Unit 7

Question 1

Objective 1: Describe how agency is created and the different types of agency.

Answer 1

Answer: Agency is created when a principal authorizes an agent to act on their behalf and the agent consents to do so. Types of agency include express agency, implied agency, ostensible agency, agency by ratification, and gratuitous agency. Each type is defined by the way the authority is established and the actions or words of the parties involved.

Question 2

Objective 2: Explain the legal importance of acting for a principal, including concepts like constructive or imputed notice, imputed knowledge, and professional and ethical responsibility once an agency relationship has started.

Answer 2

Answer: Acting for a principal places significant legal obligations on an agent. Constructive or imputed notice means that any notice given to the agent is considered given to the principal. Imputed knowledge refers to the assumption that the principal knows any material information known to the agent. Agents have a professional and ethical responsibility to act in the best interests of their principal, maintain confidentiality, and perform their duties with care and diligence.

Question 3

Objective 3: Explain how agency is terminated.

Answer 3

Answer: Agency can be terminated by mutual consent, revocation by the principal, renunciation by the agent, lapse of time, completion of the purpose of the agency, death or incapacity of either party, bankruptcy, or destruction of the property involved.

Question 4

Objective 4: List the agent duties that remain in effect after termination of the relationship.

Answer 4

Answer: The primary duty that survives termination is the duty of confidentiality. Agents must continue to protect any confidential information gained during the agency relationship even after the relationship ends, unless required to disclose by law or court order.

Question 5

Keyterm: Express Agency

Answer 5

Meaning: An agency relationship created when principals explicitly authorize an agent to act on their behalf, either through a written or oral agreement. The duties and expectations are clearly stated and agreed upon.

Question 6

Keyterm: Implied Agency

Answer 6

Meaning: An agency relationship created by the actions or conduct of the parties rather than through a formal agreement. It occurs when the behavior of the parties leads to the belief that the agent is acting on behalf of the principal.

Question 7

Keyterm: Ostensible Agency or Agency by Estoppel

Answer 7

Meaning: An agency relationship created when a third party is led to believe, by the conduct of the principal, that a license holder is acting as the agent for the principal. The principal cannot later deny the existence of the agency relationship if it was reasonably relied upon.

Question 8

Keyterm: Agency by Ratification

Answer 8

Meaning: An agency relationship created after an agent performs an unauthorized act on behalf of the principal, and the principal, upon learning of the act, accepts the benefits or does not repudiate the agent’s authority.

Question 9

Keyterm: Gratuitous Agency

Answer 9

Meaning: An agency relationship where the agent provides services without receiving any compensation. Despite not being paid, the agent is still held to the same standard of care and can be liable for negligent actions.

Question 10

Keyterm: Constructive or Imputed Notice

Answer 10

Meaning: Notice given to an agent is considered notice to the principal. This legal concept ensures that the principal is bound by information given to their agent, whether or not the agent actually conveys the information.

Question 11

Keyterm: Termination of Agency

Answer 11

Meaning: The end of an agency relationship through various means, such as mutual consent, completion of purpose, or death of a party. Upon termination, most duties are extinguished except for confidentiality and accounting.

Question 12

Keyterm: Imputed Knowledge

Answer 12

Meaning: Knowledge possessed by an agent is presumed to be known by the principal, whether or not the agent has actually communicated it. This concept places responsibility on the principal for any material facts known to the agent.

Question 13

Keyterm: Revocation by the Principal

Answer 13

Meaning: When the principal unilaterally ends the agency relationship. This can happen at any time but may result in liability for the principal if done without cause.

Question 14

Keyterm: Renunciation by the Agent

Answer 14

Meaning: When the agent decides to terminate the agency relationship. This can be due to a conflict of interest, ethical concerns, or inability to fulfill duties.

Question 15

Keyterm: Confidentiality

Answer 15

Meaning: The duty to protect a client’s confidential information, which remains in effect even after the agency relationship has ended unless disclosure is required by law.

Question 16

Keyterm: Agency Disclosure

Answer 16

Meaning: The act of informing all parties in a transaction who the agent represents. Proper disclosure is essential to avoid misunderstandings and establish clear boundaries of representation.

Question 17

Keypoint Question: What are the different types of agency relationships, and how are they created?

Answer 17

Keypoint Answer: The different types of agency relationships are express agency, implied agency, ostensible agency (or agency by estoppel), agency by ratification, and gratuitous agency. These relationships are created through either explicit agreements, actions or conduct, reliance by third parties, acceptance of unauthorized acts, or offering services without compensation.

Question 18

Keypoint Question: What is the significance of constructive notice and imputed knowledge in an agency relationship?

Answer 18

Keypoint Answer: Constructive notice means that any notice given to the agent is deemed to be given to the principal. Imputed knowledge assumes that the principal is aware of any information known to the agent, regardless of whether it was actually communicated. These concepts protect third parties and ensure the principal is bound by the agent’s actions.

