Real Estate National Test Ch 9

Question 1

D: Agent

Answer 1

The individual who is authorized and consents to represent the interests of another person in dealings with a third person.

Many different agency relationships are possible in a real estate transaction.

The sales associates of a real estate broker acting as agents (representatives) of the broker. In a real estate transaction, a firm’s broker will be the agent of a client and may share this responsibility with the sales associates who work for the firm.

As agents of the broker, the sales associates historically have had the same relationship to a client of the firm that the broker does.

Because of the number of transactions that are “in-house” (the same firm dealing with both seller and buyer), it is now possible for a sales associate to represent a buyer as the buyer’s designated agent, even when the sales associate’s firm also represents the seller in the transaction.

Question 2

D: Principal

Answer 2

The individual who hires the agent and delegates to that agent the responsibility of representing the principal’s interests.

In a real estate transaction in which an agency relationship is established, the principal is the buyer or the seller or the landlord or the tenant.

The broker is the principal in dealings with sales associates.

Question 3

D Agency

Answer 3

The fiduciary relationship between the principal and the agent by which the agent is authorized to represent the principal in one or more transactions.

Question 4

D: Fiduciary

Answer 4

The relationship in which the agent is held in a position of special trust and confidence by the principal.

Question 5

D: Client

Answer 5

the principal in a real estate transaction for whom a real estate broker acts as an agent.

The term client is also used when a broker represents someone in a relationship other than an agency.

Question 6

D: Customer

Answer 6

The third party or nonrepresented consumer who is not a principal but for whom some level of service may be provided and who is entitled to fairness and honesty.

The customer may be represented by a separate agent.

Question 7

D: Nonagent

Answer 7

(also referred to as a facilitator, intermediary, transactional broker, transaction coordinator, or contract broker)

Someone who works with a buyer and a seller (or a landlord and a tenant), assisting one or both parties with the transaction without representing either party’s interests.

Nonagents are often subject to specific statutory responsibilities.

A broker may be considered a non-agent when dealing with a customer (someone other than the person the broker represents).

Question 8

What does the Acoronomy (OLD CAR) stand for when talking about fiduciary duties.

Answer 8

1. Obedience
2. Loyalty
3. Disclosure
4. Confidentiality
5. Accounting
6. Reasonable Skill and Care

Question 9

What does the acronym DAH stand for when it comes to the agent’s duties to third parties?

Answer 9

1. Disclosure
2. Accounting
3. Honesty

Question 10

D: Special Agency

Answer 10

The agent is authorized to perform a particular act without the ability to bind the principal contractually.

Question 11

Two examples of Special Agency

Answer 11

1. Listing brokerage firm to seller

2. Buyer brokerage firm to buyer

Question 12

D: General Agency

Answer 12

The agent is authorized to perform a series of acts associated with the continued operation of a particular business.

The agent has a limited ability to bind the principal.

Salesperson or Broker associate to employing broker.

Question 13

D: Universal Agency

Answer 13

The agent is authorized to perform in place of the principal.

The agent has an unlimited ability to bind the principal.

The agent’s authority comes from a legal form called a power of attorney (POA).

POA appoints an attorney-in-fact.

The agent legally replaces the principal.

Can accept/reject offers and sign for the principal.

A special or general agent can become a universal agent with a written power of attorney from the principal.

Question 14

D; Express Agency

Answer 14

An agency relationship may be created by an oral or written agreement between the parties.

Question 15

D: Implied Agency

Answer 15

An agency relationship may also result from the parties’ behavior.

Question 16

D: Express Agreement

Answer 16

An oral or written contract in which the parties state the contract’s terms and express their intentions in words.

Question 17

The employment agreement of broker and sales associate must be in?

Answer 17

In writing.

Question 18

D: listing agreement

Answer 18

A contract between an owner (as principal) and a real estate professional (as representative of the owner) by which the real estate professional is employed to find a buyer for the owner’s real estate on the owner’s terms, for which service the owner agrees to pay a commission or other form of compensation.

Question 19

D: Buyer Representation Agreement

Answer 19

A principal-agent relationship in which the real estate professional acts on behalf of the buyer, usually as an agent, with fiduciary responsibilities to the buyer.

