section 22 risk management

Question 1

Refraining from an activity that carries risk.

Answer 1

Risk Avoidance:

Question 2

Taking steps to reduce the probability or the severity of a potential loss.

Answer 2

Risk Reduction:

Question 3

Passing the risk to another party, by contract or other means.

Answer 3

Risk Transference:

Question 4

Entering into an activity in spite of known risks and taking full responsibility for the consequences.

Answer 4

Risk Retention:

Question 5

Ensuring that all parties have the information they are entitled to.

Answer 5

Disclosure

Question 6

Insurance that provides coverage for risks incurred by a property owner when the public or a licensee enters the owned property.

Answer 6

General Liability:

Question 7

The primary method for transferring the professional liability risks of brokers, managers, and licensees.

Answer 7

Errors and Omissions Insurance:

Question 8

Certain duties that licensees are required to assume by law toward the parties to the transaction. The basic duties to all parties are: honesty, fairness, reasonable care and skill, and disclosures. The basic duties to clients are: skill, care, diligence, loyalty, obedience, confidentiality, accounting, and full disclosure.

Answer 8

Agency Duties:

Question 9

When an agent forgets to put the best interests of a client ahead of those of everyone else. For example: undisclosed dual agenices, broker-owned listings, licensees buying for their own account, etc.

Answer 9

Conflict of Interest:

Question 10

A licensee’s responsibility to keep certain kinds of information they obtained concerning clients and customers confidential (secret/private).

Answer 10

Confidentiality

Question 11

A law requiring certain contracts to be in writing in order to be enforceable. Examples are real property conveyances, listing agreements, and longterm leases.

Answer 11

Statute of Frauds:

Question 12

It is illegal for real estate professionals who are not attorneys to draw up contracts for transactions they are not involved in or to charge a separate fee for preparing a contract.

Answer 12

Unauthorized Practice of Law:

Question 13

The Act that forbids real estate advertising that mentions race, color, religion, national origin, sex, handicap, or familial status in any way that suggests preference or discrimination.

Answer 13

Fair Housing:

Question 14

Laws that forbid brokers to band together to set a price on their services in listing and selling property.

Answer 14

Antitrust:

Question 15

Unintentional misrepresentation: When a licensee unknowingly conveys inaccurate information to a consumer concerning a property, financing or agency service.

Intentional misrepresentation: When a licensee knowingly conveys false information about a property, financing or service.

Answer 15

Misrepresentation

Question 16

Equal Credit Opportunity Act which states that it is illegal to:

threaten, coerce, intimidate or interfere with a person who is exercising a fair housing right or assisting another to exercise that right.
indicate a limitation or preference based on race, color, national origin, religion, sex, familial status, or handicap in any advertisement or communication.

Answer 16

ECOA

Question 17

The Real Estate Settlement and Procedures Act which stipulates that the parties to certain purchase transactions must be given accurate information reflecting their closing costs. It also prohibits certain business practices that are not considered to be in the consumer’s best interest.

Answer 17

RESPA

Question 18

Laws stating that a broker must hold money received in connection with the purchase or lease of real property in a trust fund account. The type of account and financial depository are specified. The broker must record receipt of the money and place that money in the trust account within a specified time period.

Answer 18

Trust Fund:

Question 19

An unlawful practice of mixing escrow funds with the agency’s operating funds.

Answer 19

Commingling

Question 20

In which risk management strategy does a party take full responsibility for consequences and enter into an activity in spite of known risks?

Avoidance
Reduction
Transference
Retention

Answer 20

Retention

Question 21

Brokerage firms can best reduce the risks that licensees will commit errors and violate laws by

obtaining errors and omissions insurance.

hiring only agents with law degrees.

disclaiming knowledge of the law.

providing professional education.

Answer 21

providing professional education.

Question 22

How does documentation manage risk?

It shows the public that the office is well-managed.

It serves as evidence that laws have been complied with.

It relieves agents of the need to remember details.

It keeps office staff too busy to interfere with transactions.

