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Real Estate Exam Prep > Contracts and Agency > Flashcards

Contracts and Agency Flashcards

1
Q

Expressed Contract

A

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

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2
Q

Implied Contract

A

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

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3
Q

Bilateral Contract

A

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

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4
Q

Unilateral Contract

A

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.

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5
Q

Executory Contract

A

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

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6
Q

Lis Pendens

A

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.

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7
Q

Writ of Attachment

A

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

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8
Q

Void Contract

A

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

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9
Q

Voidable Contract

A

A valid contract that may be terminated or rescinded by one of the parties.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.

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10
Q

Unenforceable Contract

A

An oral contract.

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11
Q

Essential Elements of a Valid Contract

A
  • 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.)
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12
Q

Time is of the Essence

A

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.

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13
Q

Computing Time

A

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.

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14
Q

Assignment of a Contract

A

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

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15
Q

Novation

A

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.

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16
Q

Reformation

A

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

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17
Q

Discharge of Contract

A
  • 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.
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18
Q

Default

A

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.

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19
Q

Law of Agency

A

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.

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20
Q

Definition

A

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

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21
Q

Single Agency

A

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

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22
Q

Dual Agency

A

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

23
Q

Special Agents

A

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

24
Q

General Agents

A

Property managers are generally called “general” agents

25
Q

Universal Agents

A

“Universal” agent – can conduct all business

the owner himself can conduct. Real estate agents do no act as universal agents for their clients.

26
Q

Expressed Agency

A

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.

27
Q

Implied Agency

A

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.

28
Q

Ostensible Agency

A

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”.

29
Q

Agency by Ratification

A

An agency relationship that is established after the fact.

30
Q

Gratuitous Agency

A

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.

31
Q

Buyer Agent/Buyer Broker

A

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.

32
Q

Listing Agent/Listing Broker

A

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

33
Q

Subagent

A

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.

34
Q

Creation of Agency and Agency Agreements

A

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

35
Q

Fiduciary Responsibilities

A

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).

36
Q

Client:

A

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

37
Q

Customer

A

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).

38
Q

Termination of Agency

A

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)

39
Q

Commission and Fees

A

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.

40
Q

Subagent Commissions

A

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

41
Q

Referral Fees

A

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.

42
Q

Listing Agreements

A

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

43
Q

Maintain a claim for a commission

A

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.

44
Q

Open Listing

A

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.

45
Q

Net Listing

A

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

46
Q

Exclusive Agency Listing

A

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

47
Q

Exclusive Right-to-Sell Listing

A

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.

48
Q

Buyer-Broker Agreements

A

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.

49
Q

Contract for Deed

A

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”

50
Q

Amendment

A

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.

51
Q

Addendum

A

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

52
Q

Rescission and Cancellation Agreements

A

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.

53
Q

Broker/Salesperson Agreements

A

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.

54
Q

Independent Contractor Agreement (ICA)

A

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.

Real Estate Exam Prep (8 decks)

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