Contracts and Agency

Question 1

Expressed Contract

Answer 1

The parties state the terms and show their intentions in words May be oral or
written

Question 2

Implied Contract

Answer 2

The agreement of the parties is demonstrated by their actions or conduct and words.

Question 3

Bilateral Contract

Answer 3

Both parties to the contract must promise to do something. A sales contract is a
bilateral contract because both the buyer and seller make a promise. The buyer promises to buy and
the seller promises to sell. One promise is given in exchange for another

Question 4

Unilateral Contract

Answer 4

A one-sided agreement. Only one party makes a promise. The second party
does not have to act, but if they do, the first party must keep the promise. If you offer a reward for a
lost pet and someone brings the pet home you must pay the reward. An option contract is also a
unilateral contract.

Question 5

Executory Contract

Answer 5

The contract is not executed. Something remains to be done by one or both parties.

Question 6

Lis Pendens

Answer 6

A recorded document that creates constructive notice that a legal action relating to a
specific property is being filed in a court. Latin for “litigation pending”. It is a means of clouding a title
to prevent a transfer prior to a lawsuit being filed and a writ of attachment obtained.

Question 7

Writ of Attachment

Answer 7

When the court takes jurisdiction over a defendant’s property till a lawsuit can besettled.

Question 8

Void Contract

Answer 8

Has no legal force or effect because it does not meet the essential elements of a
contract. Contracts executed by a person who has been judged or adjudicated incompetent by a court
have lost their ability to contract. Any document they sign such as a deed or will is void. A contract
conveying property to a fictitious person or company is void

Question 9

Voidable Contract

Answer 9

A valid contract that may be terminated or rescinded by one of the parties.
Example: A contract entered into with a minor or one in which fraud or duress can be proven is
usually voidable. An option contract is also a voidable contract if the party who has the option
terminates the agreement within a prescribed time frame.

Question 10

Unenforceable Contract

Answer 10

An oral contract.

Question 11

Essential Elements of a Valid Contract

Answer 11

• Competent Parties (Legal entities—legal age and mentally competent)
• Offer and Acceptance (Also called “mutual assent” meaning a “meeting of the minds”.)
• Consideration (Consideration is something of legal value, usually one party suffering a legal
  detriment, bargained for and given in exchange for a promise or an act. Any return promise to
  perform that has been bargained for and exchanged is legally sufficient to satisfy the consideration
  element.)
• Legality of Object (It is for a legal purpose or not against public policy.)
• Reduced to Writing and Signed (Enforceable when in writing and agreed to by signature of all the
  parties.)

Question 12

Time is of the Essence

Answer 12

The contract must be performed within the time limits specified and that any
party who has not performed on time is liable for breach of contract.

Question 13

Computing Time

Answer 13

The act occurs on day zero. Day one starts on the next day after the act. The
last day of the count ends at midnight on the last day of the period. Calendar days, not business
days, are used.

Question 14

Assignment of a Contract

Answer 14

Transfer of the rights and/or duties from one principal to another.

Question 15

Novation

Answer 15

Substitution of a new contract for an existing agreement with the intent of getting rid of
the old contract or substituting one party for another.

Question 16

Reformation

Answer 16

At some point during the contract one party may realize that a mistake has been made
in the contract terms are that certain information should be made a part of the contract. If this occurs
it may be possible to bring about a reformation of the contract

Question 17

Discharge of Contract

Answer 17

• When completely performed, with all the terms carried out.
• Partial performance of the terms along with a written acceptance
• Substantial performance, in which one party has substantially performed but all the details have not
  been performed exactly as the contract requires.
• Impossibility of performance, it is illegal to perform the act required by the contract
• Mutual agreement of the parties to cancel
• Operation of law, as in the voiding of a contract by a minor, or as a result of fraud or duress.

Question 18

Default

Answer 18

A breach of contract is a violation of any of the terms or conditions of a contract without legal
excuse.
- If the seller defaults, the buyer has three alternatives:
Rescind, or cancel the contract and recover the earnest money as liquidated damages. File a court suit for specific performance to force the seller to perform the
contract. Sue the seller for compensatory damages.
- If the buyer defaults, the seller has four alternatives:
Declare the contract forfeited. Retain the earnest money.
Rescind the contract (terminate). Return the earnest money. (Probably not going to happen) Sue for specific performance. Sue the buyer for compensatory damages.

