Ch 12: Agency Law and Disclosure

Question 1

The holder of a general power of attorney, in dealing with real property of his or her principal, could NOT:

a. Buy the property
b. Grant an exclusive right to sell listing
c. Lease the property
d. Sell the property

Answer 1

a. Buy the property

The agent could not Buy the property for the agent’s own account. The agent could buy property for the principal, but not The Property for the holder of the general power of attorney.

Question 2

A real estate salesperson in selling the listing of another broker is directly responsible to:

a. His or her broker
b. The multiple listing service
c. The owner
d. The listing broker

Answer 2

a. His or her broker

A licensed real estate salesperson is directly responsible to his or her broker.

Question 3

An instrument authorizing one person to act for another is called:

a. Affidavit of Title
b. Release Deed
c. Power of Attorney
d. Estoppel Certificate

Answer 3

c. Power of Attorney

A universal or general agent must have a written document stating that he or she is an attorney in fact, which gives the individual the Power of Attorney.

Question 4

A salesperson is the representative of the:

a. Broker
b. Seller
c. Association
d. Buyer

Answer 4

a. Broker

Real estate salespersons always represent his/her Employing Broker.

Question 5

A broker’s authority includes:

a. Only that authority granted or implied
b. Powers of a general agency
c. Everything necessary to effectuate a sale
d. All acts of the broker that are in the owner’s best interest

Answer 5

a. Only that authority granted or implied

A real estate agent is generally a special agent and is authorized to represent the principal in one specific transaction with only the authority granted or implied in the agreement.

Question 6

A salesperson associated with Lighthouse Realty effects a sale of property listed by Point Hazard Realty. In this transaction the salesperson is an agent for which of the following?

a. Seller
b. Buyer
c. Lighthouse Realty
d. Seller and buyer

Answer 6

c. Lighthouse Realty

The salesperson is a sub-agent of the Employing Broker (Lighthouse Realty) and is responsible to Light house Realty.

Question 7

Which of the following is NOT essential to the creation of an agency relationship?

a. An agreement to pay consideration
b. A right to represent the principal
c. An agreement of the parties to the agency
d. The competency of the principal

Answer 7

a. An agreement to pay consideration

An agency relationship does not require an obligation to pay consideration. In real estate an agency relationship is often established between a buyer of property and a real estate broker, but the compensation to the broker is paid by the cooperating broker from the commission collected from the seller.

Question 8

Is it possible for a broker to collect a commission from both parties to a transaction?

a. With full disclosure to both parties and with their written consent
b. The rules and regulations prohibit this practice
c. It is unethical
d. Creates a dual agency which is illegal

Answer 8

a. With full disclosure to both parties and with their written consent

Collecting a commission from both parties creates a dual agency relationship, which is legal and ethical, as long as, there is written informed consent.

Question 9

An agency CANNOT be denied when the words or actions of one party led another to believe that an agency existed, would be a(n):

a. Agency by implication
b. Agency by ratification
c. Agency by estoppel
d. Subagency

Answer 9

c. Agency by estoppel

When a party allows an action to take place that would make a reasonable person believe that an agency relationship exists, Estoppel Agency precludes the party that allowed the action to take place from denying the relationship.

Question 10

Salesman “J” shows property to buyer “T”. On another particular day, Salesman “J” tells buyer “T” that he has found a house that is perfect for him. The agency relationship would best be described as:

a. Implied agency
b. Special agency
c. General agency
d. Expressed agency

Answer 10

a. Implied agency

The actions of the salesperson indicate to the buyer that the agent is Working For the Buyer; hence Implied Agency.

Question 11

The relationship between the seller and a listing broker is that of:

a. Trustor and trustee
b. Attorney and client
c. Principal and agent
d. Seller and purchaser

Answer 11

c. Principal and agent

In a listing the seller is the Principal and the listing broker is the Agent.

Question 12

An agent’s duties to the principal include all of the following EXCEPT:

a. Obedience
b. Accountability
c. Loyalty
d. Legal advice

Answer 12

d. Legal advice

The fiduciary duty of a real estate agent does not include the providing of legal advice. In fact, a real estate agent should not give legal advice since to do so would be the unlicensed practice of law.

Question 13

A real estate agent in an agency relationship must exercise all of the following EXCEPT:

a. Due care
b. Obedience
c. Management
d. Accounting

Answer 13

c. Management

Due Care, Accounting and Obedience are all components of an agent’s fiduciary duty. Management is not, but the agent must use “due care” in carrying out the agreed on duties.

Question 14

A lawsuit by a principal against a broker who failed to follow instructions will probably result in:

a. Fine and/or jail time
b. Loss of broker’s license
c. Nothing, since a broker is not required to obey instructions. He only has to procure a buyer.
d. Money damages

Answer 14

d. Money damages

The loss of the broker’s license would not result from an action by the Principal but could result if an action was brought by the Real Estate Department. An action by the Principal would not result in a fine or jail time but could result in money damages.

Question 15

A broker must NOT tell a prospective buyer:

a. That the owner will accept less than the listing price
b. About structural defects
c. That he has seen evidence of termites
d. That zoning makes the present usage non-conforming

Answer 15

a. That the owner will accept less than the listing price

When the broker represents the owner of the property, objectives of the seller should not be disclosed such as the acceptance of a price less than the listing price. However, if an agent exclusively represents the buyer an expression of opinion as to what the seller might accept is proper.

