Laws of Agency 17%

Question 1

With regards to a fiduciary relationship, a Broker is to a Seller, as a:

Answer 1

The broker/seller relationship is similar to the beneficiary/trustee relationship as the trustee is holding the deed of trust for the benefit of the lender (beneficiary) and works on behalf of the beneficiary. The trustee has a fiduciary responsibility to the beneficiary.

Question 2

Broker responsibility to third parties

Answer 2

In addition to his/her fiduciary obligations to the seller, an agent must be fair and honest to third parties. Because of the close personal relationship between broker (agent) and seller or buyer (principal), the broker often learns certain confidential information about the client and/or financial situation of the principal. This information cannot be disclosed by a broker, even after the transaction is completed and the fiduciary relationship is terminated.

Question 3

fiduciary

Answer 3

A relationship that implies a position of trust or confidence wherein one person is usually entrusted to hold or manage property or money for another. The term fiduciary describes the faithful relationship owed by an attorney to a client or by a broker (and salesperson) to a principal.

Question 4

principal

Answer 4

In a fiduciary relationship, the person who hires a real estate broker to represent him or her in the sale of property. The phrase, “principals only,” often found in real estate ads, is meant to exclude real estate agents from contacting the owners of the property.

Question 5

agent

Answer 5

One authorized to represent and to act on behalf of another person (called the principal). Unlike an employee, who merely works for a principal, an agent works in the place of a principal.

Question 6

real estate broker

Answer 6

A real estate broker is a person employed for a fee by another to carry on any of the activities listed in the Real Estate Law definition of a broker.

Question 7

Agency relationship creation

Answer 7

A real estate licensee cannot become your agent by simply volunteering. An agency relationship can be created by written agreement or it may be implied by the acts of the principal and agent. It can also be created by oral agreement.

Question 8

Price Fixing

Answer 8

The practice of conspiring to establish fixed fees or prices for services rendered or goods sold. In recent years, the setting of attorney fees by local bar associations and commission percentages and management fees by local realty associations has been successfully attacked as price fixing and thus a violation of the Sherman Antitrust Act.

There is no such thing as an “innocent” discussion of commissions or fees between or among competing brokers and the law views this as price fixing. As a company policy, a broker may set a commission schedule for his/her own employees.

Question 9

Commission from non-emplyoing broker to salesman

Answer 9

A salesman may only collect a commission from his employing broker. Likewise, a broker may not pay a commission to anyone other than his employed salesman. The listing broker has violated the Real Estate Law, Section 10137.

Question 10

Commission splits with non-california agents

Answer 10

In California, a real estate broker acting in the capacity of an independent contractor may agree verbally or in writing to split a commission with another broker.

A real estate broker, licensed only in California,verbally agreed to split a commission with a real estate broker not licensed in California:Such a contract is enforceable in the California courts.

Question 11

The law of agency is concerned with the rights and duties between

Answer 11

1) agent and the principal
2) principal and third parties with whom the agent deals on behalf of the principal.
3 )agent and third parties with whom the agent deals on behalf of the principal

*All three choices describe the fiduciary relationship between the real estate agent and the principal.

Question 12

What type of sale requires a disclosure that the sales commission is negotiable?

Answer 12

1-4 unit residential property

B & P Code § Section 10147.5 is now operative. It reads: 10147.5(a)-Any printed or form agreement which initially establishes or is intended to establish or alters the terms of any agreement which previously established a right to compensation to be paid to a real estate licensee for the sale of residential real property containing not more than four (4) residential units, or the sale of a mobile home, shall contain the following statement in not less than 10-point boldface type immediately preceding any provision of such agreement relating to compensation of the licensee.

NOTICE: THE AMOUNT OR RATE OF REAL ESTATE COMMISSIONS IS NOT FIXED BY LAW. THEY ARE SET BY EACH BROKER INDIVIDUALLY AND MAY BE NEGOTIABLE BETWEEN THE SELLER AND BROKER.

Question 13

When leasing real property, the commission of the leasing agent is based on a percentage of:

Answer 13

Usually, the commission of a leasing agent is figured on the total rent to be collected over the term of the lease. The commission can be any amount negotiated and specified in the employment contract.

Question 14

“Subagent”

Answer 14

“Subagent” means a person to whom an agent delegates agency powers.

An agent of a person who is already acting as an agent for a principal. The original agent can delegate authority to a subagent where such delegation is either expressly authorized or customary in the trade.

