The Law of Agency

Question 1

Most of the laws dealing with the formation of an agency relationship are found in the

(a) Business & Professions Code.
(b) California Civil Code.
(c) Commissioner’s Regulations.
(d) Real Estate Law.

Answer 1

(b)California Civil Code.

Question 2

A person authorized by a principal to perform a particular act or transaction is a

(a) special agent.
(b) subagent.
(c) general agent.
(d) single agent.

Answer 2

(a)special agent.

Question 3

An agent who tries to sell a property that is currently listed for sale by the original (listing) agent is called a

(a) buyer’s agent.
(b) general agent.
(c) delegated agent.
(d) subagent.

Answer 3

(d)subagent.

The original agent can delegate authority to a “subagent” where such delegation is either expressly authorized or customary in the trade. For example, it is customary for listing brokers to delegate the responsibility of showing and selling the property.

Question 4

A listing that is retained and secretly marketed by the listing broker or salesperson, and is not made available to other brokers in the office or to other multiple-listing service members is called a

(a) secret listing.
(b) pocket listing.
(c) double-ended listing.
(d) ostensible listing.

Answer 4

(b)pocket listing.

A pocket listing is one which the listing agent markets privately before entering it in the MLS. Under MLS rules, a member must generally report any new listing except for commercial listings, which may be optional, within a short time.

Question 5

In their dealings with clients and with each other, real estate agents generally act as

(a) employees.
(b) independent contractors.
(c) subcontractors.
(d) attorneys-in-fact.

Answer 5

(b)independent contractors.

Question 6

Which of the following best describes a “dual agency?”

(a) An agent only represents one principal.
(b) The agent acts concurrently for both the buyer and seller in a transaction with the full knowledge and consent of both parties.
(c) The agent is authorized to do all acts connected with a particular trade, business or employment.
(d) The agent is only authorized to perform only those acts specifically authorized by the principal.

Answer 6

(b)The agent acts concurrently for both the buyer and seller in a transaction with the full knowledge and consent of both parties.

Question 7

An attorney-in-fact can best be described as a(n)

(a) duly authorized person who has been granted both actual and implied powers to act as a principal for another.
(b) properly authorized party who is acting as a dual agent.
(c) attorney appointed by the court to administer an estate of a deceased person.
(d) legally competent person who has been given the power of attorney by another competent person.

Answer 7

(d)legally competent person who has been given the power of attorney by another competent person.

Question 8

An agency relationship may be created by

(a) agreement.
(b) ratification.
(c) accepting an offer of subagency.
(d) All of the above.

Answer 8

(d)All of the above.

Most agency relationships are created by written agreement. An agency relationship can also be created by ratification (consenting to acts of the agent) and estoppel (principal stopped from denying an inconsistent position in the representation).

Question 9

Seller A let buyer B assume that Broker C was his agent. This type of agency relationship is an example of:

(a) ratification.
(b) estoppel.
(c) ostensible authority.
(d) None of the above.

Answer 9

(c)ostensible authority.

Ostensible authority is that authority which a third person reasonably believes an agent possesses because of the acts or omissions of the principal. Ratification is the adoption or approval of an act performed on behalf of a person without previous authorization, such as the approval by a principal of an agent, after the acts have been performed. Estoppel is a legal doctrine which prevents a person from alleging something to be true or a fact which is contrary to a previous affirmation or allegation made by that same person.

Question 10

A listing agreement is

(a) a promise for a promise.
(b) a bilateral contract.
(c) an employment contract.
(d) All of the above

Answer 10

(d)All of the above

A listing agreement is an employment agreement between an owner of property and the real estate broker authorizing the broker to find a buyer for the property. They are also bilateral contracts in that the seller promises to pay the broker a commission when the property sells and the broker promises to make reasonable efforts to obtain a purchaser.

Question 11

In addition to the actual authority specified in the agency agreement, an agent also has inherent authority regarding activities the agent needs to perform that are not mentioned in the contract such as,

(a) distributing fliers in the neighborhood.
(b) posting signs at nearby intersections.
(c) advertising.
(d) All of the above

Answer 11

(d)All of the above

Question 12

When a real estate licensee accepts trust funds from his/her client in connection with the purchase of real property, the licensee must place these funds into the proper place

(a) by the next working day following receipt.
(b) within three business days following receipt.
(c) by midnight of the current business day.
(d) by midnight of the third business day following receipt.

Answer 12

(b)within three business days following receipt.

Question 13

With an exclusive listing, a broker may be subject to disciplinary action for

(a) failing to give accurate tax advice.
(b) failing to give a copy to the seller.
(c) failing to include a definite termination date.
(d) both (b) and (c).

Answer 13

(d)both (b) and (c).

An exclusive listing must include a definite termination date. The broker must also provide a copy of the listing to the owner.

Question 14

Under an exclusive agency listing, a broker advertises a home for sale. The owner sells the home prior to the expiration of the listing. The broker is entitled to

(a) nothing.
(b) the full commission.
(c) half of the commission.
(d) expenses only.

Answer 14

(a)nothing.

Question 15

Which of the following accurately describes a listing agreement which allows the broker to either find a prospective buyer, or purchase the home himself/herself?

