Chapter 07: Laws & Regulations Governing Brokerage Relationships

Question 1

The real estate broker’s fiduciary responsibility to keep the principal informed of all facts, including property condition and issues that affect a seller’s willingness to sell and a buyer’s willingness to buy, is the duty of:
A. skill, care and diligence
B. disclosure
C. obedience
D. accounting

Answer 1

B. disclosure
(A real estate licensee has a duty to disclose to all parties, including their principal and the firm’s client all material facts. A material fact about the property is any issue that would affect a seller’s willingness to sell and a buyer’s willingness to buy)

Question 2

Designated agency in North Carolina is considered:
1. A form of dual agency
2. Mandatory if you practice dual agency
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

Answer 2

A. 1 only
(Designated agency is a form of dual agency. It is an optional practice permitted in North Carolina when one firm represents both the buyer and seller. In order to offer designated agency firms must have policies and procedures to insure that the confidential information of the parties is protected. Within the firm one licensee is designated to represent the seller and one licensee is designated to represent the buyer. Firms do not have to offer designated agency to clients)

Question 3

Designated agency can be practiced: 1. Between two firms 2. Between a broker-in-charge and a provisional broker licensee in their office
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

Answer 3

D. Neither 1 nor 2
(Designated agency is never practiced between two firms. It occurs when the same firm represents both the buyer and the seller. A broker-in-charge and a provisional broker can never be designated agents in the same transaction. They must be dual)

Question 4

An agent must have the buyer sign a written agency agreement by what specific point in time? A. At the time of first substantial contact B. Prior to the submission of an offer on the buyer’s behalf C. At the time the agent attempts to limit the buyer’s ability to work with another agent
A. A only
B. A and B only
C. B and C only
D. A, B and C

Answer 4

C. B and C only
(Licensees are permitted to practice non-exclusive oral agency with buyers. They must still disclose agency at first substantial contact but may work under an oral agreement up until the submission of an offer on the buyer’s behalf. At the time of submission of an offer the licensee must have a written buyer representation agreement. Oral buyer representation cannot be exclusive (prevent a buyer from working with another agent) and it cannot involve a specific time period)

Question 5

Under the general principles of agency, when a licensee is acting on behalf of a client and acts improperly who is liable for the acts of the licensee?
A. only the client
B. only the licensee and the broker-in-charge
C. only the client and the licensee
D. the client, the licensee, the firm and or the broker-in-charge

Answer 5

D. the client, the licensee, the firm and or the broker-in-charge
(The concept of agency means that someone is legally acting on behalf of another. Therefore the agent’s actions are considered the actions of the principal and the firm or broker in charge also had duties of supervision)

Question 6

A disclosure of agency status should be made by a buyer’s agent to the seller: A. With a written confirmation in the offer to purchase and contract B. At the initial contact with the seller’s agent, orally or in writing
A. A only
B. B only
C. Both A and B
D. Neither A nor B

Answer 6

C. Both A and B
(The Offer to Purchase and Contract contains a confirmation of agency status as do the written employment agreements. The agency status must also be disclosed to other licensees and 3rd parties at initial contact. Disclosure to consumers occurs at first substantial contact)

Question 7

Iris, a subagent of the seller who is working with a buyer customer, is told by the buyer customer that he wants to offer a low price on a property. The buyer customer says to Iris, “I want to offer $85,000 initially; however, I’ll go as high as $90,000 to get the property.” Iris wrote the offer and delivered the offer to the listing agent, Lucy. Iris told Listing Agent Lucy that the buyer customer is offering $85,000 initially, but he will go as high as $90,000 to get the property. Listing Agent Lucy did not tell the seller the buyer would be willing to go for a higher price. The seller accepted the buyer’s offer of $85,000. Who violated the Law of Agency?
A. Iris
B. Lucy
C. Both Iris and Lucy
D. Neither Iris nor Lucy

Answer 7

B. Lucy
(Iris is working as a seller’s subagent and therefore her fiduciary duties are to the seller. Iris had a duty to disclose the information she possessed regarding the buyer to Lucy. Iris properly fulfilled her agency duties. Lucy also had a duty as the seller’s representative to disclose this information, but did not disclose it with the offer. Lucy violated her fiduciary duties to the seller)