Question 19

Keypoint Question: What duties survive after the termination of an agency relationship?

Answer 19

Keypoint Answer: The primary duty that survives is the duty of confidentiality. Agents must not disclose any confidential information gained during the agency relationship unless required to do so by law or court order. This protects the former client’s interests even after the agency has ended.

Question 20

Which is required to create an agency relationship?
A. Compensation
B. A contract
C. A real estate license
D. A belief that the relationship exists

Answer 20

Correct Answer: D – A belief that the relationship exists
Explanation of Answer: An agency relationship can be created based on the belief that one party is acting on behalf of another, even without a formal agreement or compensation.

Question 20

Express agency
A. is created by the principal’s actions.
B. is always in writing.
C. can be an oral agreement.
D. is ambiguous.

Answer 20

Correct Answer: C – can be an oral agreement
Explanation of Answer: Express agency can be created either verbally or in writing. It involves explicit authorization by the principal for the agent to act on their behalf, with clear duties and expectations agreed upon.

Question 21

Implied authority is
A. specifically given in a listing contract.
B. not specifically given to an agent.
C. the same as implied agency.
D. a part of every contract.

Answer 21

Correct Answer: B – not specifically given to an agent.
Explanation of Answer: Implied authority is not directly stated but is inferred from the actions or conduct of the principal and agent. It enables the agent to carry out necessary tasks to fulfill the objectives of the agency relationship.

Question 22

Agency based on a third party’s being led to believe that a license holder was acting as an agent of another party is
A. express agency.
B. implied agency.
C. ostensible agency.
D. agency by ratification.

Answer 22

Correct Answer: C – ostensible agency.
Explanation of Answer: Ostensible agency occurs when a third party reasonably believes, based on the conduct of the principal, that an agent is acting on the principal’s behalf. This perception binds the principal to the agent’s actions, even without a formal agreement.

Question 23

Which statement is FALSE?
A. A license holder who is not compensated for services is not liable.
B. The broker and a consumer must enter into a written agreement to establish an agency relationship.
C. The buyer must be personally notified of a property defect or the seller is liable for failure to disclose.
D. All of these are false statements.

Answer 23

Correct Answer: D – All of these are false statements.
Explanation of Answer: Each of these statements is incorrect. An agent is liable regardless of compensation, a written agreement is not always required to establish agency, and disclosure of property defects does not need to be made directly to the buyer if the agent has received constructive notice.

Question 24

Which statement is TRUE regarding termination of agency for time?
A. Unlike seller agency, a contract for buyer agency does not require a definite termination date.
B. TRELA mandates a maximum of 180 days for residential listings.
C. A contract for seller or buyer agency may not automatically renew itself into perpetuity.
D. All property management contracts require a definite termination date.

Answer 24

Correct Answer: C – A contract for seller or buyer agency may not automatically renew itself into perpetuity.
Explanation of Answer: Agency contracts cannot renew indefinitely. They must include a specific termination date, ensuring that both parties know when the relationship ends unless a new agreement is formed.

Question 25

You entered into an agency agreement with and successfully found a home for a buyer who purchases and closes on the purchase. To terminate the agency you
A. need take no action.
B. must wait until closing.
C. must notify the buyer in writing.
D. must notify the seller in writing.

Answer 25

Correct Answer: A – need take no action.
Explanation of Answer: Agency relationships terminate automatically upon the completion of the purpose, which in this case is finding a home for the buyer. No further action is required unless specified otherwise in the agreement.

Question 26

Which statement is TRUE regarding the determination of who the broker represents?
A. Whoever pays the commission is the principal.
B. The principal must sign a written agreement for an agency to exist.
C. It is important to decide whether the buyer or seller is the broker’s principal because the broker will owe the principal a higher standard of care and more extensive duties.
D. The broker must be paid a commission for an agency to exist.

Answer 26

Correct Answer: C – It is important to decide whether the buyer or seller is the broker’s principal because the broker will owe the principal a higher standard of care and more extensive duties.
Explanation of Answer: Determining the principal is essential, as it defines who the broker’s fiduciary duties are owed to and the standard of care required. Compensation is not necessary to establish the relationship.

Question 27

Notice to an agent that is considered notice to the principal is known as
A. ostensible notice.
B. constructive notice.
C. implied notice.
D. unintended notice.

Answer 27

Correct Answer: B – constructive notice.
Explanation of Answer: Constructive notice means that notice given to the agent is deemed as notice to the principal. This concept ensures that the principal is bound by any information or notices received by the agent.

Question 28

Duties that continue after the termination of agency include the duty
A. to continue to present offers to the seller.
B. to continue to advertise the property.
C. not to disclose confidential information.
D. to offer advice and opinions.

Answer 28

Correct Answer: C – not to disclose confidential information.
Explanation of Answer: Confidentiality is a duty that remains in effect even after the agency relationship has ended. Agents must protect any information obtained during the relationship unless legally required to disclose.