Question 19

Law of Agency

Answer 19

A body of laws that govern the relationship between a principal and his/her agent. It
defines the rights and duties of the parties in a real estate transaction. These laws are based on
common law.

Question 20

Definition

Answer 20

Agency is the relationship between a principal and an agent who acts for the principal within
the specified authority granted by the principal. The principal is entitled to rely on the agent, who places
the principal’s interests above those of his own

Question 21

Single Agency

Answer 21

The practice of representing either the buyer or the seller, but never both in the same transaction.

Question 22

Dual Agency

Answer 22

The practice of representing both the buyer and the seller in the same
transaction. Discouraged in many states

Question 23

Special Agents

Answer 23

Real estate agents generally are appointed “special” agents to buyers and sellers

Question 24

General Agents

Answer 24

Property managers are generally called “general” agents

Question 25

Universal Agents

Answer 25

“Universal” agent – can conduct all business | the owner himself can conduct. Real estate agents do no act as universal agents for their clients.

Question 26

Expressed Agency

Answer 26

An agency created by specific agreement, whether written or oral, between principal and agent. Those specific agreements are the listing agreement and the buyer representation agreement.

Question 27

Implied Agency

Answer 27

An agency created by conduct, words, and acts of the agent. It is not an expressed agency (in writing), but leaves the assumption is that the agent is working for the principal.

Question 28

Ostensible Agency

Answer 28

An agency created when a principal gives a third party reason to believe that another person is his agent. Think of ostensible as meaning “for all appearances”.

Question 29

Agency by Ratification

Answer 29

An agency relationship that is established after the fact.

Question 30

Gratuitous Agency

Answer 30

This type of agency can be created when an agent offers free advice usually to friends or family. If the person acts on that advice and is damaged, the agent could be liable.

Question 31

Buyer Agent/Buyer Broker

Answer 31

A real estate agent or firm who is employed by and works for a buyer in a real estate transaction. A buyer agent owes fiduciary duties to the buyer.

Question 32

Listing Agent/Listing Broker

Answer 32

A real estate agent who markets the seller's property and represents the seller during the sale of the seller's property. Also known as the seller's agent

Question 33

Subagent

Answer 33

A licensee who represents a principal through cooperation with and consent of a broker representing the principal and who is not sponsored by or associated with the principal's broker. If you do not have an agreement to represent the buyer, you are representing the seller as a subagent. Anytime you represent the client of another broker other than your sponsoring broker, you act as a subagent in the transaction.

Question 34

Creation of Agency and Agency Agreements

Answer 34

Agency is always created at the broker level, never at the salesperson level. All the salespersons sponsored by the broker owe the same duties as the broker. The broker-seller relationship is created by the listing agreement and the broker-buyer relationship is created by the buyer representation agreement. These agreements are employment agreements

Question 35

Fiduciary Responsibilities

Answer 35

The creation of the agency relationship creates a duty between a licensee and a principal called a fiduciary duty. The fiduciary duty is a relationship of trust and confidence between principal and agent. The law imposes on the agent duties of obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care and diligence, (REMEMBER—“OLD CAR”). A real estate agent owes complete fiduciary duties to the principal and must act in the best interests of the principal (the client) while also being competent and treat all parties honestly and fairly (whether the seller or the buyer).

Question 36

Client:

Answer 36

A buyer or seller who forms an agency relationship with a real estate broker; also called a principal.

Question 37

Customer

Answer 37

A buyer who is assisted by an agent who represents the seller or a seller who is assisted by an agent who represents the buyer. A buyer who represents him/herself but is assisted by the seller’s agent (sub-agent).

Question 38

Termination of Agency

Answer 38

An agency may be terminated by the acts of the parties or by operation of law for any of the following reasons: - Closing of the sale of the property - Destruction of the property Expiration of the term of the agency - Mutual agreement to terminate the agency (must be written). - Renunciation by the broker (firing the principal) or revocation by the principal (firing the broker) - Bankruptcy of the owner if title transferred to receiver - Death or incapacity of either party (Broker or Principle)

Question 39

Commission and Fees

Answer 39

The broker’s compensation is specified in the listing agreement and the buyer representation agreement. The payment is usually a percentage of the selling price of the property or it may a flat fee. It is earned once the broker has performed the work for which they were hired. It is paid at closing or upon default of the principals after the commission was earned.