Question 8

The amount of compensation due to a licensee from the brokerage firm is determined by:
A. state real estate regulators to ensure the public the most protection from incompetent licensees
B. local real estate board’s minimum wage guarantee to agents
C. in-house employment contracts
D. listing agreements

Answer 8

C. in-house employment contracts
(The commission splits and amounts paid by brokerages to their individual licensees is contained in their independent contractor agreements. These splits do not appear in listings, buyer-broker agreements or the Offer to Purchase and Contract. They are a matter of private agreements and are not regulated by either the state regulatory agencies or local real estate boards)

Question 9

Which of the following would be dual agency?
A. a broker-in-charge assisting a buyer client in the purchase of property that was listed by a provisional broker of another firm
B. a provisional broker and a broker licensee from firms that are cooperating in a transaction
C. a firm that represents buyers and sellers
D. a broker having a buyer client for a property the broker personally listed

Answer 9

D. a broker having a buyer client for a property the broker personally listed
(Dual agency never exists when two different firms are involved. Dual agency is created when the same firm that represents the buyer in a transaction also represents the seller in the same transaction)

Question 10

A real estate broker was responsible for a chain of events that resulted in the sale of one of his client’s properties. This is referred to as:
A. chain of title
B. procuring cause
C. private offering
D. ready, willing and able buyer

Answer 10

B. procuring cause
(Procuring cause is a concept that allows for a licensee to be entitled to a commission when they are involved in a chain of events that resulted in the sale, even if the client eventually purchased through another licensee or firm)

Question 11

All of the following could legally be considered fraudulent, EXCEPT:
A. deceitful or dishonest practices
B. generalized exaggerated opinions about the property
C. omitted statements of material fact
D. misstatements about the property

Answer 11

B. generalized exaggerated opinions about the property
(Generalized and exaggerated opinions about a property such as “great neighborhood” “wonderful location” are broad statements that are considered puffing and are legal and permitted)

Question 12

A seller has listed a home with a broker for $90,000, and the broker suggests to a prospective buyer-customer that they submit a low offer because of the seller’s urgent need to sell. The buyer offers $85,000, and the seller accepts it. In this situation:
A. the broker has violated his agency relationship with the seller
B. the broker’s action was acceptable since the seller accepted the offer
C. the broker acted properly to obtain a quick offer on the property
D. any broker is encouraged to solicit such bids for the property

Answer 12

A. the broker has violated his agency relationship with the seller
(The broker licensee represents the seller. Their fiduciary duties are to the seller. In this instance the broker provided the seller’s confidential urgency to a buyer customer and violated the law of agency to protect and promote their client’s interest)

Question 13

Upon discovering a latent defect in the property, the listing agent should discuss the problem with the seller, and then:
A. inform the seller that the defect must be repaired
B. arrange for the repairs himself or herself as required by the terms of a typical listing contract
C. inform any prospective buyers of the defect
D. contact the city building inspector about the defect

Answer 13

C. inform any prospective buyers of the defect
(A latent defect is a defect that is not readily apparent or is hidden. The seller does not have an obligation to disclose such defects, but a real estate licensee has a duty to disclose to all prospective buyers material facts which the licensee knows or should have known)

Question 14

Which of the following BEST describes the common law of agency?
A. the disclosure requirement by the agent to third parties no later than first substantial contact
B. case law establishing the responsibilities of a person who acts for another
C. the Code of Ethics prescribed by the local trade association
D. state license laws and statutes

Answer 14

B. case law establishing the responsibilities of a person who acts for another
(Agency is a legal relationship that governs the responsibilities and obligations when one person legally acts on behalf of another. The agent acting on behalf of a principal owes the principal fiduciary duties)

Question 15

A buyer-client has instructed the agent to show only properties where the seller is willing to pay the buyer agent’s commission. The agent contacts an owner selling a property without the assistance of a real estate agent with the hope that the seller would be willing to pay her commission if the buyer decided to purchase the seller’s property. In order to comply with North Carolina Real Estate Commission Rules, the agent must do all of the following, EXCEPT:
A. obtain permission from her buyer-client in order to obtain compensation from the seller
B. disclose her agency status to the seller at initial contact
C. convince the seller to list with her and authorize dual agency
D. provide the Working with Real Estate Agents brochure to the seller

