Unit 2

Question 1

Objective 1: Describe in practical terms who agents are and how authority is given to agents.

Answer 1

Answer: Agents are individuals authorized to act on behalf of another person, known as the principal, typically through express or implied consent. This authority can come through formal agreements such as listing agreements or buyer representation agreements.

Question 2

Objective 2: Describe the three classifications of agency and how they are used in real estate transactions.

Answer 2

Answer: The three classifications of agency are Universal Agency (broad authority over all transactions), General Agency (ongoing authority in specific matters, such as property management), and Special Agency (limited to specific tasks, like a listing agreement).

Question 3

Objective 3: List the fiduciary duties and responsibilities that an agent owes to a client.

Answer 3

Answer: The fiduciary duties include Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable Care and Diligence. These duties ensure the agent acts in the client’s best interests.

Question 4

Objective 4: Describe the Information About Brokerage Services form and the requirement it fulfills in a real estate transaction.

Answer 4

Answer: The Information About Brokerage Services (IABS) form informs buyers, sellers, landlords, and tenants about the types of agency relationships available and the roles brokers and agents play. It must be provided during the first substantive communication.

Question 5

Keyterm: Privity of Contract

Answer 5

Meaning: A legal relationship between parties in a contract. In real estate, the broker holds privity of contract with the client, not the sales agent.

Question 6

Keyterm: Apparent Authority

Answer 6

Meaning: Authority that is implied by actions of the parties, even if not formally granted. This can result in someone being considered an agent in the eyes of the court.

Question 7

Keyterm: Universal Agency

Answer 7

Meaning: A broad agency relationship that gives the agent full authority to act on behalf of the principal in all matters. Rare in real estate.

Question 8

Keyterm: General Agency

Answer 8

Meaning: An agency relationship where the agent can perform a range of ongoing tasks for the principal, such as property management.

Question 9

Keyterm: Special Agency

Answer 9

Meaning: A limited agency relationship where the agent can perform only specific tasks, like marketing a property for sale.

Question 10

Keyterm: Fiduciary

Answer 10

Meaning: A person or entity who has a duty to act for the benefit of another person, particularly in managing property or money. This is why the agent/fiduciary has special obligations to the principal. The most important obligations a fiduciary owes to a principal can be remembered by using the “OLD CAR” memory device:

Obedience: The agent must follow all lawful instructions from the client, even if they disagree with them, as long as they are not illegal or unethical.

Loyalty: The agent must always act in the best interests of the client, putting the client’s interests above their own, avoiding conflicts of interest.

Disclosure (Full Disclosure): The agent must disclose all material information to the client that could affect the client’s decisions in the transaction, including potential offers, property issues, or any information that could influence the outcome.

Confidentiality: The agent must keep all information shared by the client confidential, especially regarding sensitive information like motivations, finances, or other factors that could impact negotiations.

Accounting: The agent must properly manage and account for all funds or property entrusted to them, ensuring that there is no mismanagement or co-mingling of funds.

Reasonable Care and Diligence: The agent must use their expertise and knowledge to serve the client competently, providing advice, guidance, and action that protects the client’s interests in a professional manner.

Question 11

Keyterm: Information About Brokerage Services (IABS)

Answer 11

Meaning: A form required by TREC to inform clients and customers about the different types of agency relationships and the services provided by brokers.

Question 12

Keypoint Question: What are the three classifications of agency in real estate?

Answer 12

Keypoint Answer: The three classifications are Universal Agency (broad authority over all transactions), General Agency (ongoing authority in specific matters), and Special Agency (limited to specific tasks, like marketing a property for sale).

Question 13

Keypoint Question: What are the fiduciary duties an agent owes to their client?

Answer 13

Keypoint Answer: The fiduciary duties include Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable Care and Diligence, all designed to ensure the agent acts in the best interests of the client.

Question 14

Keypoint Question: What role does the Information About Brokerage Services form play in a real estate transaction?

Answer 14

Keypoint Answer: The IABS form is required by TREC to inform potential clients about the types of agency relationships available and what services brokers and agents can offer. It is a critical part of disclosure in a real estate transaction.

Question 15

An example of a general agency relationship would be one that exists between
A. the seller and the broker.
B. the buyer and the broker.
C. the sales associates and the broker.
D. the selling broker and the listing broker.

Answer 15

Correct Answer: C – the sales associates and the broker
Explanation of Answer: General agency refers to an ongoing relationship where the agent is authorized to perform a range of tasks for the principal, such as the relationship between sales associates and the broker. Sales associates act on behalf of their broker in various transactions.

Question 16

Special agency occurs when
A. the principals give an agent a limited authority to act on their behalf.
B. the principals give an agent authority to act for them in the operation of a business.
C. a person operates a real estate brokerage business.
D. a person operates a special real estate brokerage business.

