as the Consumer Recovery Account. Individuals can be awarded money from the Fund/Account if they win a court case against their licensee/agent and if they can’t get that money from their agent. The judgement needs to be based on:

• fraud, misrepresentation, deceit
• conversion of trust funds
• criminal restitution

Question 16

real estate agent

Answer 16

An RE agent is a person who, for compensation or in expectation of compensation, is employed by a licensed broker to do one or more of the acts of a licensed broker. Agents are legally classified as agents of the agent. A sales agent employed by a broker is the agent of the broker, and the broker is the agent of the client.

Question 17

What are the variations of the agency relationship

Answer 17

Agency in RE related transactions include relationships between:
* brokers and member of the public (clients or 3rd parties)
* licensed sales agents and their brokers
* finders and their brokers or principals
Agency and representation are synonymous in RE transactions.

Question 18

How are agency relationships created and what are primary duties owed

Answer 18

The agency relationship is created when a client employs a broker to act on his behalf. This relationship is best undertaken with a signed written employment agreement containing a fee provision. This contract is known as a ‘listing agreement.’ The primary duties a broker ows his client include:

• evaluating the financial impact
• legal consequenses,
• tax aspects
• exposure to risk of loss inherent in all transactions

Question 19

Why is RE licensing necessary to protect licensees and their clients?

Answer 19

RE Licensing is in place to care for and protect both their clients and themselves. Licensees are to:
* know the scope of authority given to them by their client/employment agreement
* document the agency tasks to be undertaken
* possess sufficient knowledge, ability and determination to perform the agency tasks undertaken
A licensee needs to conduct themselves at or above the min acceptable levels of competency to avoid liability to the client or disciplinary action by the DRE.

Question 20

agent and agency relationship

Answer 20

An agent is one who is authorized to represent another such as a broker and client or a sales agent and their broker. The agency relationship exists between the principal employer (Jeff/Me Milan) and agent employee. The principal is employer and agent is employee.

Question 21

What is the origin and necessity of the Agency Law Disclosure?

Answer 21

As a result of the licensee misconceptions about the duties they owe to members of the public and the public’s lack of awareness, the Agency Law Disclosure was created by the CA legislature to familiarize brokers, agent and their principals with the uniform industry jargon. It is delivered to all parties and reveals the duties owed by licensees in the sale or leasing of TARGETED transactions, such as a property containing: one to four residential units.

The Real Estate Agency disclosure law addresses two separate sets of agency-related matters on real estate:

• an Agency Law Disclosure which sets out the ‘rules of agency’ which control the conduct of real estate licensees when dealing with the public in an agency capacity.
• an Agency Confirmation Provision, declaring the agency relationships undertaken by each of the brokers with the participants in the transaction.

Question 22

What are the roles and obligations of all participants involved in a RE transaction?

Answer 22

In a RE transaction there is a buyer’s agent and a seller’s agent. These brokers/agents have two categories of obligations as outlined in the Agency Law Disclosure:

• the special or primary agency duties of an agent to their principal, these are known a Fiduciary Duties
• the general duties owed by each broker to all parties in the transaction, requiring them to be honest and avoid deceitful conduct, known as general duties

Question 23

When is the Agency Law Disclosure required?

Answer 23

The Agency Law Disclosure is delivered to all parties (right away to the Seller’s agent aka Listing Agent and at the time a Buyer’s agent prepares an offer for the buyer) for the sale or lease of any TARGETED transactions which include:

• single family residences
• multi-unit residential with more than four dwellings
• commercial property
• vacant land
• a ground lease coupled with improvements
• manufactured/mobile home

First of all, what exactly is a ground lease? Ground leases, often called land leases, are simply a lease of the land only. Usually land is leased for a relatively long period of time (50-99 years) to a tenant that constructs a building on the property. A ground lease separates ownership of the land from ownership of the building and improvements constructed on the land.

Question 24

agency confirmation provision

Answer 24

A separate AGENCY CONFIRMATION PROVISION is included in purchase agreements and counteroffers. It advises the buyer and seller of any agency relationships each broker has with the participants in the RE transaction. it outlines basically who each broker/agent is representing, buyer, seller, exclusive agent, or dual agent.

Question 25

buyer’s agent

Answer 25

The Buyer’s Agent is an agent representing the buyer. And oddly, the buyer’s agent is also known as the ‘selling agent,’ a term the Agency Law Disclosure used prior to 2019.

Buyer’s Agent = Selling Agent
Seller’s Agent = Listing Agent

Question 26

exclusive agent

Answer 26

An Exclusive Agent is an agent who is acting exclusively on behalf of only one party in a transaction..

Question 27

fiduciary duty

Answer 27

A Fiduciary Duty is one category of broker obligation that arises in a transaction, defined by the special or primary duties or an agent. All the hard core stuff. (General Duties is the other and focuses on being honest and not deceitful, etc.)

Question 28

seller’s agent

Answer 28

The Seller’s Agent is an agent representing the seller, also known as the listing agent.

Buyer’s Agent = Selling Agent
Seller’s Agent = Listing Agent

Question 29

dual agent

Answer 29

A dual agent can represent the buyer and seller in a transaction exclusively, or in the case of a seller, the seller’s agent with an exclusive right to sell listing understands the prospective buyer may turn out to be one of their buyer clients. This representation of opposing parties makes the broker a ‘non-exclusive’ dual agent.