Chapter 7 Concepts

Question 1

Multiple Listing Service (MLS)

Answer 1

a comprehensive listing, updated daily, of properties for sale in a given community or metropolitan area; includes a brief description of each property with a photo and its asking price but can be accessed only by realtors who work for an MLS member

Question 2

Co-Brokered Transaction

Answer 2

A real estate transaction involving two or more brokerage firms, one firm representing the seller and the other representing the buyer.

Question 3

caveat emptor

Answer 3

Latin term for “buyer beware”

Question 4

Common law of agency

Answer 4

The basic framework of law that governs the legal responsibilities of the broker to the people the broker represents.

Question 5

Broker-in-Charge (BIC)

Answer 5

Required for each brokerage firm and each branch office, the full broker responsible for displaying all licenses properly, notifying the NCREC of any change of business address or trade name, ensuring that all advertising and agency compliance is done properly, maintaining the trust account and trust account records properly, retaining and maintaining all real estate transactions records properly, and supervising all provisional brokers associated with the firm or office.

Question 6

Agency

Answer 6

the fiduciary relationship between the principal/client and the agent

Question 7

Agent

Answer 7

the individual who is authorized and consents to represent the interests of another person. In the real estate industry, principals are hiring an entire company and all the company’s affiliated brokers to represent them. Even though the firm is the agent, the broker-in-charge would be personally accountable for agency law compliance.

Question 8

Subagency

Answer 8

the fiduciary relationship between the subagent and the principal

Question 9

Subagent

Answer 9

one who is employed by a person already acting as an agent (such as a provisional broker licensed under a broker-in-charge who is employed under the terms of a listing agreement). Simply stated, a subagent is an agent of an agent.

Question 10

principal or client

Answer 10

the person who hires and delegates to the agent through a brokerage contract the responsibility of representing that person’s best interests. In the real estate business, the principal/client can be the buyer, seller, landlord, or tenant.

Question 11

Customer

Answer 11

the third party for whom some level of service is provided by an agent of another party, but who is not represented by the agent.

Question 12

Fiduciary

Answer 12

a relationship in which the agent is placed in the position of trust and confidence to the principal.

Question 13

Agent’s Responsibilities to Principal (OLD CAR)

Answer 13

OLD CAR

-Obedience

-Loyalty

-Disclosure

-Confidentiality

-Accounting

-Reasonable skill and care

Question 14

Disclosure of Information

Must disclose:

-all ________ (See NCREC Rule A.0106)

-the identity of the prospective purchasers, including the agent’s ________, if any, to them (such as a relative of the broker being a participating purchaser);

-the ability of the _________ to complete the sale or offer a higher price

-any ___________ the broker has with the buyer (such as an agreement for the broker to manage the buyer’s property after it is purchased); and

-the _________ intention to resell the property for a profit

-An agent for the buyer must disclose ________ of a property as well as factors that may adversely affect a property’s _______ or desirability. The agent should disclose information that could affect the buyer’s ability to negotiate the lowest purchase price, such as how long a property has been listed or why the seller is selling, if known by the agent.

Answer 14

-offers

-relationship

-purchaser

-relationship

-buyers

-deficiencies, value

Question 15

An agent shall not disclose the principal’s _________ condition, ________, or acceptable ________ terms without the client’s permission

Answer 15

financial

motivation

contract

Question 16

If the principal is the seller, the agent may not reveal such things as _________ to accept less than the listing price or ________ to sell, unless the principal has _________ the disclosure

Answer 16

willingness

urgency

authorized

Question 17

If the principal is the buyer, the agent shall not disclose that the buyer is _______ to pay a higher price, is under a tight moving schedule, or other facts that might affect the principal’s _________

Answer 17

willing

bargaining position

Question 18

It is important to remember that anything a real estate agent learns about a client must remain __________. In most states, confidentiality terminates upon __________, expiration, or _________ of the agency relationship

Answer 18

confidential

completion

termination

Question 19

Material Facts

Answer 19

important facts that influence the parties’ decisions about a contract

Question 20

Accounting

The broker must be able to account for all funds received from, or on behalf of, the principal

North Carolina real estate license laws require that brokers give accurate copies of all documents to all parties affected by them and keep copies of such documents on file for three years

Answer 20

3

Question 21

Commingling

Answer 21

Commingling is a term used to describe when trust funds and the firm/broker’s personal/business funds are placed in the same account.