Question 20

True or False:

Answer 20

In a real estate transaction, the source of compensation does not determine agency.

Question 21

D: Gratuitous Agency

Answer 21

When agency is formed but no compensation is involved.

Question 22

D: Buyer’s Agent

Answer 22

A real estate professional who is under contract to locate a property for a buyer and represent the buyer’s interests in a transaction.

Question 23

D: Fiduciary Relationship

Answer 23

This means that the real estate broker owes the principal certain duties.

Question 24

D: Care

Answer 24

Agents must exercise a reasonable degree of care while transacting the business entrusted to them by principals.

Principals expect the agent’s skill and expertise in real estate matters to be superior to that of the average person.

The most fundamental way in which an agent exercises care is to use that skill and knowledge on a principal’s behalf.

The agent should know all facts pertinent to the principal’s affairs, such as the physical characteristics of the property being transferred and the type of financing being used.

Question 25

Example of care if the real estate agent represents the seller.

Answer 25

Care and skills include helping the seller arrive at an appropriate and realistic listing price, discovering and disclosing facts that affect the seller, and properly presenting, as allowed by law, the contracts and other documents that the seller signs. It also means making reasonable efforts to market the property, such as advertising and holding open houses, and helping the seller evaluate the terms and conditions of offers to purchase.

Question 26

Example of care if the real estate agent represents the buyer?

Answer 26

A real estate broker who represents the buyer is expected to help the buyer locate a suitable property and evaluate property values and neighborhood and property conditions, and complete offers and counteroffers, as allowed by law, with the buyer’s interest in mind.

Question 27

D: Obedience

Answer 27

The fiduciary relationship obligates an agent to act in good faith at all times, obeying the principal’s lawful instructions in accordance with the contract.

That obedience is not absolute, however.

The agent does not have to obey instructions that are unlawful or unethical.

On the other hand, an agent who exceeds the authority assigned in the contract will be liable for any losses that the principal suffers as a result.

Question 28

D: Loyalty

Answer 28

The duty of loyalty requires that the agent place the principal’s interests above those of all others, including the agent’s own self-interest.

The agent must be particularly sensitive to any possible conflicts of interest.

Because the agent may not act out of self-interest, the negotiation of a sales contract must be conducted without regard to how much the agent will earn in commission.

All states forbid agents to buy a property listed with them for their own accounts or for accounts in which they have a personal interest without first disclosing that interest and receiving the principal’s consent.

Neither real estate brokers nor real estate sales associates may sell property in which they have a personal interest without informing the purchaser of that interest.

Question 29

D: Disclosure

Answer 29

It is the agent’s duty to keep the principal informed of all facts or information that might affect a transaction.

The duty of disclosure includes relevant information or material facts that the agent knows or in some cases should have known.

The real estate agent is obligated to discover facts that a reasonable person would feel are important in choosing a course of action, regardless of whether those facts are favorable or unfavorable to the principal’s position.

The agent may be held liable for damages for failing to disclose such information.

Question 30

Depending on state law, information that must be disclosed in a sales transaction could include?

Answer 30

1. The ID of prospective purchasers, which may include any relationships the purchasers might have with the agent.
2. The purchaser’s ability to complete the sale or offer a higher price.
3. Any interest or prospective interest the agent has in the buyer or the buyer’s business
4. An incorrect market value of the property.

Question 31

A seller’s real estate agent is also expected (and required under many states’ laws) to disclose information about?

Answer 31

Known material defects in the property to prospective buyers.

This may appear to violate the agent’s duty of loyalty to the seller, but this requirement falls under the broader duty to serve the general public and can protect the agent from claims of misrepresentation.

Question 32

the buyer’s agent must disclose what?

Answer 32

The deficiencies of a property and the sales contract provisions and financing may affect the buyer’s decision to purchase.

The buyer’s agent would suggest the lowest price the buyer should pay based on comparable values, regardless of the listing price.

If known, the agent would also disclose how long a property has been listed and why the owner is selling, because such information would affect the buyer’s ability to negotiate the lowest purchase price.

