Review 02: Agency and Contracts (7-10) Flashcards
If a seller’s agent or subagent has been informed of a latent defect in the property and the seller on the property disclosure statement checks “No Representation” and the agent fails to inform the buyer of the defect who is liable?
A. seller
B. the seller’s agent
C. both seller and agent
D.neither seller nor agent
B. the seller’s agent
(The seller does not have a duty to disclose. However, the seller’s agent has a duty to disclose all defects which they know about or should have known about)
Broker Ron Thompson listed and sold Mr. Simpson’s property. Thompson did not disclose to Mr. Simpson that there was a potential zoning change in the works that would allow the property to be used as a convenience store. The new use would substantially increase the value of Mr. Simpson’s property. Which of the following is/are true?
1. Thompson did not have to divulge the zoning change since it had not been put into effect.
2. Thompson did not have to divulge the zoning change since the property sold at its fair market value.
A. 1 only
B. 2 only
C. Both 1 and 2
D.Neither 1 nor 2
D.Neither 1 nor 2
(Changes in zoning, new highways and changes in the neighborhood are all material facts and they must be divulged or disclosed to all parties in the transaction, regardless of whom the licensee represents)
Under which type of listing agreement does the seller lose his/her right to compete for the commission?
A. open listing
B. exclusive agency listing
C. exclusive right to sell listing
D. net listing
C. exclusive right to sell listing
(Under an exclusive right to sell listing agreement, the firm will be entitled to compensation regardless of who sells the property. Even if the owner sells the property themselves, they will still be obligated to pay the firm a commission)
A contract that binds the owner of real estate to hold an offer to sell open for a set period of time, and gives the buyer the legal right to either accept or withdraw is a(n):
A. right of first refusal
B. option to purchase contract
C. backup offer
D. installment land contract
B. option to purchase contract
(In an option to purchase, the seller is obligated to sell and the buyer is not obligated to buy. Another way of saying this is to say that an offer is binding on the optionor (the person giving the option) but not binding on the offeree (the person receiving the option))
An oral real estate sales contract is unenforceable under:
A. Real Estate Licensing Law
B. Statutes of Limitations
C. Law of Agency
D.Statute of Frauds
D.Statute of Frauds
(Not all contracts must be in writing in order to be enforceable, only certain types of agreements. However, the transfer of any interest or ownership in real estate must be in writing in order to be enforceable. This is due to application of the statute of frauds)
Which of the following is not required for a contract to be valid and enforceable?
A. legal capacity
B. consideration
C. mutual assent
D.witnesses
D.witnesses
(This question is not asking about a specific type of agreement. It is asking about contracts in general. In general, an enforceable contract must only have the elements of mutual assent, consideration, legal capacity and be for a legal purpose)
Which of the following statements is/are correct?
1. In dual agency, the seller client and buyer client are aware and understand that the firm’s dual agency role is to provide balanced and fair representation of the seller client and buyer client and to encourage and effect communication between them rather than as an advocate or exclusive agent or representative.
2. In designated agency, the firm designates an agent to represent the seller client and another agent in the firm to represent the buyer client as long as both agents have not actually received confidential information concerning the other client and shall represent the interests of the parties to the extent permitted by law.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
C. Both 1 and 2
(Dual agency limits the representation that a licensee may provide because they cannot advocate and must remain fair and impartial to both the seller and the buyer. Designated agency, while still a form of dual agency, helps alleviate this limited representation by allowing each of the licensees to fully advocate on behalf of and represent their client, so long as they have not already received confidential information regarding the client)
Several months ago, Bill purchased four lots for $24,000 each. He later divided the lots into six lots and sold each for $20,000. What was Bill’s percent of profit (loss)?