Answer 16

Correct Answer: A – the principals give an agent a limited authority to act on their behalf
Explanation of Answer: Special agency occurs when the agent is only authorized to perform specific tasks, like marketing a property for sale. This type of agency limits the agent’s authority to those tasks listed in the agreement.

Question 17

Brokers can buy a property listed with them under which of the following conditions?
A. If a family member secretly purchases the property for more than the asking price
B. Under no circumstances
C. Only if the property is listed under an open listing
D. Only if full disclosure is made to the seller of the broker’s involvement as a purchaser

Answer 17

Correct Answer: D – Only if full disclosure is made to the seller of the broker’s involvement as a purchaser
Explanation of Answer: Brokers are allowed to purchase property they have listed as long as they disclose their interest in the purchase to the seller. This ensures transparency and avoids conflicts of interest.

Question 18

Which statement is TRUE of listing agents?
A. They must communicate every offer, oral or written, to the owner.
B. They may refuse to present an offer if it is too low.
C. They must tell the buyer the seller’s lowest acceptable price.
D. They may tell the buyer the terms of a counteroffer the seller made yesterday.

Answer 18

Correct Answer: A – They must communicate every offer, oral or written, to the owner
Explanation of Answer: The listing agent has a fiduciary duty to present all offers, whether verbal or written, to the seller. This ensures the seller has the opportunity to make informed decisions regarding potential transactions.

Question 19

A sales agent owes all of the following fiduciary duties EXCEPT
A. to inform the broker and the seller of material facts.
B. to be loyal to the best interests of the client.
C. to prepare a power of attorney for the buyer.
D. to obey the lawful instructions of the broker.

Answer 19

Correct Answer: C – to prepare a power of attorney for the buyer
Explanation of Answer: Preparing legal documents such as a power of attorney is outside the scope of a sales agent’s duties and would be considered the unauthorized practice of law. The other duties listed are part of the fiduciary responsibilities an agent owes to their broker and clients.

Question 20

A listing agent tells a buyer-customer that the seller is under pressure to sell because of a recent contract to purchase another house in Idaho. Such disclosure is
A. acceptable if it results in a sale.
B. acceptable if no details of the move to Idaho are disclosed.
C. unacceptable because of the fiduciary duty owed the owner.
D. unacceptable because the listing broker is the agent of the buyer.

Answer 20

Correct Answer: C – unacceptable because of the fiduciary duty owed the owner
Explanation of Answer: Disclosing information that affects the seller’s bargaining position, such as financial pressure to sell, violates the fiduciary duty of confidentiality owed to the seller by the listing agent. The agent must protect the seller’s interests in negotiations.

Question 21

Sally, as an agent for the seller, listed and subsequently sold George’s townhouse. She did not tell George that a major zoning change in progress would allow business use in the area, thus increasing property values. Which statement is TRUE?
A. Sally was not required to disclose the change because George never asked her.
B. Sally was not required to disclose the change if George received his full asking price.
C. Sally was required to disclose the change because it was a material and pertinent fact.
D. Sally was required to disclose the change because the zoning laws require notice to all interested persons.

Answer 21

Correct Answer: C – Sally was required to disclose the change because it was a material and pertinent fact
Explanation of Answer: Any change that materially affects the value of a property, like zoning changes, must be disclosed to the client. Failure to disclose such information can result in breaches of fiduciary duty and potential legal consequences.

Question 22

Which is NOT a fiduciary obligation owed to a client?
A. Obedience
B. Confidentiality
C. Accounting
D. Inspection

Answer 22

Correct Answer: D – Inspection
Explanation of Answer: A fiduciary agent is not responsible for inspecting the property; that responsibility usually falls to an inspector. However, the agent must ensure that all other fiduciary duties, like Obedience, Confidentiality, and Accounting, are upheld.

Question 23

A material fact is one that
A. the client considers important.
B. the customer considers important.
C. a reasonable person might feel is important.
D. the listing broker considers important.

Answer 23

Correct Answer: C – a reasonable person might feel is important
Explanation of Answer: A material fact is one that a reasonable person would consider important in making a decision, such as property defects or information that impacts the value of the property.

Question 24

According to TRELA Section 1101.558, the written statement must be given at what time?
A. At the first meeting with a consumer where a substantive dialog occurs
B. A meeting at an open house
C. After a contract is signed
D. At the time of the first substantive dialog with a party relating to specific real property

Answer 24

Correct Answer: D – At the time of the first substantive dialog with a party relating to specific real property
Explanation of Answer: The written statement required by TRELA must be provided during the first substantive communication between the agent and a party regarding a specific property. This ensures transparency before confidential information is exchanged.