Question 33

D: Accounting

Answer 33

The agent must be able to report the status of all funds received from or on behalf of the principal.

Most state laws require that a real estate professional give accurate copies of all documents to all affected parties and keep copies on file for a specified period.

Most license laws also require monies to be deposited into an escrow account immediately, or within a specified time.

Commingling client monies with personal or general business funds is always illegal.

Question 34

D: Conversion

Answer 34

Is the illegal use of such entrusted money.

Question 35

D: Confidentiality

Answer 35

Confidentiality is a key element of fiduciary duties. An agent may not disclose the principal’s personal information.

If the principal is the seller, the agent may not reveal such things as a willingness to accept less than the listing price or urgency to sell, unless the principal has authorized the disclosure, and often the authorization must be in writing.

If the principal is the buyer, the agent may not disclose the buyer’s willingness to pay a higher price, the buyer’s tight moving schedule, or other buyer facts that might affect the principal’s bargaining position.

Question 36

Alanda, a licensee, is selling a single family home for Lester. There is a city bus stop in front of the home, and Alanda advertises the fact that public transportation is easily accessible. Jenna, a woman with mobility impairment, views the property and submits an offer on her own. Lester accepts the offer. During the attorney’s review portion of the contract, Alanda learns that the bus stop will be moved six blocks away. She brings this to the attention of Lester, who instructs her not to disclose this information to Jenna. Alanda, however, does disclose the information to Jenna, and Jenna cancels the contract before the end of the attorney’s review. Lester is angry and sues Alanda for breach of fiduciary duty.

Based on this scenario, answer the following questions:

Has Alanda violated her fiduciary duty of obedience to Lester? Why or why not? If there is an issue regarding disclosure of Material Facts, which is it?

Has Alanda violated her fiduciary duty of obedience to Lester? Why or why not? If there is an issue regarding the disclosure of material facts, which is it?

Answer 36

Obviously, Alanda’s disclosure is the event that ends the contract. Because the customer has a mobility impairment, the fact that the bus stop is being moved six blocks away is more than likely a material fact to that individual. If the customer did not have a mobility impairment, it would probably not have been an issue. To someone without a mobility impairment, the change in location of the bus stop would likely be more of an inconvenience than the challenge presented to the current purchaser.

Alanda is acting within her obligations to the public. Though harm may have been caused to Lester, Alanda is not liable for it.

Question 37

D: Single Agency

Answer 37

The agent represents only one party to a transaction.

The real estate agent must provide fiduciary common law or statutory duties exclusively to one principal within the transaction.

The customer is the party not represented by the agent.

Question 38

D: Dual Agency

Answer 38

The agent represents two principals in the same transaction.

Dual agency requires equal loyalty to two different principals at the same time—a high burden that means neither principal has the full, undivided loyalty of the agent.

Because of the risks inherent in the dual agency—ranging from conflicts of interest to outright abuse of trust—the practice is illegal in some states. In those states where dual agency is permitted, all parties must consent to the arrangement, usually (and always preferably) in writing.

Question 39

D: Designated Agency

Answer 39

AKA : Assigned Agency
AKA: Appointed Agency

A process that accommodates an in-house sale in which two different agents are involved.

The broker designates one agent to represent the seller and one agent to represent the buyer.

Question 40

D: Designated Agent

Answer 40

AKA: Designated Representative

A real estate professional authorized by a broker to act as the agent for a specific principal in a particular transaction; also may be called the assigned agent or appointed agent.

Question 41

D: Transaction Broker

Answer 41

AKA: NonAgent, Facilitator, Transaction Coordinator, or Contract Broker.

Is not an agent of either party.

A nonagent’s job is simply to help both the buyer and the seller with the necessary paperwork and formalities involved in transferring ownership of real property—what may be referred to as ministerial acts.

The nonagent is expected to treat all parties honestly and competently, to locate qualified buyers or suitable properties, to help the parties arrive at mutually acceptable terms without acting on behalf of either side, and to assist in the closing of the transaction.