A. 20%
B. 25%
C. 80%
D. 125%
B. 25%
(Bill’s total investment was $96,000 (4 lots at $24,000 each). He divided the lots and sold a total of 6 at $20,000 a piece and received $120,000. His total profit was $24,000 ($120,000-$96,000). If he invested $96,000 and made $24,000, then the amount he made of $24,000 divided by his original investment of $96,000 = 25%)
Lucy Jones, a subagent of the seller and provisional broker with ABC Realty, sold a property listed with XYZ Realty. The buyer made a low offer but told Lucy they would be willing to offer more money and better terms if the sellers did not accept the original offer. Lucy presented the offer to Joe Baker, listing agent, and repeated to Joe the buyer’s statement that, “They would be willing to offer more money and better terms.” Joe presented the offer, making no mention that the buyers would be willing to go higher. Which agent(s) violated the Law of Agency? 1. Joe, the listing agent 2. Lucy, working with a buyer, as a seller’s subagent
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
A. 1 only
(Only Joe, as the listing agent. Lucy was not representing the buyer. She was working with the buyer as a seller’s subagent. She had an absolute duty to disclose the buyer’s comments because she owed duties to the seller through subagency. She owed no such duties to the buyer. Joe, who was the listing agent, also had fiduciary duties to the seller and his failure to inform the sellers of the buyer’s comments breached his duties of loyalty to his client)
Jones is acting as a buyer’s agent under a signed buyer agency agreement. Jones assists the buyer in preparing an offer to purchase, which the buyer signs. The buyer then immediately leaves town on business. Jones presents the offer to the listing agent. The seller signs the offer without any changes, and Jones is notified of the acceptance at 4 p.m. Jones checks his voice mail messages at 5 p.m. and discovers that the buyer left him a message a 2 p.m. withdrawing his offer. Which of the following statements regarding this situation is true?
A. The contract became legally binding when Jones was notified of the seller’s acceptance.
B. No contract was legally created because the buyer withdrew his offer before his agent was notified of the seller’s acceptance.
C. The contract is voidable because the buyer was not notified personally of the acceptance.
D. The contract is voidable because the buyer withdrew the offer before it had been accepted.
A. The contract became legally binding when Jones was notified of the seller’s acceptance.
(A buyer may withdraw their offer at any time prior to acceptance. In order to be effective, the withdraw must be communicated to either the listing agent or the seller. That did not occur. The seller accepted the offer and the acceptance was communicated to the buyer’s agent before the withdraw was communicated to the listing agent or the seller)
Mary Smith is broker-in-charge of Smith Realty, which has several affiliated agents. Mary is actively involved in listing and selling properties. Sue Long, a provisional broker with Smith Realty, has a buyer client who has expressed interest in one of Mary’s listings. Which of the following agency agreements is permissible in this situation?
A. Mary and Sue may act as dual agents.
B. Mary and Sue may act as designated agents.
C. Mary and Sue may both represent the seller, treating the buyer as a customer.
D. Mary may represent her seller, and Sue may represent her buyer.
A. Mary and Sue may act as dual agents.
(Mary and Sue work for the same firm. Therefore, they cannot be single agents. The relationships formed will be either dual agency or designated agency. However, under the law of designated agency, a broker-in-charge cannot be a designated agent with a provisional broker whom they are required to supervise. When a BIC and a provisional broker are representing parties in the same transaction they will always be dual agents)
At an open house, the seller’s agent must disclose his/her agency status to a prospective buyer:
A. when the prospect first walks into the house and shows interest in the property .
B. when the prospect asks questions about the price of the property and its features
C. when the prospect begins to talk about his/her property needs and ability to purchase
D. prior to giving the prospect a tour of the property and providing detailed information about the features of the property
C. when the prospect begins to talk about his/her property needs and ability to purchase
(The disclosure and use of the WWREA brochure must occur at first substantial contact and that does not occur simply because the buyer walked into an open house. It does occur when the prospect begins to discuss their motivations, confidential information, individual needs or wants concerning the transaction)
Which of the following would be used to terminate a contract in a situation where the buyer is entitled to be relieved of all liability and have all of their money returned?
