Principles 1, Level 4, Chapter 1

Question 1

Agency relationships are generally formed between which two people?

Answer 1

Agent and Client

Question 2

What are the two meanings of principal?

Answer 2

A major party who is a part of a real estate transaction (buyer, seller, landlord, tenant).

An individual who authorizes an agent to represent their interests as a client in a real estate transaction.

Question 3

What is a client?

Answer 3

A client is an individual who has signed an agency agreement with you or your broker to represent them in a real estate transaction.

Question 4

What is a customer?

Answer 4

A customer is a person on the other side of the transaction with whom the license holder does not have an agency relationship. Customers are the people on the other side of the transaction. They’re the people who have signed an agency agreement with the other license holder.

Question 5

What is a third party?

Answer 5

The Third Party
A third party is ANY person involved in a real estate transaction with you who is not your client. Example: load officer, title officer

Question 6

How does a customer turn into a client?

Answer 6

By forming an agency relationship

Question 7

Who is special agency between?

Answer 7

The broker and the client

Question 8

Who is general agency between?

Answer 8

The broker and the sales agent

Question 9

What is universal agency?

Answer 9

Universal agency is the broadest classification of agency. Universal agency gives agents the power to act on behalf of their principal and make decisions on behalf of the principal.

Under universal agency, an agent is given the general power of attorney — this means the agent has the actual power to sign legal documents on behalf of their principal.

Question 10

What are the three ways to create agency?

Answer 10

Written, oral, by implication or action

Question 11

How do you create express agency?

Answer 11

Express agency is created by a written or oral agreement between the principal and the agent. The agreement will outline the relationship and the duties of each party to the listing agreement. All details are clear and definite in express agency.

Question 12

What is implied agency?

Answer 12

Implied agency means there is nothing in writing. The agency relationship is recognized (or implied) because of the actions, conduct, and words of either or both parties.

With implied agency, the party and agent may never explicitly state the nature or terms of the relationship, but both can be held to the duties of an agency relationship — the agent more so than the party the agent will be representing.

Question 13

What is agency by ratification?

Answer 13

This occurs when a broker or sales agent has done something on behalf of, but without prior authorization of, a principal.

Question 14

What are the 4 steps to determine if ratification by agency has taken place?

Answer 14

The license holder must have done something on behalf of, but without the prior authorization of, a principal.

The principal learned of the act after the fact

The principal had the capacity to contract at the time of the action

The principal accepts the action of the license holder after the fact

Question 15

What is gratuitous agency?

Answer 15

When an agent works for free but is still held to all the duties of an agency relationship.

Question 16

What is non-agency?

Answer 16

In non-agency, the broker or the sales agent would have a contract with someone (either a seller, buyer, tenant, or landlord) and would only give services that do not require fiduciary duties. None of these people could receive advice or opinions from the license holders, but instead would be on their own.

Question 17

What types of agency are these examples of:
A seller having their home marketed and placed on the multiple listing service (MLS)

Buyers being shown homes without the sales agent negotiating on their behalf

A tenant being shown a rental unit with the sales agent filling out the paperwork

Answer 17

Non-agency

Question 18

What is the Sherman Anti-Trust Act?

Answer 18

The Sherman Antitrust Act is a law that was passed in 1890 that prohibits trusts, contracts, combinations, or conspiracies “in the restraint of trade or commerce.” Essentially, it made monopolies a no-no.

Question 19

What is the Texas Fair Enterprise & Antitrust Act of 1983?

Answer 19

a law that investigates and prosecutes things like price-fixing, bid-rigging, monopolies, cartels, group boycotts, and anti-competitive mergers and acquisitions.

Question 20

What is price fixing?

Answer 20

When business owners and their competitors illegally agree to set the price of their products or services at the same level — essentially eliminating competition.

Question 21

What are the two key practice changes as a result of the NAR Anti-Trust lawsuit?

Answer 21

Compensation offers moved off MLS - Seller offers of compensation for buyer brokers can still happen, but this must be negotiated outside of the MLS.

Written agreements for buyer representation are required - What was previously encouraged is now mandatory: Realtors working with buyers MUST have a written agreement in place before touring a home. (In some states, this was always mandatory.)

Question 22

The Law of Agency establishes what type of relationship?

Answer 22

Fiduciary

Question 23

What are the 6 fiduciary duties?

Answer 23

Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable Care

Question 24

When a broker represents both sides (buyer and seller or landlord and tenant) of a real estate transaction, they are acting as an

Answer 24

Intermediary broker

Question 25

Brokers can act as an intermediary, representing both parties to a real estate transaction. This is okay as long as:

Answer 25

The broker gets written consent from each party

Written consent clearly indicates who’s paying for any compensation the broker will earn

The intermediary treats all parties fairly