The nonagent is equally responsible to both parties and must disclose known defects in a property; however, the nonagent may not negotiate on behalf of either the buyer or the seller and must not disclose confidential information to either party.

The buyer and the seller negotiate the sale without the services of the real estate agent(s), though one or both parties may be represented by an attorney during that process.

Question 42

An agency may be terminated for what reasons:

Answer 42

1. Completion, performance, or fulfillment of the purpose for which the agency was created.
2. Death or incapacity of either party.
3. Destruction or condemnation of the property.
4. Expiration of the terms of the agency.
5. Mutual agreement by all parties to cancel the contract.
6. Breach by one of the parties.
7. By operation of law, as in bankruptcy of the principal

Question 43

What are the real estate professional’s duties to the customer include?

Answer 43

1. Reasonable care and skill in the performance
2. Honest and fair dealing
3. Disclosure of all facts that the real estate professional knows or should reasonably be expected to know that materially affect the value or desirability of the property.

Question 44

D: Puffing

Answer 44

Exaggeration of a property’s benefits.

While puffing is legal, real estate professionals must ensure that none of their statements can be interpreted as fraudulent.

For REALTORS®, puffing is considered unethical even if it is legal.

Question 45

D: Fraud

Answer 45

Is the intentional misrepresentation of a material fact in such a way as to harm or take advantage of another person.

That includes not only making false statements about a property but also intentionally concealing or failing to disclose important facts when there is a duty to disclose.

Question 46

D: Negligent Misrepresentation

Answer 46

Occurs when the real estate professional should have known that a statement about a material fact was false.

A real estate professional’s lack of awareness of an issue is no excuse.

A misrepresentation due to the professional’s carelessness will make the professional culpable (subject to liability).

If the buyer relies on the real estate professional’s statement, the professional will be liable for any damages that result. Similarly, a real estate professional who accidentally fails to perform some act—for instance, forgetting to deliver a counteroffer—may be liable for damages that result from such a negligent omission.

Simple negligence can result in an accidental misrepresentation and, while some damages may result, they may be covered by the real estate professional’s errors and omissions insurance.

Question 47

What are the most common disclosures a real estate professional must make

Answer 47

1. Environmental Hazards
2. Property Conditions
3. Stigmatized Properties
4. Megan’s Law

Question 48

D: Latent Defect

Answer 48

Is a hidden structural defect that would not be discovered by ordinary inspection.

Buyers may cancel the sales contract or receive damages when a seller fails to reveal known latent defects.

The courts also have decided in favor of the buyer when the seller neglected to reveal violations of zoning or building codes. Increasingly, however, there is a growing trend of not only the right but the responsibility of the buyer to discover any material problems with the property.

Some states allow the seller to provide a nondisclosure statement to the buyer that places the burden of discovering any adverse property conditions on the buyer.

In addition to the seller’s duty in most states to disclose known latent defects, in some states, the agent has an independent duty to conduct a reasonably competent and diligent inspection of the property. It is the real estate professional’s duty to discover any material facts that may affect the property’s value or desirability, whether or not they are known to or disclosed by the seller.

Any such material facts discovered by the real estate professional must be disclosed to prospective buyers.

If the real estate professional should have known about a substantial defect that is detected later by the buyer, the real estate professional may be liable to the buyer for any damages resulting from that defect.

Question 49

D: Stigmatized Properties

Answer 49

Stigmatized properties are those that society has found undesirable because of events that occurred there or because of the proximity of the property to a known nuisance.

Question 50

Give two examples that would make a property Stigmatized.

Answer 50

1. Criminal Event

2. Rumored to be haunted

Question 51

D: Megan’s Law

Answer 51

The federal legislation known as Megan’s Law promotes the establishment of state registration systems to maintain residential information on every person who kidnaps children, commits sexual crimes against children, or commits sexually violent crimes.

Upon release from prison, offenders must register their names with state authorities and indicate where they will be residing, and also inform authorities of a change of residence.

In accordance with state law, a real estate professional may need to request that a customer sign a form that includes information on where the customer may obtain information about the sex offender registry.

Question 52

Material facts are often specific to an individual (i.e., what might be a material fact to one person is not material to another person). In the following scenario, think about whether there is an issue regarding material facts and any ramifications.

