Chapter 7: Real Estate Brokerage and the Law of the Agency

Question 1

agency

Answer 1

The relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions

Question 2

agent

Answer 2

One who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be the property owner’s agent

See OLD CAR

Question 3

apparent authority

Answer 3

When someone claims to be an agent but there is no express agreement, the principal can establish an agency relationship by performing any act that accepts (ratifies) the conduct of the agent as that of an agent.

Question 4

broker

Answer 4

(1) One who acts as an intermediary on behalf of others for a fee or commission.
(2) One who is licensed to list, lease, buy, exchange, auction, negotiate or sell interest in real estate for others for a fee

Question 5

brokerage

Answer 5

The bringing together of buyers and sellers in the marketplace

Question 6

broker-in-charge (BIC)

Answer 6

Required for each brokerage firm and each branch office, the full broker responsible for displaying all licenses properly, notifying the North Carolina Real Estate Commission of any change of business address or trade name, ensuring that all advertising

Question 7

caveat emptor

Answer 7

A Latin phrase meaning “let the buyer beware.” In a caveat emptor state, sellers do not have to enclose any facts about their property when selling.

Question 8

client

Answer 8

A main party to a transaction–the person for whom the agent works

AKA principal

Question 9

co-brokered transaction

Answer 9

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

Question 10

commingling

Answer 10

The illegal act by a real estate broker of placing consumer funds with personal funds. By law, brokers are required to maintain a separate trust or escrow account for other parties’ funds held temporarily by the broker

Question 11

commission

Answer 11

Payment to a broker for services rendered, as in the sale or purchase of real property; traditionally a percentage of the gross sales price of the property but can be a flat fee or some other calculation

Question 12

common law of agency

Answer 12

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

Question 13

cooperating broker

Answer 13

The broker/firm in a multiple-listing situation representing the buyer, as opposed to the listing broker who represents the seller. The listing broker and the cooperating broker may be the same person/firm

Question 14

customer

Answer 14

A third party to whom is owed honesty and fairness; not a fiduciary relationship

Question 15

designated dual agency

Answer 15

An agency option, under dual agency that allows the firm, with both client’s 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

Question 16

dual agency

Answer 16

Representing both parties to a transaction; must be consensual and reduced to writing prior to presentation of first offer

Question 17

employee

Answer 17

Someone who works as a direct employee of an employer and has employee status. The employer is obligated to withhold income taxes and Social Security taxes from the compensation of the employee

Question 18

express agreement

Answer 18

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

Question 19

fiduciary

Answer 19

One in whom trust and confidence are placed; a reference to a principal-agent relationship

Question 20

first substantial contract

Answer 20

A flexible moment in time when conversation between a licensee and a consumer begins to address confidential needs, desires and abilities; latest moment to legally disclose agency choices to a consumer

Question 21

fraud

Answer 21

An international misrepresentation of material fact so as to harm or take advantage of another person

Question 22

general agent

Answer 22

One who is authorized to represent the principal in a broad range of matters related to a specific business or activity; a property manager might have this power.

Question 23

implied agreement

Answer 23

A contract under which the agreement of the parties is demonstrated by their conduct.

Question 24

implied authority

Answer 24

An agency relationship created when principals and agents, without formally agreeing to the agency, act as if one exists.

Question 25

independent contractor

Answer 25

Someone who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which the act is performed. Unlike an employee, an independent contractor pays all expenses and Social Security and income taxes and receives no employee benefits. Most real estate licensees are independent contractors

Question 26

in-house sale

Answer 26

A real estate transaction where the listing firm actually produces the buyer for their listing, as opposed to a co-brokered or cross sale that involves two firms.

Question 27

material fact

Answer 27

Any fact that is important or relevant to the issue at hand; mandatory disclosure by all agents in a transaction to all parties of the transaction

Question 28

multiple listing service (MLS)

Answer 28

A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing, and able buyers for their properties more quickly than they could on their own. Most MLSs accept only exclusive right-to-sell or exclusive-agency listings from their member brokers

Question 29

negligent misrepresentation

Answer 29

Unintentionally misinforming any party involved in a transaction about a material fact.

Question 30

negligent omission

Answer 30

Unintentionally failing to disclose a material fact to any party involved in a transaction.

Question 31

OLD CAR

Answer 31

The mnemonic for fiduciary duties of obedience, loyalty, disclosure of information, confidentiality, accounting, and reasonable skill, care, and diligence.

Question 32

oral buyer agency

Answer 32

A non-exclusive verbal agency agreement between a firm and a buyer-client. There can be no time limit on oral agency, but it must be reduced to writing prior to presentation of first offer.

Question 33

principal

Answer 33

(1) A sum loaned or employed as a fund or an investment, as distinguished from its income or profits
(2) The original amount (as in a loan) of the total balance due and payable at a certain date.
(3) A main party to the transaction – the person for whom the agent works; the client

Question 34

provisional broker

Answer 34

A real estate licensee who performs real estate activities under the supervision of a licensed real estate broker-in-charge. Must complete post-licensing courses to remove the provisional license status.

Question 35

puffing

Answer 35

Exaggerated or superlative comments or opinions: e.g., “This house has the best view in town!”

Question 36

ratification

Answer 36

A method of creating an agency relationship in which the principal accepts/confirms the conduct of someone who acted without prior authorization as the principal’s agent

Question 37

self-dealing

Answer 37

AKA a secret profit, an illegal act by a licensee who takes advantage of clients by failing to disclose the appropriate value of property

Question 38

special agent

Answer 38

One who is authorized by a principal to perform a single act or transaction. A real estate broker is usually a special agent of the seller authorized to find a ready, willing, and able buyer for a particular property, or a special agent of the buyer to find a specific type of property to purchase. Special agent has limited authority and cannot bind his principal.

Question 39

stigmatized property

Answer 39

Property regarded as undesirable because of events that occurred there; also called a psychologically impacted property. Some conditions that typically stigmatize a property are murder, gang-related activity, proximity to a nuclear plant, and even the alleged presence of ghosts.

Question 40

subagent

Answer 40

One who is employed by a person already acting as an agent; typically a reference to a provisional broker licensed under a broker (agent) who is employed under the terms of a listing agreement. A subagent has the same duties to the client as the agent.

Question 41

tort

Answer 41

A wrongful act, injury, or violation of legal right to the person or property of another

Question 42

undisclosed dual agency

Answer 42

An illegal agency relationship where buyers and/or sellers are unaware of an individual broker or firms conflicting duties to their clients

Question 43

universal agent

Answer 43

Person empowered to do anything the principal could do personally; unlimited authority; unusual in real estate; has power of attorney

Question 44

willful misrepresentation

Answer 44

Intentionally misinforming any party involved in a transaction about a material fact

Question 45

willful omission

Answer 45

Intentionally failing to disclose a material fact to any party involved in a transaction

Question 46

Working with Real Estate Agents (WWREA)

Answer 46

A mandatory agency information brochure that a licensee must give to and review with consumers in all real estate sales transactions no later than first substantial contact; it does not create agency.

Question 47

listing broker

Answer 47

The broker/firm in a multiple-listing situation representing the seller, as opposed to the cooperating broker/firm that brings the buyer to the transaction. The listing broker and the cooperating broker may be the same person/firm

Question 48

What does an agent owe a customer?

Answer 48

• fair dealing
• honesty
• material facts