Answer 15

C. convince the seller to list with her and authorize dual agency
(The buyer’s representative is working for the buyer not the unrepresented seller. The licensee would need to disclose their agency status to the seller, provide the Working with Real Estate Agents brochure and have their client’s permission to seek compensation from the seller. The licensee should have the seller sign a Commission Protection Agreement to pay the fee, but would remain the representative of the buyer)

Question 16

The listing broker tells a prospective buyer that the seller is on the verge of bankruptcy. The broker’s actions are:
A. acceptable since they may promote an offer from the buyer
B. acceptable as long as the broker does not disclose any additional specific financial information concerning his client’s credit history
C. unacceptable unless there are multiple offers on the property
D. unacceptable unless the seller has authorized the broker to share the information with potential buyers

Answer 16

D. unacceptable unless the seller has authorized the broker to share the information with potential buyers
(A licensee must keep the financial and personal information confidential unless they are specifically authorized by their client to disclose such information)

Question 17

A listing agent is showing a house to a prospective buyer customer. The seller told the listing agent that during the past 10 winters, they have been unable to rid the house of rodents. The seller has hidden rodent damage by the strategic placement of a large sofa. Which of the following statements is TRUE?
A. This information may be withheld since the agent never saw any evidence of infestation or damage.
B. Disclosing the information could create a fiduciary relationship with the buyer and, thereby, create an unauthorized dual agency situation.
C. Withholding the information prevents the disclosure of a material fact.
D. Disclosing the information violates the agency duties with the seller.

Answer 17

C. Withholding the information prevents the disclosure of a material fact.
(A licensee is required to disclose all material facts. A material fact is any information about the property which could affect a seller’s willingness to sell or a buyer’s willingness to buy. Material facts must be disclosed to both clients and customers)

Question 18

Which of the following BEST describes a designated agency transaction?
A. the listing firm appointing an agent to represent the seller
B. the selling firm appointing an agent to represent the buyer
C. some agents in the same firm representing buyers exclusively and other agents in the same firm representing sellers exclusively
D. a broker-in-charge appointing one agent to exclusively represent the seller as the client and appointing a different agent to exclusively represent the buyer as a client while the firm remains in dual agency

Answer 18

D. a broker-in-charge appointing one agent to exclusively represent the seller as the client and appointing a different agent to exclusively represent the buyer as a client while the firm remains in dual agency
(It’s only designated agency (a form of dual agency) when the same firm represents both the buyer and the seller in the same transaction and the firm has designated two different licensees to each represent the respective interests of a client)

Question 19

If the broker-in-charge (BIC) is to act as one of the designated agents on a North Carolina in-house transaction, which of the following may be appointed as a designated agent for the other party to the transaction?
A. an actively licensed provisional broker within the firm, so long as disclosure is made to both clients
B. a full broker within the firm who has no prior confidential knowledge of the party that the BIC will represent
C. a broker-in-charge cannot be appointed as a designated agent
D. a licensed provisional broker who has no prior confidential knowledge about the party that the BIC will represent

Answer 19

B. a full broker within the firm who has no prior confidential knowledge of the party that the BIC will represent
(In order to be appointed a designated agent a licensee may not already possess prior confidential information about the client and if one of the designated agents is the BIC, the other designated agent must be a full broker)

Question 20

Which of the following describes designated agency in North Carolina?
A. designated agency is optional, not mandatory
B. designated agency does not eliminate dual agency
C. designated agents cannot have prior confidential knowledge of the other party to the transaction
D. all of the above

Answer 20

D. all of the above
(These are all true statements about designated agency in NC. Designated agency is a form of dual agency and no firm is forced to practice designated agency, it is an optional form of agency that is permitted but not required)

Question 21

The North Carolina Working With Real Estate Agents brochure must be given:
A. to property owners upon initial contact
B. to all consumers prior to first substantial contact
C. only to buyers in a real estate transaction
D. to all unrepresented consumers in a sales transaction no later than first substantial contact

Answer 21

D. to all unrepresented consumers in a sales transaction no later than first substantial contact
(The WWREA brochure is a mandatory agency disclosure that requires licensees and consumers to discuss, disclose and decide on agency options. It must be provided to all unrepresented consumers in sales transactions no later than first substantial contact)

Question 22

All of the following situations will terminate a listing, EXCEPT:
A. mutual agreement by the parties
B. breach by either party
C. death of the individual listing licensee
D. bankruptcy of the firm