A. Rescission
B. Relegation
C. Reversion
D. Revision
A. Rescission
(Rescission is the process of restoring the parties to their original condition before the contract was executed)
A deed was not properly recorded. This would best be described as:
A. Failure of privity, but valid between the parties
B. Failure of contract, but valid between the parties
C. Failure of notice, but valid between the parties
D. Failure of estate, but valid between the parties
C. Failure of notice, but valid between the parties
(In NC the Conner Act requires a deed to be recorded in order to be enforceable against third parties. However, a deed and the transfer of real estate is complete between the parties once a deed is signed, delivered and accepted. A deed can be valid between parties, but unenforceable as to claims by third parties who were not provided with constructive notice of the transfer due to the non-recordation of the deed)
An agent works for Smith & Wesson Realty and is acting as a buyer’s agent. The buyer is interested in a property that is listed with Jones Realty. From whom will the agent receive her commission check?
A. The Smith & Wesson Realty firm.
B. Either firm may pay the licensee.
C. The licensee will be paid directly by the buyer/client.
D. The Jones Realty firm.
A. The Smith & Wesson Realty firm.
(All compensation passes through the firm with which the licensee is affiliated)
A broker receives two offers on a property that he has listed. He submits the first offer at 9:00 AM to the seller but does not submit the second offer until the seller has decided how to respond to the first offer. The actions of the broker would best be described as:
A. allowed, providing he notifies the buyer’s agents.
B. allowed, if the company policy specifically permits this conduct.
C. not allowed, because the broker must submit all offers to the seller.
D. not allowed, because the seller must notify each buyer of the other offer.
C. not allowed, because the broker must submit all offers to the seller.
(A licensee must submit all offers immediately, but never later than 3 days. The licensee must submit all offers in their possession at the same time to fulfill the fiduciary duties to their client. Such conduct would be a breach of the licensee’s fiduciary duties to the principal)
Once a binding contract exists between two parties, the document that the licensee would use to make any changes or modifications to an already existing contract or to add to the terms of a contract would be called a(an):
A. contingency clause
B. adaptation
C. addendum
D. counteroffer
C. addendum
(An addendum changes or alters the terms of an existing contract. All changes, alterations or modifications must be in writing pursuant to the statute of frauds and the parties must mutually agree to the changes)
A seller entered into an Exclusive Right to Sell Listing Agreement. A qualified buyer presented an offer for the listed price. The seller refused to sell to the buyer. Which of the following is a correct statement?
A. The seller can refuse to sell, but a commission may still be owed to the firm.
B. The seller can refuse to sell and has no legal liability to anyone.
C. The seller must accept the offer because it was for the listed price.
D. The seller must still sell based on the obligation he agreed to in the Exclusive Right to Sell Listing Agreement.
A. The seller can refuse to sell, but a commission may still be owed to the firm.
(The Exclusive Right to Sell Listing Agreement is not an agreement to sell the property. It is an employment contract hiring the broker to find a ready, willing and able buyer. The seller cannot be forced to sell and has not agreed to sell anything. If the broker fulfils the terms of the agreement by finding a ready, willing and able buyer, the firm may be entitled to a commission)
According to North Carolina law, what are the buyer and seller allowed to negotiate after contract formation?
A. The buyer and seller may renegotiate, but only during the due diligence period.
B. Assuming that they are both interested in negotiating, all terms of the contract may be renegotiated during the contractual period.
C. Nothing. The buyer and seller are bound to the terms of the agreed to contract.
D. The buyer and seller may renegotiate, but they will need to create a new contract through novation.
B. Assuming that they are both interested in negotiating, all terms of the contract may be renegotiated during the contractual period.
(Contracts are mutual agreements. The parties may renegotiate any terms to which they can mutually agree. They need to document their alterations, modifications and changes by executing a written and signed addendum to the contract)
A seller notified his listing agent that the water heater was not working properly. The agent failed to mention this to a buyer’s agent. Which of the following would be at fault if the buyer is harmed due to the malfunctioning water heater?
A. Seller and listing agent.
B. Listing agent and buyer’s agent.
C. Buyer’s agent.
D. Listing agent
D. Listing agent
(Only the listing agent. The seller is never required to disclose any defects, so long as they make no representations to the buyer or the buyer’s agent. The listing licensee must disclose everything they know and should have known. The buyer’s agent is not liable because this type of defect is not something that the buyer’s agent exercising a reasonable standard of care should have known)