Laws of agency and fiduciary duties Flashcards
A property owner suffers a loss because of the fraudulent misrepresentation of a broker. The owner is advised to first:
a. file a claim with the Real Estate Commissioner.
b. file a claim with the Real Estate Education Research and Recovery Fund.
c. sue the broker for damages.
d. collect from the broker’s errors and omissions (E&O) insurance carrier.
c — When a principal feels there is a grievance with a broker, they need to first pursue the broker for damages. If unsuccessful in collecting after prevailing in court, they can then submit the judgment to the Recovery Fund for payment.
Which of the following is an example of a trust fund violation?
a. Holding a deposit check uncashed prior to acceptance at the direction of the buyer.
b. Holding a deposit check uncashed after acceptance at the direction of the seller.
c. Holding a deposit check uncashed at your own discretion.
d. Failing to disclose a material defect to a buyer which negatively affects the value of a property.
c — This question concerns the person that has authority to act regarding deposits. Only the principals can decide the proper handling of the check. Answer selection D, while a violation of disclosure law, is not a trust fund and accounting violation.
The Real Estate Law is part of:
a. the Corporations Code.
b. the Business and Professions Code.
c. the Statute of Limitations.
d. Penal Code.
b — The Real Estate Law is located in a specific state code. Not all real estate companies are corporations, so it would not be reasonable for the law to come from the Corporations Code. The Statute of Limitations has to do with time limits before which action need to be taken. Real estate brokerage is considered a profession, and thus is controlled under the Business and Professions Code.
Commingling means the opposite of:
a. subrogation.
b. mixing.
c. subordination.
d. separation.
d — Commingling is nearly identical to the meaning of the word mixing. Therefore, separation would be its opposite.
A property owner tells the broker that the house is connected to the sewer. The broker relays this information to the buyer, who later finds that the house has septic system in need of repair.
The buyer would sue:
a. the broker and the owner.
b. no one, as they should have checked.
c. the broker.
d. the owner.
a — In this instance, the buyer includes the owner in the suit as they are required to disclose a septic system on the Transfer Disclosure Statement (TDS). The broker is also named since they failed in their due diligence to be aware of the septic system.
A salesperson representing a buyer, in selling properties listed with another broker, is directly responsible to:
a. the selling broker.
b. the Multiple Listing Service (MLS).
c. the listing broker.
d. the owner.
a — The salesperson is always responsible to their broker. Unique to real estate, “selling broker” refers to the buyer’s broker.
A valid agency requires a(n):
a. written agreement.
b. express agreement.
c. attorney-in-fact.
d. None of these.
d — A valid agency doesn’t require any of these. It can be triggered by the actions of the principal or agent.
A listing broker may not be:
a. the sole agent of the owner.
b. the sole agent of the buyer.
c. a sole agent of the seller.
d. a dual agent.
b — The listing broker, also known as a seller’s broker, would naturally represent the seller. They could also represent the buyer and therefore be a dual agent. They could never represent solely the buyer.
An agency relationship would not be created by:
a. a verbal agreement.
b. ratification.
c. implication.
d. subrogation.
d — Subrogation is the substitution of one person for another. Therefore, it would not create an agency relationship whereas all of the others are possible.
A broker may never:
a. accept a commission from the buyer and the seller.
b. sell their own property to a customer.
c. act as an escrow.
d. None of these
d — All of those are legal actions for a broker
A seller’s broker receives a full price offer on their listing. As they were leaving the office to present the offer, a broker of a second buyer hands them a separate cash offer for $10,000 less than the listed price. What should the seller’s broker do?
a. Present both offers at the same time.
b. Suggest to the first buyer that they improve their offer before the seller’s broker will present it to the seller.
c. Tell the other broker the property has already been sold.
d. Present the first offer and see if the seller accepts that before submitting the other offer.
a — Offers need to be submitted to the seller, whether only one or multiple. Any other choice would fail in the agent’s fiduciary duty.
Failing to provide financing in certain communities is called:
a. redlining.
b. redevelopment.
c. panic selling.
d. subordination.
a — This is an example of redlining. Panic selling is similar to blockbusting
Which of the following is not a possible agency relationship in California?
a. Agent for the buyer.
b. Dual agent.
c. Agent for the seller.
d. Agent for themselves.
d — An agent is a person who acts on behalf of another. Thus, an agent cannot be an agent for themselves. Here, they are a principal acting for their own account.
Which will not terminate an agency relationship?
a. Mutual consent.
b. Death of the agent or principal.
c. Estoppel.
d. Destruction of the property.
c — Estoppel is a legal theory under which a person is barred from asserting or denying a fact because of the person’s previous acts or words. This would not terminate an agency relationship. All the other answer selections are valid ways to terminate an agency relationship
What is not essential to the creation of an agency relationship?
a. Agreement to pay consideration.
b. Competency of the principal.
c. Consent of the principal.
d. A fiduciary relationship.
a — The creation of agency does not require payment of a fee to be valid.
Agency relationships may not be created by:
a. voluntary offer by the agent.
b. implied contract.
c. ratification.
d. necessity or emergency
a — Agency requires agreement of the parties. A volunteer action by the agent without the corresponding consent of the principal is insufficient.
A real estate agent may represent all principals in a transaction if:
a. they have obtained the consent of all parties to this dual agency relationship.
b. they have informed all principals that they are the agent for each principal.
c. they are collecting a commission from each principal with the knowledge of the other party.
d. All of the above.
d — In order to properly be a dual agent, the dual agency status needs to be disclosed as soon as possible and all parties must consent.
The real estate disclosure law which became effective on January 1, 1988 refers to:
a. agency relationships.
b. people who arrange credit.
c. disclosures made by sellers.
d. the Truth-in-Lending Act (TILA).
a — The agency disclosure law governing agency relationships became effective January 1, 1988.
A buyer’s agent prepared a purchase offer on a home for their buyer. When should the agent give the buyer the Agency Law Disclosure form?
a. As soon as practicable.
b. Before showing the buyer the house.
c. Before preparing the offer for the buyer.
d. On the opening of escrow.
a — The Agency Law Disclosure is to be made as early as practical, but always before the principal signs any contract.
A seller’s agent listed a ranch for sale under an exclusive right to sell listing. A buyer’s agent, working through the local multiple listing service (MLS), presented an offer which the seller accepted. During escrow, the seller’s agent discovered the buyer had recently purchased many similar ranches in the area at a far higher cost per acre than had been offered in this transaction.
What should the seller’s agent do?
a. Do nothing because the deal is in escrow.
b. Disclose all information to the seller and let the seller decide what to do.
c. Cancel the escrow on behalf of the seller and try to resell the property for a higher price.
d. Inform the seller, but insist the deal must stay in escrow
b — The listing agent’s fiduciary duty requires them to disclose all material facts to their client, including the existence of the other transactions.