Answer 22

C. death of the individual listing licensee
(Employment agreement typically end with the death of the parties. However, the death of the licensee does not end the listing because the licensee is not a party to the agreement. The agreement is between the seller and the firm)

Question 23

A licensee is an actively licensed real estate broker who has a written contract with his firm that specifies that he will not be treated like an employee. The licensee’s entire income is from sales commissions rather than an hourly wage. Based on these facts, the licensee will be treated by the IRS as:
A. a real estate assistant
B. an employee
C. a subagent
D. an independent contractor

Answer 23

D. an independent contractor
(There is a specific IRS statute which states that a licensed real estate professional with whom a firm has a written independent contractor agreement and who is paid based on commissions, not hourly wages, will be considered an independent contractor)

Question 24

All of the following are TRUE regarding the North Carolina Working With Real Estate Agents brochure, EXCEPT:
A. the consumer is not required to sign the brochure
B. if the first substantial contact is by phone, the brochure must be provided within 3 calendar days
C. the brochure’s use is mandatory in all real estate transactions, including residential sales, commercial transactions and property management
D. the brochure must be given in all sales transactions at first substantial contact

Answer 24

C. the brochure’s use is mandatory in all real estate transactions, including residential sales, commercial transactions and property management
(Use of the brochure is not required in property management)

Question 25

Jack is a NC real estate licensee. He has decided to sell his own house which he is doing outside of his brokerage as a For Sale by Owner. Jill, a prospective buyer has approached Jack at one of his open houses and has expressed an interest in buying the home. Which of the following is a proper course of action for Jack?
A. Exclusively represent Jill, but only after full disclosure of his interest in the property.
B. Enter in a dual agency relationship where Jack represents himself as the seller and also represents Jill as the buyer.
C. Fully disclose his interest in the property and treat Jill as a customer.
D. Represent Jill, but do so only on a non-exclusive basis since he has an interest in the property.

Answer 25

C. Fully disclose his interest in the property and treat Jill as a customer.
(As a NC licensee Jack is prohibited from representing Jill regarding any property in which he has an interest. He cannot represent Jill on any basis, must disclose his interest in the property, disclose agency to Jill and treat her as a customer)

Question 26

Rite Stuff Realty is a NC real estate firm that buys and flips homes. All of the homes that Rite Stuff handles are owned by the firm entity. In regard to the listing and sale of these homes, which of the following is a correct statement?
A. None of the agents of Rite Stuff may act as representatives of buyers and must treat all buyers as customers since the firm owns the properties
B. Rite Stuff must act as dual agents in the sale of their homes because they are the owners
C. The North Carolina Real Estate Commission is not concerned with whom Rite Stuff represents so long as agency is properly disclosed
D. Rite Stuff may offer exclusive buyer representation, dual agency or designated agency to prospective purchasers of their homes

Answer 26

A. None of the agents of Rite Stuff may act as representatives of buyers and must treat all buyers as customers since the firm owns the properties
(When the properties are owned by the firm, none of the firm’s licensees may represent a buyer and the buyer must be treated as a customer)

Question 27

All of the following are true of The Residential Property and Owners Association Disclosure Statement, EXCEPT:
A. It requires a seller to disclose material defects in their home prior to sale
B. It must be provided to the buyer prior to submission of an offer
C. It is intended for 1-4 unit residential properties
D. Failure to provide the disclosure form creates a 3 day right of rescission for the buyer

Answer 27

A. It requires a seller to disclose material defects in their home prior to sale
(NC is not a seller disclosure state. While a seller is required to complete the form, they may answer questions by indicating “no representation.”)

Question 28

All of the following are exempt from the requirement to provide an RPOADS and MOG, EXCEPT
A. Transfers between spouses
B. First sale of a dwelling not yet inhabited
C. Both parties agree not to complete the form
D. A For Sale by Owner

Answer 28

D. A For Sale by Owner
(The RPOADS and MOG are required to be provided by private sellers as well as those represented by a real estate licensee. A disclosure statement must be furnished in connection with the sale, exchange, option, and sale under a lease with option to purchase where the tenant does not occupy or intend to occupy the dwelling. A disclosure statement is not required for some transactions, including the first sale of a dwelling which has never been inhabited and transactions of residential property made pursuant to a lease with option to purchase where the lessee occupies or intends to occupy the dwelling. For a complete list of exemptions, see G.S. 47E-2.)