Question 16

A real estate salesperson may NOT:

a. Buy or sell real estate as a principal
b. Represent both buyer and seller in a transaction.
c. Accept a commission from another broker
d. Show property on which her office has no listing

Answer 16

c. Accept a commission from another broker

The real estate salesperson can only be paid a commission by the broker with whom the salesperson is licensed.

Question 17

A listing sales person should do all of the following EXCEPT:

a. Advise prospective buyers of the lowest price the seller will accept
b. Verify factual information about the property provided by the seller
c. Review local zoning laws that affect the property
d. Advise the seller that known property defects must be revealed to prospective buyers.

Answer 17

a. Advise prospective buyers of the lowest price the seller will accept

When the broker represents the owner of the property, objectives of the seller should not be disclosed, such as the accepting of a price less than the listing price. However, if an agent exclusively represents the buyer an expression of opinion as to what the seller might accept is proper.

Question 18

An agent has an offer on a property listed by another real estate company. No one in the listing brokerage is available within 24 hours. The salesperson MUST:

a. Have his employing broker present the offer
b. Get written permission from the seller to present the offer
c. Return the offer to the buyer
d. Send the offer by registered mail

Answer 18

b. Get written permission from the seller to present the offer

An agent shall conduct all negotiations exclusively through the listing broker or his representative unless the seller waives this requirement in writing, and no licensed representative of the listing broker is available for a period of 24 hours.

Question 19

A broker brought a qualified buyer to the seller. However, at the close of escrow, the seller refused to pay the commission. The earnest money being held in the broker’s trust account is the exact amount of the commission. What should the broker do?

a. Put the earnest money into escrow and wait for the court to decide.
b. Keep all of the earnest money
c. Turn the earnest money over to the seller and then sue the seller for the commission
d. Keep one half of the earnest money and give the balance to the seller.

Answer 19

c. Turn the earnest money over to the seller and then sue the seller for the commission

The sales agreement most likely says that the earnest money held by the broker is to go to the seller as part of the consideration for the purchase of the house. The listing agreement states that the seller is to pay the broker a commission, but most likely it does not give instructions for the broker to keep the earnest deposit in payment of the commission. Therefore, the broker must turn the earnest money over to the seller in compliance with the purchase contract and then sue the seller for the commission.

Question 20

A broker sold an apartment building to a syndicate of which the broker was a member without informing the seller of this interest. Before closing, the owner discovered the broker’s interest and refused to sell. The results of a lawsuit to collect a commission would probably result in:

a. Release of the owner’s obligation to pay a commission
b. Payment of commission to the broker
c. An order that the buyer obtain specific performance.
d. Revocation of the broker’s license

Answer 20

a. Release of the owner’s obligation to pay a commission

A broker has an obligation to disclose any interest that the broker has in a potential buyer. The Broker’s lack of disclosure is a breach of his/her fiduciary duty and would release the obligation of the seller to pay a commission even though the broker produced a ready, willing and able buyer.

Question 21

A prospective buyer knows the owner is considering an offer. She asks the broker the amount of the offer so she can exceed it. The broker should:

a. Notify the owner of the request
b. Tell her that any offers you have do not concern her
c. Tell her, as a broker must reveal to a buyer everything he or she knows about a property.
d. Tell her, as it is in the owner’s best interest.

Answer 21

a. Notify the owner of the request

The negotiation process is confidential information and should not be disclosed to other parties without permission of the principal (seller in this case).

Question 22

The broker’s fiduciary duty requires that the offer be presented as soon as possible after receipt of the offer. When the form of the earnest money deposit is a post-dated check the broker should:

a. Do nothing, as the seller is obligated to convey
b. Recommend that the seller breach the contract
c. Notify the seller of the facts
d. Do nothing, as agency has been terminated with the procurement of the buyer.

Answer 22

c. Notify the seller of the facts.

The fiduciary duty of disclosure requires the agent to keep the seller informed and the obligation does not cease when the contract is in escrow.

Question 23

A buyer gives a post-dated check with an offer. The broker should:

a. Wait to see if the check is good before presenting the offer
b. Treat the check as any other check
c. Inform the seller as to the form of the deposit
d. Refuse to accept the offer

Answer 23

c. Inform the seller as to the form of the deposit

The broker’s fiduciary duty requires that the offer be presented as soon as possible after receipt of the offer, but in this case the form of the earnest money deposit and the reasons for the post-dating of the check must be disclosed to the seller.

Question 24

A broker, in dealing with the public, may NOT:

a. Accept a commission from both buyer and seller
b. Negotiate different commissions with different owners.
c. Take an option
d. Keep silent about a material fact in the transaction

Answer 24

d. Keep silent about a material fact in the transaction

A broker must always disclose a material fact that could affect the consideration to be given by a party to the transaction

Question 25

Sue listed her house with a broker, she told the broker that the house had termite infestation and some structural damage, but the repairs had just been completed. What is the broker obligate to do?

a. Pay for all the repairs himself
b. Inform potential buyers
c. Tell her not to tell other brokers showing the property
d. Cancel the listing agreement

Answer 25

b. Inform potential buyers

The termite infestation and the structural damage must be disclosed to any potential buyer even though it has been repaired, since the fact could materially and adversely affect the consideration to be paid by the buyer.