Question 22

The duties of an agent to a third party come from three sources:

Answer 22

(1) North Carolina license law
(2) the North Carolina Unfair or Deceptive Trade Practices Act, and
(3) common law of agency as interpreted by court opinions

These duties include:
-being honest and fair, and
-complying with North Carolina Real Estate License Law and NCREC rules, including disclosure of material facts relating to a property or transaction about which the agent has knowledge or should reasonably have acquired knowledge

Question 23

puffing

Answer 23

exaggeration of a property’s benefits.

Although puffing is legal and a common practice, it must not constitute a misrepresentation of the property. Brokers must ensure that none of their statements can be interpreted as involving fraud

Question 24

Fraud

Answer 24

-is the intentional misrepresentation of a material fact in such a way as to harm or take advantage of another person

-In addition to false statements about a property, the concept of fraud covers intentional concealment or nondisclosure of important facts

Question 25

Prohibited Conduct (4)

Answer 25

-Willful misrepresentation: intentionally misinforming any party involved in a transaction about a material fact

-Negligent misrepresentation: unintentionally misinforming any party involved in a transaction about a material fact

-Willful omission: intentionally failing to disclose a material fact to any party involved in a transaction

-Negligent omission: unintentionally failing to disclose a material fact to any party involved in a transaction

Question 26

Willful misrepresentation

Answer 26

-takes place when brokers who have actual knowledge of a material fact deliberately misinform a buyer, seller, tenant, or landlord concerning such fact

-Willful misrepresentation also takes place when a broker who does not have actual knowledge of a matter material to the transaction intentionally provides information concerning such matter to a buyer, seller, tenant, or landlord without regard for the truthfulness of the information.

Question 27

Negligent misrepresentation

Answer 27

-takes place when brokers unintentionally misinform a buyer, seller, tenant, or landlord concerning a material fact because they do not have actual knowledge of the fact, because they have incorrect information, or because of a mistake by the agent

Question 28

willful omission

Answer 28

-takes place when brokers have actual knowledge of a material fact and a duty to disclose such fact to a buyer, seller, tenant, or landlord, but deliberately fail to disclose such fact

Question 29

negligent omission

Answer 29

-takes place when brokers do not have actual knowledge of a material fact but should reasonably have known of such fact. If they fail to disclose this fact to a buyer, seller, tenant, or landlord, they may be guilty of negligent omission, even though they acted in good faith in the transaction.

Question 30

(1) What is a Stigmatized Properties?

(2) Stigmatized Property Exemption

Answer 30

(1) those properties branded by society as undesirable because of events that occurred there

(2) The one exception to this rule is if the death or illness is AIDS-related. Because persons with AIDS (or HIV infection) are considered legally handicapped under fair housing laws, an agent cannot disclose this condition, even if asked. Instead, the agent should tell the person who asked the question that the agent is prohibited by law from answering the question.

Question 31

Is a Sex offender protected?

Answer 31

Not protected, answer truthfully if known

Question 32

Universal Agent

Answer 32

-is a person who is empowered to do anything the principal could do personally

-An unlimited power of attorney would be an example of universal agency. This type of agency is seldom practiced by a real estate broker in a typical real estate transaction

Question 32

General Agent

Answer 32

-may represent the principal in a broad range of matters related to a particular business or activity. The general agent may, for example, bind the principal to any contracts within the scope of the agent’s authority

-Brokers usually serve as general agents of their real estate brokerage firms. A more typical example of a general agent would be a property manager hired as a general agent for the landlord in the management of certain properties.

Question 33

Special Agent

Answer 33

-is authorized to represent the principal in only one specific act or business transaction, and under limited, detailed instructions with no power to bind the principal.

-A special agent for a buyer has the limited responsibility of finding a property that fits the buyer’s criteria. As a special agent, the broker cannot bind the principal to any contract. It is important to remember that a special agency relationship provides only limited authority.

Question 34

A real estate broker is usually a ______ agent. If hired by a seller, the broker’s duty is limited to finding a “ready, willing, and able buyer” for the property.

Answer 34

Special Agent

Question 35

Brokerage

Answer 35

The bringing together of parties interested in making a real estate transaction.