Dan is looking for a multiunit building to convert into short-term corporate housing. He calls upon Ann, a buyer’s agent, who specializes in finding apartment buildings. “I would like a building with no more than 30 units, mainly studios and one bedrooms. Can you help me find such a property?” Ann assures him that she knows of at least two very fine prospects and shows Dan both. Dan puts an offer in on the second property, which the seller accepts. After closing, Dan goes to the city to pull the necessary permits and discovers that his new building is not zoned for commercial use. He has spent a great deal of money and he cannot use the building as he had planned. He sues Ann and the seller for fraud.

Based on this scenario, answer the following questions:

1. Based on these facts, has a willful misrepresentation been made?
2. Has a negligent misrepresentation occurred?
3. What is the material fact in this scenario?
4. How might this have played out differently?

Answer 52

1. What’s lacking in this story is Dan’s statement to anyone about his intended use for the building.
2. Based on the facts supplied, if he keeps his intended use to himself, no misrepresentation or fraud has been committed.
3. The material fact is what use the property is zoned for.
4. If Dan had stated that he intended to convert the use of the property or had asked about allowable use and had been given incorrect information, then either willful or negligent misrepresentation might have occurred. In that case, more than likely, it would have been a material fact.

Question 53

Examine the following issues. Are these latent defects? Are they material to the client? Do you think they would have to be disclosed?

Item a. Leaking roof

Item b. Fuse box

Item c. Property is zoned residential but is being marketed for business use

Item d. Efflorescence in the brick walls of the basement

Item e. The seller tells the licensee that the neighbor’s fence is one foot over the lot line

Item f. Broken thermostat on the furnace

Item g. Eminent domain proceeding pending on the property

Item h. The seller tells the licensee that the floor tiles in the kitchen contain asbestos

Item i. A neighbor’s child has a band that practices in their garage on the weekends

Item j. The back bedroom doesn’t have windows

Answer 53

Item A: This is a latent material defect. Generally, a leaking roof will cause damage or water stains. In arid climates, however, a leaking roof might not show itself for several months. Make sure to ask the seller specifically about the roof and whether there are any leakage problems. Look closely for water damage.

Item B: While not necessarily a defect, it is certainly obsolete. A licensee would want to disclose this to the client. This is a material fact because a fuse box mostly likely won’t be able to handle modern electrical demand. Electrical concerns such as this are often part of property disclosure statements.

Item C: This is certainly a material fact. Always recommend that the buyer checks with municipal zoning to confirm allowed uses. This might also be an example of fraudulent marketing or misrepresentation.

Item D: Efflorescence is evidence of leaking and seepage. It would be considered latent if it were covered up with a wall finish. It is a defect and also a material fact.

Item E: Encroachments are a legal issue. Surveys reveal encroachments.

If it’s a known and verified fact that an encroachment exists, that is a material fact and must be disclosed. If a potential buyer is concerned about encroachments, the buyer should order a survey.

If it hasn’t been verified, the licensee should share the seller’s statement with the buyer. If a potential buyer is concerned about encroachments, the buyer should order a survey.

Item F: This is a latent material defect. This is latent because an individual would have to try to operate the thermostat to know that it doesn’t work. Most states don’t require licensees to operate HVAC equipment. An inspection performed by a qualified home inspector would likely reveal such a defect.

Item G: This is a material fact and might be considered latent if the notice of the condemnation has not been recorded. Imagine a purchaser pays $500,000 for a property only to have it taken under eminent domain a year later. Most disclosure forms ask specifically about notices of condemnation proceedings.

Item H: If it’s a known and verified fact that the kitchen tiles contain asbestos, that is a latent material fact and must be disclosed. If a potential buyer is concerned about asbestos, the buyer should have the material tested. Note: asbestos hazards are harmful when they’re friable. Asbestos may be covered or encapsulated to eliminate concern.

item I: This is a possible material fact. It depends on the complainant and the situation (e.g., the length of the volume of the practice could play into this). There is case law where the presence and use of a neighbor’s undisclosed wood chipper were claimed and allowed as a material fact.