However, “subagent” does not include an associate licensee who is acting under the supervision of an agent in a real property transaction.

The marketing of real property by real estate agents is often a cooperative effort. The listing broker usually makes an offer of compensation to a cooperating broker (subagent) by placing the property on the Multiple Listing Service. Some MLS’s make the offer of subagency automatic, while for others, the offer of subagency is optional and requires an affirmative act by the listing broker. If the principal (seller) specifically authorizes his/her broker to appoint a subagent and thus establishes a new contractual and fiduciary relationship, the subagent represents the principal in the same manner as the listing broker.

Question 15

multiple listing service (MLS)

Answer 15

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.

Question 16

Intestate

Answer 16

A person who died without leaving a will.

Question 17

probate

Answer 17

The formal judicial proceeding to prove or confirm the validity of a will, to collect the assets of the decedent’s estate, to pay the debts and taxes and to determine the persons to whom the remainder of the estate will pass. (See decedent, will)

In the sale of a property where the seller died intestate. the probate court would set the commission amount

Question 18

Creation of agency relationship

Answer 18

Most agency relationships are created by written agreement. An agency relationship can also be created by ratification (consenting to acts of the agent), and estoppel (principal stopped from denying an inconsistent position in the representation).

Question 19

Ratification

Answer 19

consenting to acts of the agent

Question 20

Estoppel

Answer 20

principal stopped from denying an inconsistent position in the representation

Method of enforcing an agency relationship in which someone stated incorrectly that another person is his or her agent, and a third person relied on that representation.

Question 21

Express agency

Answer 21

Written agreement

Question 22

Who gets the commission?

Answer 22

Until the seller’s acceptance is communicated to the buyer, there is no contract. Therefore, the one who communicates the seller’s acceptance to the buyer is more likely to earn the commission.

Question 23

Commission for broker specializing in property management based on:

Answer 23

A broker specializing in property management generally receives commissions based on a percentage of the gross rents collected, not those that would be anticipated over the term of the leases.

Question 24

Who gets commission

Answer 24

The listing broker earns the commission under the terms of the listing agreement. A commission split may occur if the offer came in through another broker.

Question 25

listing agreement

Answer 25

A written employment agreement between a property owner and a real estate broker authorizing the broker to find a buyer or a tenant for certain real property. Listing can take the form of open listings, net listings, exclusive-agency listings, or exclusive-right-to-sell listings. The most common form is the exclusive-right-to-sell listing. (See exclusive-agency listings, exclusive-right-to-sell listing, net listings, open listings)

Question 26

exclusive agency listing

Answer 26

A written listing agreement giving a sole agent the right to sell a property for a specified time, but reserving to the owner the right to sell the property himself without owing a commission. The exclusive agent is entitled to a commission if he or she personally sells the property or if it is sold by anyone other than the seller.

Question 27

exclusive-authorization-and-right-to-sell listing

Answer 27

A written listing agreement appointing a broker as the exclusive agent for the sale of property for a specified period of time. The listing broker is entitled to a commission if the property is sold by the owner, by the broker or by anyone else.

Question 28

net listing

Answer 28

An employment contract in which the broker receives as commission all excess monies over and above the minimum sales price agreed on by broker and seller. Because of the danger of unethical practices in such a listing, its use is discouraged in most states. (See listing agreement)

Question 29

open listing

Answer 29

A listing given to any number of brokers who can work simultaneously to sell the owner’s property. The first broker to secure a buyer who is ready, willing and able to purchase at the terms of the listing earns the commission. In the case of a sale, the seller is not obligated to notify any of the brokers that the property has been sold.

Question 30

Misrepresenting a property to a buyer when acting as an agent for the seller

Answer 30

Even though a real estate agent is representing the seller, he/she must still be fair and honest to all the parties to the transaction. Misrepresenting the property to the buyer may subject to disciplinary action by the Bureau of Real Estate, civil action and/or criminal action.

Question 31

If broker dies with many listings, daughter who is a broker takes over for him…

Answer 31

She must attempt to renegotiate all of the listings.

Listings are personal service contracts and terminate with the death of either party. The listing agreement is between the seller and the broker. When the broker dies, the listing terminates. The new broker must attempt to renegotiate the listings with the sellers.

Question 32

Ostensible authority

Answer 32

Ostensible authority is that authority which a third person reasonably believes an agent possesses because of the acts or omissions of the principal.