Question 40

Subagent Commissions

Answer 40

A subagent is a licensee who represents a principal through cooperation with and consent of a broker representing the principal and who is not sponsored by or associated with the principal’s broker. The subagent is a special agent representing a seller rather than a buyer. The commission to be paid or not to be paid is specified in one of the agreements either the Listing Agreement or Buyers Representation Agreement

Question 41

Referral Fees

Answer 41

Fees can be paid between brokers for business referrals. Such fees can be paid for broker to broker referrals as well as referrals from relocation companies and financial institutions.

Question 42

Listing Agreements

Answer 42

The listing agreement is an employment between a broker and a seller. It creates a special agency relationship between the two. It must be in writing to be enforceable. - Listing agreements give complete information concerning a tract of land and the authority to offer it for sale. - All listings are taken in the name of the broker and become his/her personal property. The amount of commission is by agreement of the parties. - No matter how many brokers share in a listing or assist in the sales, the seller only pays one commission, which is agreed upon at the time of the listing being signed. - --- The broker that lists the property may share his/her commission with another broker who assist in the sale of the property. - The listing broker is the one that listed the property for sale and the broker work either for or with the buyer would be referred to as the selling broker

Question 43

Maintain a claim for a commission

Answer 43

The broker must: - Be procuring cause for the sale (listing agent) or produce a purchaser who is ready, willing, and able to buy (selling agent). - Have the listing contract in writing.

Question 44

Open Listing

Answer 44

The owner reserves the right to list with as many brokers as they choose; the one that sells is the one that gets the commission.

Question 45

Net Listing

Answer 45

An agreed upon price between the owner and the broker, the broker receives any money over that price as the commission. This type of listing is discouraged and requires that the seller be familiar with value, require the net listing, and the agents puts a ceiling on the amount they can earn under the net approach. **ILLEGAL IN TEXAS

Question 46

Exclusive Agency Listing

Answer 46

The broker is the exclusive agent, and receives the commission unless the owner sells the property themselves.

Question 47

Exclusive Right-to-Sell Listing

Answer 47

The broker is the exclusive agent, and receives the commission even if the owner sells the property themselves. The most common type of listing that MLS registers. **Also gives the greatest protection to the broker.

Question 48

Buyer-Broker Agreements

Answer 48

These agreements, known as Buyer Representation Agreements, establish a special agency relationship between the broker and the buyer for services provided by the broker. The agreement must be signed by the buyer. It sets the period of the agreement, the market area being considered, the fee being paid by whom, and other agreements between the broker and the buyer.

Question 49

Contract for Deed

Answer 49

Under this form of contract, the seller retains legal title until the terms of the contract have been satisfied and the buyer pays the debt in full. The buyer has equitable title during the life of the contract. Also may be referred to as a “land contract”

Question 50

Amendment

Answer 50

A form used to change the language in either the listing agreement or the purchase contract. Not effective until all the parties agree to the change.

Question 51

Addendum

Answer 51

A format to add additional terms and conditions to the approved forms, thus incorporating them into the legal document.

Question 52

Rescission and Cancellation Agreements

Answer 52

An offer or counteroffer can be withdrawn at any time before acceptance by the principal making the offer or counteroffer. This is called rescission. Both the Listing Agreement and the Buyer Representation Agreement may be cancelled by the respective client with an approved cancellation notice.

Question 53

Broker/Salesperson Agreements

Answer 53

A real estate salesperson is licensed to perform real estate activities on behalf of a licensed, sponsoring real estate broker. The broker is responsible for all the occupational acts of the agents licensed under him/her.

Question 54

Independent Contractor Agreement (ICA)

Answer 54

Employment agreement between the broker and an agent under his/her brokerage. It specifies that the salesperson is an independent contractor. The independent contractor salesperson operates more freely than an employee. The broker may control what the independent contractor does, but not how it is done. It also establishes a general agency relationship between the broker and the sponsored agent. The agent will be performing a number of duties such as working with buyers, sellers, tenants, and landlords in the broker’s name.