Chapter 2: Laws of Agency and Fiduciary Duties

Question 1

When was agency disclosure law enacted?

Answer 1

1988

Question 2

What is a finder?

Answer 2

A finder is an unlicensed individual who solicits, identifies, and refers potential clients, brokers, agents, or principals in exchange for a fee.

Question 3

What are other terms used for the seller’s and buyer’s brokers?

Answer 3

Seller’s broker is also known as the listing broker while the buyer’s broker is also known as the selling broker.

Question 4

What does the DRE do and what was it previously known as?

Answer 4

The Department of Real Estate (DRE) oversees, regulates, administers, and enforces the real estate law (found in the Business and Professions Code). Formally known as the California Bureau of Real Estate (CalBRE) prior to July 2018.

Question 5

How is agency created through estoppel?

Answer 5

Principal leads third party to believe that another person is their agent through words or actions.

Question 6

What is the Real Estate Recovery Fund?

Answer 6

Also known as the Consumer Recovery Account, it is available to individuals who have obtained a final-court judgment against a real estate licensee for losses caused while acting as an agent and are unable to recover the judgment from the licensee.

Question 7

Do you need a written agreement to have an enforceable fee?

Answer 7

Yes.

Question 8

What are the two categories of broker obligations that arise from a transaction?

Answer 8

1. Primary agency duties, also known as fiduciary duties, owed to their principal
2. General duties owed by each broker to all parties in the transaction

Question 9

What is fiduciary duty?

Answer 9

The duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over their principal by the slightest misrepresentation, concealment, duress, or undue influence. Utmost level of care, honesty, loyalty, and confidentiality to their principal.

Question 10

What is Agency Law Disclosure?

Answer 10

Sets out the rules of agency which control the conduct of real estate licensees when dealing with the public in an agency capacity. Needs to be presented to all parties as soon as practicable prior to execution of an offer to purchase or lease. Applies to single family residential, multi-unit residential with more than 4 dwelling units, commercial, vacant land, ground lease with improvements, manufactured homes.

Question 11

What is the agency confirmation provision?

Answer 11

Contained in documents signed by principals used to negotiate the purchase of real estate, it declares the agency relationships undertaken by each of the brokers with the participants in the transaction.

Question 12

A property owner tells the broker that the house is connected to the sewer. The broker relays this information to the buyer, who later finds that the house has a septic system in need of repair. The buyer would sue:

Answer 12

In this instance, the buyer includes the owner in the suit as they are required to disclose a septic system on the Transfer Disclosure Statement (TDS). The broker is also name since they failed in their due diligence to be aware of the septic system.

Question 13

What is subrogation?

Answer 13

Replacing one person with another in regard to a legal right or obligation.

Question 14

What is subornation?

Answer 14

The act of inducing another person to commit an unlawful act.

Question 15

What is blockbusting?

Answer 15

The prohibited practice of a real estate licensee inducing a property owner to list their property for sale in response to a change taking place in the neighborhood demographics. Similar to panic selling, which encourages property owners to list a property for sale by suggesting that that a change in neighborhood demographics will cause a loss in property values.

Question 16

What is redlining?

Answer 16

Failure to provide financing or insurance in certain communities based on the demographics of the community.

Question 17

What is steering?

Answer 17

An unlawful housing practice that includes words or actions by a real estate sales licensee intended to influence the choice of a prospective buyer or tenant. A violation of federal fair housing provisions that seek to eliminate discrimination in the sale or rental of housing.

Question 18

Does the creation of agency require payment of a fee to be valid?

Answer 18

No

Question 19

From which organization does a broker need approval in order to solicit for an advance fee?

Answer 19

Before a broker may solicit for an advance fee, the advance fee paperwork must be submitted to the Department of Real Estate (DRE) for approval at least 10 days prior to use.

Question 20

What is conversion?

Answer 20

This occurs when a broker uses client funds for personal purposes (i.e. using client trust funds).

Question 21

What is a kickback?

Answer 21

A fee improperly paid to a transaction agent who renders no service beyond the act of referring in exchange for a referral fee when the agent is already providing another service in the transaction for a fee.

Question 22

What is the Real Estate Settlement Procedures Act (RESPA)?

Answer 22

Legislation prohibiting brokers from giving or accepting referral fees or kickbacks if the broker or their agent is already acting as a transaction agent in the sale of a 1 to 4 unit residential property which is being funded by a purchase-assist, federally related consumer mortgage.

Question 23

A real estate broker sends all of their title business to Wonderful Title Co. In appreciation of the business, the title company pays the broker $10 for each transaction. According to the Real Estate Settlement Procedures Act (RESPA), is this practice permissible?

Answer 23

No, this is forbidden.

Question 24

Admiralty Escrow offers a $100 “referral fee” to any real estate agent who opens escrow during the month of May. Under the Real Estate Settlement Procedures Act (RESPA), is such an offer permissible?

Answer 24

No, this is not allowed.

Question 25

What is an attorney in fact?

Answer 25

One who is authorized by another to perform certain acts for another under a power of attorney; power of attorney may be limited to a specific act or acts or be general.

Question 26

A real estate salesperson’s license has been suspended because money was paid out of the Recovery Account. Their license will not be reinstated until?

Answer 26

Until they repay the Recovery Account for all money paid, plus interest.

Question 27

What is the role of the Real Estate Commissioner?

Answer 27

The Real Estate Commissioner is the chief officer of the Department of Real Estate (DRE). The principal responsibility is to enforce all the real estate laws pertaining to real estate practice, licensing, and the Subdivided Lands Law.

Question 28

What are the consequences if an agent fails to promptly disclose their dual agency at the moment it arises?

Answer 28

The agent is subject to the loss of their brokerage fee, liability for their principals’ money losses, and disciplinary action by the Department of Real Estate (DRE).

Question 29

In regards to items of value held in trust, which of the following statements is least likely be true?
A. Trust funds can b kept in separate interest bearing accounts.
B. Trust funds for taxes and insurance may bear interest.
C. Trust fund accounts must be insured by the FDIC (Federal Deposit Insurance Corporation).
D. Trust funds cannot take the form of precious gems or stones.

Answer 29

D. is the least likely to be true, as trust funds come in many forms, including checks, precious metals/stones, stocks/bonds, collectibles, promissory notes, and any other item or evidence of value.

Question 30

When a deed includes the racial identity of the parties, it can be rewritten under what?

Answer 30

By a court order.

Question 31

A real estate broker who has been appointed as a subagent for a seller, with the seller’s approval, has a fiduciary duty to the primary agent or the seller?

Answer 31

The seller only.