Lesson 2 - Law of Agency

Question 1

Fiduciary

Answer 1

• A person who on behalf of or for the benefit of another transacts business or handles money or property not the person’s own; such relationship implies great confidence and trust.
• OLD CAR

Question 2

OLD CAR

Answer 2

• Obedience
• Loyalty
• Disclosure
• Confidentiality
• Accountability
• Reasonable Care

Question 3

Disclosure Regarding Real Estate Agency Relationship Form

Answer 3

• A written explanation, to be signed by a prospective buyer or seller of real estate, explaining to the client the role that the broker plays in the transaction.
• First document to be submitted to all prospective clients

Question 4

Exclusive Agency

Answer 4

• An agreement of employment of a broker to the exclusion of all other brokers; if sale is made by any other broker during term of employment, broker holding exclusive agency is entitled to commissions in addition to the commissions payable to the broker who effected the transaction
• Made between a broker and a seller

Question 5

Principal

Answer 5

-The employer of an agent or broker; the broker’s or agent’s client

Question 6

Price Fixing

Answer 6

-Conspiring to establish fixed fees or prices for services or products.

Question 7

Market Allocation

Answer 7

-An agreement between members of a trade to refrain from competition in specific market areas.

Question 8

Independent Contractor Relationship

Answer 8

• A person that provides services to another under terms specified in a contract or within a verbal agreement. An independent contractor is not an employee.
• The agent does not have to work in a specific location
• The broker cannot control the agent’s work activities

Question 9

General Agent

Answer 9

-Someone authorized to transact every kind of business for the principal.
Example: Property Manager

Question 10

Special Agent

Answer 10

-An agent with limited authority to act on behalf of the principal, such as created by a listing.
Example: Real Estate Agent / Real Estate Broker

Question 11

Universal Agent

Answer 11

-A universal agent has complete authority over any activity of the principal.
Example: Power of Attorney

Question 12

Agent/Client Relationships

Answer 12

• The buyer and/or seller is known as the Principal or Client.
• The broker is known as the Agent.
• The salesperson is a Sub-agent of their broker.

Question 13

Buyer Agency/Buyer Brokerage

Answer 13

• Buyer agency occurs when a purchaser/renter hires a broker to represent them.
• The purchaser/renter employs a broker to locate a property. In this relationship, the buyer is the principal and the broker is the agent.
• A Buyer Representation Form should be signed between the buyer and broker.

Question 14

Obedience

Answer 14

-Agent shall follow the legal instructions of their client.

Question 15

Loyalty

Answer 15

-Agent shall work in the best interests of their client.

Question 16

Disclosure of Information

Answer 16

-Agent shall promptly communicate all information about the transaction to their client. This includes presenting all offers to the client.

Question 17

Confidentiality

Answer 17

-Agent shall not reveal confidential information about the client to prospective buyers, without the express consent from the client. Such confidential information may harm the client.

Question 18

Accountability

Answer 18

-(refers to financial accountability) the agent must account for and promptly remit all money or property entrusted to the agent.

Question 19

Reasonable Care

Answer 19

-Agent shall possess the necessary skills and training to perform their requested services.

Question 20

What should the agent do if client refuses to sign Agency Disclosure Form

Answer 20

– Document the names and time, date, and reasons for refusal to sign the disclosure form.
- Complete the declaration form stating the facts, have it acknowledged, and retain a copy for their records for at least 3 years.
- The declaration form should say the following:
“Although I indicated to the buyer/seller that New York State Law required that I request that he/she sign to acknowledge receipt of the disclosure notice, he/she refused to sign the acknowledgement to the disclosure form when presented. The reason given for this refusal was as follows…”

Question 21

Estoppel

Answer 21

-An agency by estoppel exists when a principal does not stop an individual from representing his or her interests, thus creating an agency relationship between the two.

Question 22

Listing Contracts

Answer 22

A listing contract is created between a seller and a broker (NOT a salesperson).

The listing agreement creates an express agency relationship.

Question 23

Exclusive Right to Sell Agreement

Answer 23

-This listing contract offers the most security to the broker. The seller must work exclusively with the broker to sell their property. The broker is entitled to a commission even if the seller finds a buyer themselves.

Question 24

Exclusive Agency Agreement

Answer 24

-The seller must work exclusively with the broker to sell their property, BUT the seller does not have to pay the broker a commission if they find a buyer themselves.

Question 25

Open Listing Contract

Answer 25

-The seller is allowed to work with any broker who brings them a buyer. Only the broker who brings a buyer is entitled to a commission. This is the riskiest type of listing contract for a broker.
An open listing contract is an example of a unilateral contract.

Question 26

Net Listing

Answer 26

-A net listing is not technically a listing agreement, but a method of establishing the listing broker’s commission as all money above a specified net amount to the seller.

Net listings are illegal in New York.

Question 27

Vicarious Liability

Answer 27

-Vicarious liability is a situation in which one party is held partly responsible for the unlawful actions of a third party.

According to Section 442-c of the New York Real Property Law, a broker is vicariously liable for a salesperson’s actions only when “the broker had actual knowledge of such violations or if the broker retains the benefits from the transaction after he knows that the salesperson has engaged in some wrongdoing”.

Question 28

Sherman Anti-Trust Act

Answer 28

The Sherman Anti-Trust Act made the following actions illegal:

1) Price fixing
2) Group boycotts
3) Market allocation
4) Tie-in arrangements

Question 29

Misrepresentation

Answer 29

• Misrepresentation consists of:
  1) A false representation of a material fact.
  2) A person making the false representation knew or should have known it to be false.
  3) A person acts or does not act based on the misrepresentation.
  4) A person who relies on the misrepresentation in acting or not acting.