Question 33

Ratification

Answer 33

Ratification is the adoption or approval of an act performed on behalf of a person without previous authorization, such as the approval by a principal of an agent after the acts have been performed.

Question 34

Estoppel

Answer 34

Estoppel is a legal doctrine which prevents a person from alleging something to be true or a fact which is contrary to a previous affirmation or allegation made by that same person.

Question 35

When an agent Earns vs actually Getting commission

Answer 35

Be careful in reading this question. The salesperson is most likely to get his/her commission when escrow closes. He/she has earned his/her commission when acceptance of the offer is communicated to the buyer.

Question 36

Commission for commercial lease property

Answer 36

The broker’s commission is normally calculated as a percent of the total amount of lease payments. This is negotiable, however and not a hard and fast rule of law.

Question 37

Agent rebating part of commission to buyer to a level that the agent knew would be high enough for the seller to accept.

Answer 37

Any information material to the transaction must be disclosed to the seller prior to acceptance of the offer by the seller. This would include any agreement by a licensee to rebate a portion of his/her commission to the buyer.

Question 38

Real Estate Commissioner

Answer 38

The Real Estate Commissioner is appointed by the governor and serves at the governor’s discretion. The Real Estate Commissioner determines administrative policy and enforces that policy in the best interests of those dealing with real estate licensees.

The Commissioner does not levy fines. This is done by the court. The Commissioner may temporarily suspend or permanently revoke the license of a real estate licensee for such illegal payment of commission.

Question 39

Rebates to principles? is it ok?

Answer 39

It is permissible for a listing broker to rebate a portion of his/her commission to the buyer or seller as long as the rebate and/or credit is disclosed to all parties.

Question 40

Fiduciary Dutys

Answer 40

Among the obligations that a fiduciary owes to his/her principal are the duties of loyalty, obedience, and full disclosure; to be fair and honest; the duty to use skill, care and diligence; and the duty to account for all monies.

Question 41

Agency Disclosure Agreement

Answer 41

An agency disclosure agreement is required for property with one to four dwelling units, any leasehold in this type of property exceeding one year’s duration, and mobile homes, when offered for sale or sold through an agent.

Question 42

An agent becomes the agent of the seller when both the seller and the agent sign:

Answer 42

The Listing Agreement creates the agency relationship between the seller and the listing agent.

Question 43

Can a broker pay a commission to a broker of another state

Answer 43

B & P Code § 10137: “it is unlawful for any licensed real estate broker to employ or compensate, directly or indirectly, any person for performing any of the acts within the scope of this chapter who is not a licensed real estate broker or a real estate salesman licensed under the broker employing or compensating him; however, a licensed real estate broker may pay a commission to a broker of another state.”

Question 44

Truth-in-Lending.

Answer 44

The Truth in Lending Act (TILA) of 1968 is United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed

Question 45

Real Estate Settlement Procedures Act.

Answer 45

‘Real Estate Settlement Procedures Act - RESPA’ This act was designed to protect potential homeowners and enable them to become more intelligent consumers. RESPA requires that lenders provide greater amounts of information to prospective borrowers at certain points in the loan settlement process.

Question 46

Sherman Anti-trust laws.

Answer 46

The Sherman Anti-Trust Act is landmark 1890 U.S. legislation which outlawed trusts, then understood to mean monopolies and cartels, to increase economic competitiveness.

Price fixing is a violation of the Sherman Anti-trust laws.

Question 47

California Fair Employment and Housing Act.

Answer 47

The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) prohibits discrimination in the buying, selling, rental or financing of housing based on race, skin color, sex, nationality, religion or any other protected class characteristics. Protections for persons with disabilities and/or children were added to the Fair Housing Act in 1988.

Question 48

When selling a business, the rate of commission is determined by:

Answer 48

Real estate commissions are always negotiable and are determined by the agreement between the broker and owner.

Question 49

Subornation vs subordination

Answer 49

Subornation (suborn) means to bribe or induce someone to unlawfully (or secretly) perform some misdeed or to commit a crime. (Don’t confuse this with subordination.)

Subordination is the act of yielding priority. In a mortgage, a clause in which the holder of a mortgage permits a subsequent mortgage to take priority.

Question 50

In the correct order, list the chain of events necessary to comply with the agency disclosure law:

Answer 50

According to the agency disclosure law, the correct order is: Disclose, Elect, Confirm (Memory Aid: DEC).