Item J: This is a material fact. A room without an egress window cannot be legally used as a bedroom. If the licensee is aware that the seller is claiming a room without proper windows is a bedroom, the licensee should disclose this to all parties (including the seller).

Question 54

True or False & Why?

The common law fiduciary duty of obedience obligates the agent to obey all the principal’s instructions.

Answer 54

False

The common law fiduciary duty of obedience obligates the agent to obey all of the principal’s lawful and ethical instructions.

Question 55

True or False & Why?

A real estate broker is usually the general agent of a buyer or seller.

Answer 55

False

 A real estate broker is usually the special agent of a buyer or seller, with limited responsibilities; for example, the real estate broker may not bind the principal to any contract.

Question 56

True or False & Why?

An agent owes a customer the duties of reasonable care and skill, honest and fair dealing, and disclosure of known facts.

Answer 56

True

Even though an agent’s primary responsibility is to the principal, the agent also has duties to third parties; such duties include reasonable care and skill in performance, honest and fair dealing, and disclosure of all facts that materially affect the value or desirability of the property.

Question 57

A broker represents G but is currently working with K to find a home. Assuming that no statute has replaced the traditional common law, which of these correctly identifies the parties in this relationship?

A)The broker is K’s agent; G is the broker’s client.

B)The broker is G’s agent; K is the broker’s customer.

C) is the broker’s customer; K is the broker’s client.

D)K is the broker’s client; G is the broker’s principal.

Answer 57

B) The broker is G’s agent; K is the broker’s customer.

The answer is the broker is G’s agent; K is the broker’s customer. Watch the terminology: the broker is working for (representing) G and is working with K (a customer) to find a home.

Question 58

An agent representing the seller has a duty to disclose to the principal all of these EXCEPT

A) the offers that are ridiculously low.

B)the agent’s advertising budget.

C)the buyer’s financial ability to offer a higher price.

D)the buyer’s intention to resell the property for a profit.

Answer 58

B) the agent’s advertising budget.

The answer is the agent’s advertising budget. The seller’s (special) agent must present all offers and any facts about the buyers that would assist the seller in making a decision, including the fact that the buyer intends to resell the property. There is no requirement that the agent discloses an advertising budget.

Question 59

A broker has an agency agreement to represent a seller in the sale of a house. The agreement’s expiration date is June 10. On May 5, the house is struck by lightning and burnt to the ground. The seller, overwhelmed by grief, dies. Based on these facts, which of these is TRUE?

A) The agency agreement was terminated by the fire, although the seller’s death also would have done so.

B) The agency agreement was not terminated until the seller’s death.

C) If the house had not been destroyed by the fire, the seller’s death would not have terminated the agreement; the broker would become the broker for the seller’s estate.

D) Only the mutual agreement of the parties can terminate a valid agency agreement before its expiration date.

Answer 59

A) The agency agreement was terminated by the fire, although the seller’s death also would have done so.

The answer is the agency agreement was terminated by the fire, although the seller’s death also would have done so. An agency agreement may be terminated by either destruction of the property or the death of either party. In this case, the destruction of the property occurred first.

Question 60

The agent is held in a position of special trust and confidence by the principal when the agent is considered?

A) a fiduciary.

B) a beneficiary.

C) a principal.

D) an agent.

Answer 60

A) a fiduciary.

The agent is held in a position of special trust and confidence by the principal when the agent is considered a fiduciary.

Question 61

A buyer who is a client of the broker wants to purchase a house that the broker has listed. Which statement is TRUE?

A) The seller and the buyer must be informed of the situation and agree in writing to the broker’s representing both of them.

B) The broker should refer the buyer to another broker to negotiate the sale.

C) The broker may proceed to write an offer on the property and submit it.

D) The buyer should not have been shown a house listed by the broker.

Answer 61

A) The seller and the buyer must be informed of the situation and agree in writing to the broker’s representing both of them.

The answer is the seller and the buyer must be informed of the situation and agree in writing to the broker’s representing both of them. Both buyer and seller must give informed, generally written, consent for dual representation.