Answer 22

It serves as evidence that laws have been complied with.

Question 23

A good way of reducing the risk that brokers and sales affiliates will commit errors or inadvertent law violations is to

establish a company-administered system of fines and penalties.

maintain a comprehensive and up-to-date procedures manual.

hire only licensees with at least five years’ experience.

have licensees sign an agreement that they take sole responsibility for their actions.

Answer 23

maintain a comprehensive and up-to-date procedures manual.

Question 24

The risk of committing an unauthorized practice of law can be practically reduced by

having customers and clients provide their own legal forms.

avoiding situations that require the use of legal forms.

using standard forms and contracts prepared by attorneys.

having on on-staff attorney be present at the signing of any legal form.

Answer 24

using standard forms and contracts prepared by attorneys.

Question 25

Transaction records required to be maintained typically include

road maps.

photographs of all transaction parties.

copies of agents’ high school transcripts.

closing statements

Answer 25

closing statements

Question 26

What kind of coverage is provided by general liability insurance?

Coverage for any financial harm caused by a covered licensee.

Coverage for a property owner’s risks incurred when the public enters the insured premises.

Coverage for property damage caused by a property manager.

Coverage for financial harm caused by an illegal action of a licensee.

Answer 26

Coverage for a property owner’s risks incurred when the public enters the insured premises.

Question 27

Standard E & O policies exclude coverage of damages resulting from

violations of law.

negligent performance of a professional service.

failing to carry out a company policy.

cooperation with other brokerage firms.

Answer 27

violations of law.

Question 28

Failure to maintain client confidentiality is a risk associated primarily with

trust fund handling.

office management.

the agency relationship.

the closing process.

Answer 28

the agency relationship.

Question 29

The lead-based paint disclosure requirement

applies to all properties.

applies to residential properties built before 1978.

applies to the seller of a property, not to the seller’s agent.

is mandatory for the seller of a property but optional for the seller’s agent.

Answer 29

applies to residential properties built before 1978.

Question 30

Creating a false impression that the licensee is a certified appraiser is a danger in

performing a comparative market analysis.

writing property advertisements.

presenting written offers.

researching ownership documents.

Answer 30

performing a comparative market analysis.

Question 31

One of the major risk areas in advertising a listed property is that an advertisement will

describe the property in excessively glowing terms.

fail to appear at the same time in all available media.

omit any mention of the owner’s main selling points.

make a substantial misrepresentation.

Answer 31

make a substantial misrepresentation.

Question 32

Which of the following actions can a real estate licensee perform without risking the commission of an unauthorized practice of law?

Give legal advice

Fill in blanks on a lawyer-prepared contract form

Charge a fee for preparing a purchase contract

Draft an addition to a preprinted form

Answer 32

Fill in blanks on a lawyer-prepared contract form

Question 33

In assisting a party to prepare a purchase contract, it is essential for a licensee to

use the services of an attorney.

make sure that the buyer and seller do not make any changes to the preprinted form.

sign the contract along with the buyer and seller.

make sure the information in the contract is accurate and that all agreed terms are included.

Answer 33

make sure the information in the contract is accurate and that all agreed terms are included.

Question 34

To minimize the risk of violating fair housing laws, a licensee should

refuse to use terms that refer to or describe any of the classes of persons protected by the laws.

avoid working in neighborhoods that are predominantly occupied by a single ethnic group.

make discriminatory or derogatory remarks in conversation only, never in writing.

give better service to members of a protected class than is standard for other clients or customers.

Answer 34

refuse to use terms that refer to or describe any of the classes of persons protected by the laws.

Question 35

If licensees working for competing firms are overheard discussing commission rates, they are at risk for being charged with

commingling.
price fixing.
insider trading.
redlining.

Answer 35

price fixing.

Question 36

A licensee who knowingly conveys false information about a property is committing

intentional misrepresentation.

unintentional misrepresentation.

accidental fraud.

felonious representation.

Answer 36

intentional misrepresentation.

