Ch 2 Section 3 Real Estate Agency & Escrow

Question 1

Agency Relationship

Answer 1

Is created when one person (the client) delegates to another (the agent) the right to act on his behalf in a business transaction

Question 2

Common Laws

Answer 2

-Is a body of laws based on social traditions and common practices that were modified by English court cases
-modified in this country by court cases and laws, rules and regulations passed by state legislatures

Question 3

In the 1970’s seller representation and the common law doctoring of Caveat Emptor:

Answer 3

-(Buyer beware - no one represented the buyer’s interests) were standard
-National Association of Relators’ (NAR) concept of subagency
-most real estate transactions all brokers worked for the seller ( as agents and sub agents), and no one works for the buyer

Question 4

In the 1970’s seller representation and the common law doctoring of Caveat Emptor:

Answer 4

-(Buyer beware - no one represented the buyer’s interests) were standard
-National Association of Relators’ (NAR) concept of subagency
-most real estate transactions all brokers worked for the seller ( as agents and sub agents), and no one works for the buyer
-Multiple Listing Services (MLS)
-required to make a blanket unilateral offer of subagency to all other member brokers
-everyone represented the seller, and the buyer was not represented

Question 5

Special Agent

Answer 5

Is authorized to perform a particular act or transaction.

Question 6

General Agent

Answer 6

Is authorized to perform many different services within one general field
-a property manager who is authorized by an owner to manage a real estate project on a continuing basis is the general agent of he owner as he will be performing many different types of services in order to carry out his management function

Question 7

Universal Agent

Answer 7

Is given the legal power to transact matters of all types on behalf of the principal.

Question 8

A Subagent

Answer 8

Is the agent of an agent.

Question 9

Fiduciary

Answer 9

Is a person who is placed in a position of trust to act for someone else’s benefit

Question 10

An agent’s duties to the client fall into the following:

Answer 10

-Loyalty
-Obedience
-Disclosure
-Confidentiality
-Reasonable care and due diligence
-Accounting

Question 11

Loyalty

Answer 11

-The agent is required to act in the best interest of the client being represented.
-This is the most fundamental duty owed by an agent to a client.

Question 12

Obedience

Answer 12

All legal instructions of the client must be followed without exception.

Question 13

Disclosure

Answer 13

All facts, rumors and other information that might affect the client’s decision must be disclosed to the client.

Question 14

Confidentiality

Answer 14

Any information given to the licensee by the client must be kept confidential if the client could suffer potential harm by disclosing this information.

Question 15

Reasonable care ad due diligence

Answer 15

-Resonaba care must be taken to state informed about anything that might affect the client’s decision
-Licensees are expected to be more knowledgeable than the average person but are not expected to have the knowledge of other professionals such as lawyers, engineers, or accountants.

Question 16

Accounting

Answer 16

All money and property held by the licensee for the client must be protected and accounted for by the licensee.

Question 17

Duties of Clients to Agents

Answer 17

-client also has certain obligations
-consult with the agent, giving appropriate and complete information, and compensating and indemnifying the agent

Question 18

Availability

Answer 18

-The client needs to be available to make decisions as needs arise
-cannot act without instructions from the client, and the client’s instructions may change due to market conditions

Question 19

Informed

Answer 19

Any information related to the licensee’s employment should be given to the licensee by the client

Question 20

Compensation

Answer 20

Any compensation referenced in the employment contract would be due the licensee after completing the object of employment

Question 21

Indemnification

Answer 21

Under the principle of indemnification, the client should compensate the licensee if actions of the client cause financial harm to the licensee

Question 22

Agent’s Duty to Customers

Answer 22

-brokers and their agents (salespeople) must never make misrepresentations or false promises to third parties (customers)
-licensees may not misrepresent material facts that they know to be untrue, or should have known to be untrue
-Agents may also have the duty to disclose to customers material facts relating to the property
-May be responsible for information about adjoining parcels, pending zoning changes, pending road or highway plans, and any other fact that might affect the present of future value of the property

Question 23

An agency relationship may be created in the following ways:

Answer 23

-By express agreement
-By implied agreement
-By ratification
By estoppel

Question 24

How can an agency relationship be expressed?

Answer 24

Between the parties with contract terms clearly states, orally, or in writing

Question 25

How can agency relationships be implied?

Answer 25

By actions or statements of the parties. If two people act as if an agency relationship exists then the chances are, if called upon to do so, a court will rule that such a relationship does exist even though there is no formal agreement to that effect

Question 26

How can agency relationships arise by ratification?

Answer 26

to ratify men’s to approve, sanction, or make valid

Question 27

How can agency relationships be established by estoppel?

Answer 27

(Recall that estoppel means “stopped’)

Question 28

An agency relationship may be terminated by:

Answer 28

-death or incapacity of either party
-destruction or condemnation of the property
-expiration of the agency
-mutual agreement
-renunciation by the agent/licensee (possible lawsuits)
-revocation by the principal/client (possible lawsuits)
-by operation of law (such as a bankruptcy of the principal)
-by completion of the agency (performance)

Question 29

Dual Agency

Answer 29

-A real estate broker who represents both the buyer and the seller in a real estate transaction is a dual agent.
-escrow agents are dual agents
-written, informed consent by all parties to the transaction, problems arise when a broker unintentionally creates an implied dual agency by careless words or actions and lack of proper disclosure

Question 30

Brokerage firms sometimes have transaction that are called

Answer 30

In house

Question 31

Designated agency

Answer 31

Where the broker could appoint one sales person to represent only the seller and another salesperson with te same firm is representing the buyer

Question 32

Escrow

Answer 32

The process whereby money and documents related to a real estate transaction are held in safekeeping until all terms and conditions of the transaction have been met

Question 33

Escrow Agent

Answer 33

Special and impartial agent of both parties to the transaction

Question 34

Commingling

Answer 34

The act of mixing or mingling personal funds that should be held in trust for others in a separate escrow account

Question 35

Conversion

Answer 35

Misappropriation of entrusted funds

Question 36

Ways that it will NOT be considers commingling ?

Answer 36

Funds deposited in a escrow will necessarily Include monies that will ultimately belong to the licensee

As long as:
- Broker can clearly identify the total funds that belong to him and keeps an accounting of such
- withdrawals are made at least every 6 months

Question 37

Doctrine of relation-back

Answer 37

That the title passes when the deed is delivered into escrow

Question 38

Laws require that escrow funds be:

Answer 38

• deposited in a federally insured banking institution in the state where the agent or broker is doing business
• be maintained in the same name by which is the firm is licensed to do business
• be designated as an escrow account by the use of the term escrow.
• bes used for such funds as down payments, earnest money deposits, rental payments collected on behalf of an owner, rental security deposits, and monies advanced by buyers or sellers to cover closing expenses

Question 39

Principal broker

Answer 39

Usually ultimately responsible for escrow accounts

Question 40

Escrow money must remain in the escrow account until :

Answer 40

Transaction is consummated or terminated,

if not consumed,
- funds remain in escrow until all parties have agreed in writing to the disposition of the funds
- a court orders their disbursement
- or the broker has given all parties 30 days to protest the written receipted notice that the funds will be disbursed in accordance with the clear and explicit terms of the contract

Question 41

Escrow account violations

Answer 41

The most common, and most serious, source of licensee discipline
- if accounts are mismanaged = may suspend or revoke brokers license