Question 36

Broker

Answer 36

is defined as a person who is licensed to list, lease, buy, exchange, auction, negotiate, or sell interest in real property for others and to charge a fee for services

Question 37

commission

Answer 37

An amount paid to an employee based on a percentage of the employee’s sales

Question 38

Creation of Agency

Answer 38

Official agreement between parties, either Listing Agreement or Buyer’s Agent Agreement

Question 39

With a written listing contract where a seller employs an agent to produce a buyer for the property; the ________ is the principal; the firm/broker is the ________ agent

Answer 39

-seller

-seller’s

Question 40

With a buyer agency contract where a prospective buyer hires a firm/broker to locate properties for the buyer with buyer representation; the _______ is the principal; the _________ is the buyer’s agent

Answer 40

-buyer

-firm/broker

Question 41

With a dual-agency contract where the agent legally represents _____ parties; both seller and buyer are __________, firm/broker is agent to both, but ____________ consent from both parties is required

Answer 41

-both

-principals

-written informed

Question 42

With a property management contract where the owner of rental properties engages the services of an agent to rent and manage the property; the ________ is the principal, and the firm/broker is the property manager/agent

Answer 42

-owner

-property manager/agent

Question 43

express agreement

Answer 43

An oral or written contract in which the parties state the contract’s terms and express their intentions in words.

Question 44

implied agreement

1) What is it?

2) Is this allowed in NC?

Answer 44

1) A contract under which the agreement of the parties is demonstrated by their acts and conduct.

2) North Carolina requires all agency agreements be in writing.

Question 45

Implied Authority

Answer 45

an agent’s authority to do things not specifically authorized in order to carry out express authority

Question 46

Apparent Authority

Answer 46

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created

Question 47

Termination of Agency

Answer 47

-Completion or fulfillment of the purpose for which the agency was created

-Expiration of the terms of the agency

-Mutual agreement to terminate the agency

-Breach by one of the parties, such as abandonment by the agent or revocation by the principal (The breaching party might be liable for damages.)

-By operation of law, as in a bankruptcy of the principal (because title to the property would be transferred to a court-appointed receiver)

-Destruction or condemnation of the property

-Death or incapacity of either party (Notice of death is not necessary. Note that if a property is listed with a brokerage firm, the firm must dissolve to “die.” If the individual listing agent dies, the listing would not be terminated because the listing belongs to the brokerage firm rather than to the deceased listing agent.)

Question 48

How are real estate agency relationships created?

Answer 48

Real estate agency relationships typically are created with a listing agreement, a property management agreement, a buyer-agency or buyer representation agreement, or a tenant-agency agreement.

Question 49

Exclusive Seller Agency

Answer 49

Seller is the client; buyer is the customer

**Most common form of brokerage entity before the Edina lawsuit.

Question 50

Exclusive buyer agency

Answer 50

Buyer is the client; seller is the customer

Question 51

Single agency

Answer 51

Either the buyer or the seller is the client, but not both in the same transaction

Question 52

Dual agency

Answer 52

Both the buyer and the seller are the clients in the same transaction

Question 53

Vicarious Liability

Answer 53

is a legal concept that might allow a consumer to successfully sue the seller and/or the listing firm for illegal or inept actions performed by the subagent firm and/or its brokers

Question 54

In-house sale

Answer 54

a sale in which both the selling agent and the listing agent are from the same firm.

Question 55

Dual Agency

1) Define

2) Who is the agent loyal to?

3) How is this allowed?

Answer 55

A situation in which a person or firm has an agency and fiduciary relationship to both parties—seller and buyer—of a transaction.

Dual agency requires that the agent be equally loyal to both.

A real estate firm/broker representing one party in a transaction shall not undertake to represent another party in the same transaction without the express approval of both parties.

Question 56

3 Examples of how a Dual Agency can be created:

Answer 56

1) one individual broker represents both the buyer and the seller in the same transaction

2) two brokers working for Roomy Manor at the same office location, but one broker works with the seller and one broker works with the buyer

3) two brokers working for Roomy Manor, but one works at the Markdale branch location and works with the seller, and the other works at the Sunnydate branch location and works with the buyer.

**Perhaps, however, the situation that is most difficult for the firm to handle is the first one where one agent represents both parties and potentially knows too much about both clients to act lawfully and ethically.