Question 37

The risks that attend recommending service providers can be effectively reduced or transferred by

presenting a broad range of choices and letting the consumer make a selection.

recommending all the relevant providers listed in the telephone directory.

recommending only those providers who are willing to work on a commission split.

recommending service providers who have performed well in the past.

Answer 37

presenting a broad range of choices and letting the consumer make a selection.

Question 38

Which of the following is an area of risk for the licensee regarding the Real Estate Settlement and Procedures Act?

Forgetting to file a tax form reporting a completed sale.

Failing to be present at a closing.

Failing to make sure the consumer is informed about rights guaranteed by RESPA.

Failing to fill out a Uniform Settlement Statement for a client.

Answer 38

Failing to make sure the consumer is informed about rights guaranteed by RESPA.

Question 39

The main danger in the area of handling trust funds is the possible commission of

separate record keeping.

trustor malfeasance.

fraudulent credit scoring.

commingling and conversion.

Answer 39

commingling and conversion.

Question 40

How does sharing the qualifying function with a lender protect a licensee?

It guarantees that a buyer will have a loan.

It reduces the chance of presenting an offer from an unqualified buyer.

It relieves the licensee of his or her due diligence responsibilities.

It allows the licensee to avoid asking embarrassing questions.

Answer 40

It reduces the chance of presenting an offer from an unqualified buyer.

Question 41

To reduce risks inherent in reporting transaction progress to a client, the licensee should

make reports orally only, never in writing.

leave progress reporting to the inspectors and other experts.

advise the client that it is company policy to make no progress reports until the contingency period is over.

avoid statements of opinion and speculation in all reports.

Answer 41

avoid statements of opinion and speculation in all reports.

Question 42

All of the following are areas of risk for unintentional misrepresentation EXCEPT

measuring and reporting property dimensions.
describing properties and amenities.

stating that a client should seek legal counsel.

making statements about the presence or absence of hazardous substances.

Answer 42

stating that a client should seek legal counsel.

Question 43

How is an intentional misrepresentation penalized?

License discipline, fines, and possible incarceration.

License discipline and fines, but no incarceration.

License discipline only.

Fines only.

Answer 43

License discipline, fines, and possible incarceration.

Question 44

A licensee risks violating antitrust law by

being present at a conversation where the setting of commission rates is discussed.

being present at a discussion of antitrust laws.

charging a commission rate that happens to be the same as that charged by another firm.

cooperating with another firm to do market research.

Answer 44

being present at a conversation where the setting of commission rates is discussed.

Question 45

The best way to minimize the risk of violating fair housing laws is to

deal only with consumers who do not belong to a protected class.

obtain education in the content and intent of the laws.

make sure there is always a witness present at all meetings with consumers.

stay away from transactions involving public housing.

Answer 45

obtain education in the content and intent of the laws.

Question 46

Regarding contracts and forms,

once written and signed they cannot be changed except by a lawyer.

real estate licensees may alter forms but not contracts.

whoever originates them can make changes without the risk of unauthorized practice of law.

the principals may make changes as long as they sign or initial each change.

Answer 46

Real estate professionals who are not attorneys are usually limited to filling in blanks or making deletions on a preprinted contract form prepared by a lawyer. While a licensee may make deletions, additions to a form should be drafted by an attorney. The principals themselves can make changes as long as each change is signed or initialed by all signers.

Question 47

A simple way of reducing the risk of committing an error or omission in the contracting process is

use a checklist of all items, contingencies, dates and responsibilities that must be met.

delegate some of your responsibilities to the licensee who represents the other party in the contract.

call the buyer and seller daily to check on progress.

cut the list of necessary tasks down to a few essentials and concentrate on tracking those.

Answer 47

use a checklist of all items, contingencies, dates and responsibilities that must be met.

Question 48

In fulfilling a listing agreement, one of the major risk areas is

finding a buyer who turns out to be unqualified.

exceeding the authority of the agreement.

showing the property without the presence of the owner.

cooperating with other licensees.

Answer 48

exceeding the authority of the agreement.