(a) Exclusive authorization and right to sell
(b) Open listing
(c) Net listing
(d) Option listing

Answer 15

(d)Option listing

Question 16

A “safety clause” is found in a

(a) deposit receipt.
(b) loan broker’s statement.
(c) lease.
(d) listing agreement.

Answer 16

(d)listing agreement.

A “safety clause” is a clause found in the listing contract that provides payment of a commission to the listing broker should the seller sell the property after the listing expires.

Question 17

Which of the following statements is most nearly correct concerning buyer’s agency?

(a) It is not legal in California.
(b) In buyer’s agency, the seller is forbidden to pay any commission, directly or indirectly, to the buyer’s agent.
(c) Buyer’s agency often gives rise to disputes over who is the “procuring cause.”
(d) The buyer’s broker has no agency relationship with the seller or the listing broker, and is therefore not liable for their actions.

Answer 17

(d)The buyer’s broker has no agency relationship with the seller or the listing broker, and is therefore not liable for their actions.

Question 18

When acting as agent for seller Jones, real estate broker Smith

(a) is obligated to render faithful service to Jones.
(b) can modify the terms of any contract that Jones enters into.
(c) can give Jones legal advice.
(d) can eliminate any offers on Jones’s property that Smith believes are not good enough.

Answer 18

(a)is obligated to render faithful service to Jones.

Question 19

In a real estate listing agreement, the commission is earned when

(a) the listing expires, regardless of acceptance of an acceptable offer.
(b) the broker finds a buyer who is ready, willing, and able to purchase the subject property on the seller’s original terms.
(c) the down payment is deposited in escrow.
(d) an acceptable offer is accepted by the seller.

Answer 19

(b)the broker finds a buyer who is ready, willing, and able to purchase the subject property on the seller’s original terms.

Question 20

The Real Estate Transfer Disclosure Statement (TDS) provides information regarding the

(a) physical condition of the property.
(b) property’s chain of title.
(c) agency relationships between the parties to the transaction.
(d) commission split between real estate agents.

Answer 20

(a)physical condition of the property.

Question 21

An agent is liable to third persons for

(a) any tort (physical injury or property damage).
(b) fraudulent misrepresentation.
(c) torts or other acts committed by the principal in which the agent acquiesces.
(d) All of the above

Answer 21

(d)All of the above

Question 22

Buyer Frank sued broker Sam for a misrepresentation in the sale of a single family residence. He was awarded a judgment in the amount of $60,000. Broker Sam was bankrupt and unable to pay the judgment. Buyer Frank appealed to the Real Estate Recovery Account. Assuming the Recovery account agrees to pay Frank, he will receive a maximum of

(a) $10,000.
(b) $20,000.
(c) $30,000.
(d) $50,000.

Answer 22

(d)$50,000.

This question is asking for the maximum amount that may be recovered for any one salesperson. $50,000 for a single transaction, but $250,000 maximum for any one licensee. If the broker or salesperson is bankrupt, he/she will not be granted reinstatement until the fund is repaid in full, plus interest at the prevailing legal rate.

Question 23

An agency relationship may be terminated by

(a) expiration of the term.
(b) death of the agent.
(c) agreement.
(d) All of the above

Answer 23

(d)All of the above

Question 24

A real estate broker works for the:

	(a) principal.
	(b) third party.
	(c) Bureau of Real Estate.
	(d) real estate board.

Answer 24

(a) principal.

Question 25

The Real Estate Law treats a salesperson as:

	(a) a dual agent.
	(b) a general agent.
	(c) an independent contractor.
	(d) an employee of the broker.

Answer 25

(d) an employee of the broker.

Question 26

For tax purposes, a sales person can work for the broker as:

	(a) a dual agent.
	(b) an independent contractor.
	(c) a subagent.
	(d) a partner.

Answer 26

(b) an independent contractor.

Question 27

When an agent represents both the buyer and seller in the same transaction, this action is:

	(a) against the law.
	(b) an example of subagency.
	(c) known as dual agency.
	(d) prohibited by the MLS.

Answer 27

(c) known as dual agency.

Question 28

An agent is authorized to act in place of the principal by a:

	(a) purchase contract.
	(b) multiple listing clause.
	(c) listing agreement.
	(d) power or attorney.

Answer 28

(d) power or attorney.

Question 29

A nonexclusive listing agreement is also known as:

	(a) a net listing.
	(b) an option listing.
	(c) an open listing.
	(d) an agency listing.

Answer 29

(c) an open listing.

Question 30

The MOST commonly used form of listing agreement is the:

	(a) exclusive right to sell.
	(b) the exclusive agency.
	(c) open agreement.
	(d) net agreement.

Answer 30

(a) exclusive right to sell.

Question 31

Real estate commission rates are:

	(a) fixed by law.
	(b) negotiable.
	(c) subject to cancellation.
	(d) always 4 percent.

Answer 31

(b) negotiable.

Question 32

One of the MOST important duties of agent to principal is the duty of:

	(a) salesmanship.
	(b) loyalty.
	(c) beneficial conduct.
	(d) hard work.

Answer 32

(b) loyalty.

Question 33

An agent owes which of the following to a third party?

	(a) Duty of disclosure
	(b) Duty of representation
	(c) Fiduciary duties
	(d) Duty of trust

Answer 33

(a) Duty of disclosure