Question 57

Key to lawful dual agency in North Carolina

Answer 57

that all parties (seller/buyer, lessor/lessee) must be informed and must consent to the broker representing both of them in the same transaction.

Question 58

The agent and subagents are generally restricted by the dual agency agreement from disclosing what?

Answer 58

-Willingness to accept any terms of sale other than those offered

-Motivation for participating in the transaction (unless required by statute)

-Any confidential information unless disclosure is mandated by statute

Consequently, a dual agent is required by law to disclose all material facts about the property to both principals but is absolved from disclosing confidential information about either principal by the terms of the dual agency agreement.

Question 59

Designated dual agency

Answer 59

-An agency option under dual agency that allows the firm, with both clients’ permission, to appoint one or more licensees to exclusively represent the seller-client and one or more licensees to exclusively represent the buyer-client; also called designated agency.

-designated agency must be done with prior express approval of both the seller and the buyer

-The major advantage of designated dual agency is that both of the firm’s clients (the seller and the buyer) receive a fuller and direct representation from their respective designated agent.

Question 60

Some important points about dual and designated dual agency include the following:

Answer 60

-To become a dual agent, the same firm must have a client relationship with both the seller and the buyer.

-There cannot be designated dual agency unless dual agency exists first.

-The firm owes the same fiduciary duties to both parties which has the effect of neutralizing the firm and its agents when acting as dual agents, but designated dual agents owe their fiduciary duties exclusively to the party they are designated to represent, even though the firm has an equal obligation to both parties.

-Designated dual agency is a form of dual agency that is optional, but it has the potential to result in both of the firm’s clients receiving better representation.

-To practice dual or designated dual agency, the firm’s policy must authorize it and both parties must give their written consent.

Question 61

First substantial contact

Answer 61

First substantial contact occurs when conversation between a broker and a consumer shifts from facts about the property to possible confidential information about the consumer’s needs, wishes, and abilities or when the consumer or broker begins to act as if there is a fiduciary relationship.

Question 62

First Substantial Contact

The broker must review the form with the buyer or seller and make a determination if the broker will act as the agent of the seller or the agent of the buyer. An _______ relationship cannot be formed without this review. The nature and obligations of an agency relationship must be clearly ________ to the consumer so that the consumer understands that an agent owes all client-level _______ duties ______ to the client/principal. The purpose of the agency disclosure form is informed _______ by the consumer as to the best agency relationship for them. A broker should always make agency disclosure prior to showing property to a buyer consumer; first substantial contact with a prospective buyer occurs no later than the time information is gathered to use in the selection of properties for viewing.

Answer 62

-agency

-explained

-fiduciary

-only

-consent

Question 63

1) How long must agency files be kept on file in NC?

2) What is first substantial contact? Is it a contract?

Answer 63

-must keep on file for 3 years

-not a contract; meant to inform about their choices they have in regard to their relationships with North Carolina brokers

Question 64

oral buyer agency

1) What is it?

2) Is the exclusive?

3) What is the duration of this agreement and how is it terminated?

Answer 64

-is an agency option a firm may use when the consumer is unwilling to commit to a written buyer agency relationship.

-All oral buyer agency agreements must be nonexclusive.

-An oral agreement is considered to be of indefinite duration and can be terminated at the will of either party at any time.

Question 65

Five-point checklist to properly follow disclosure rules:

Answer 65

1. The agency disclosure form must be given to prospective sellers and buyers no later than first substantial contact in all real estate sales transactions.
2. The broker must review the form and a determination of agency status must take place. The buyer/seller can acknowledge receipt by signing the form.
3. Listing agreements are required to be in writing from the start of the agency relationship.
4. The rule allows for an agent to act as a buyer’s agent, a dual agent, or a designated dual agent under an oral agreement, until such time as the agreements must be put in writing, which is not later than the time the first offer is going to be presented.
5. Any buyer agency agreement that sets forth agency exclusivity or a definite period of time must be in writing from the start of the agency relationship.

Question 66

Provisional Broker

Answer 66

a real estate licensee who performs real estate activities under the supervision of a licensed broker-in-charger B618

The broker-in-charge is fully responsible for the actions performed in the course of the real estate business by all persons affiliated with the brokerage firm. In turn, all of a provisional broker’s activities must be performed in the name of the broker-in-charge (see NCREC Rule A.0506).