Unit 9 Quiz Questions

Question 1

1. An individual who is authorized and consents to represent the interests of another person is

a. a customer.
b. a principal.
c. an agent.
d. a facilitator.

Answer 1

An Agent

The agent is hired by the principal. The customer is a third party. A facilitator is someone working on a non-agency basis

Question 2

A broker represents a seller but is currently working with a buyer to find a home. Assuming that no statute has replaced the traditional common law of agency, which of these correctly
identifies the parties in this relationship?

a. The broker is the buyer’s agent; the seller is the broker’s client.
b. The buyer is the broker’s client; the seller is the broker’s principal.
c. The seller is the broker’s customer; the buyer is the broker’s client.
d. The broker is the seller’s agent; the buyer is the broker’s customer.

Answer 2

The broker is the seller’s agent; the buyer is the broker’s customer.

Watch the terminology: The broker is working for (representing) the seller and is working with the buyer (a customer) to find a home.

Question 3

The agent’s obligation to use skill and expertise on behalf of the principal arises under which of these common-law duties?

a. Care
b. Obedience
c. Loyalty
d. Disclosure

Answer 3

Care

Care requires skill and expertise; obedience requires following lawful instructions; loyalty is putting the client’s interests above the agent’s; and disclosure refers to material defects of the
property.

Question 4

An agent representing the buyer has a duty to disclose to the seller

a. offers that are ridiculously low.
b. the buyer’s financial ability to offer a higher price.
c. the agent’s advertising budget.
d. the buyer’s intention to resell the property for a profit

Answer 4

Offers that are ridiculously low.

The buyer’s (special) agent must present all offers made by the buyer but not disclose to the seller any facts about the buyer that would be detrimental to the buyer’s bargaining position, including the fact that the buyer intends to resell the property. There is no requirement that
the agent disclose an advertising budget.

Question 5

A broker has an agency agreement to represent the seller of a house. The agreement’s expiration date is June 10. On May 5, the house is struck by lightning and burns to the ground.
The seller, overwhelmed by grief, dies. Based on these facts, which of these is TRUE?

a. The agency agreement was terminated by the fire, although the seller’s death also would
have done so.
b. The agency agreement was not terminated until the seller’s death.
c. If the house had not been destroyed by the fire, the seller’s death would not have
terminated the agreement; the broker would become the broker for the seller’s estate.
d. Only the mutual agreement of the parties can terminate a valid agency agreement before
its expiration date.

Answer 5

The agency agreement was terminated by the fire, although the seller’s death also would have done so.

An agency agreement may be terminated by either destruction of the property or death of either party. In this case, destruction of the property occurred first

Question 6

A person who is designated by the principal in a broad range of matters related to a particular transaction or activity is a

a. facilitator.
b. special agent.
c. designated agent.
d. general agent.

Answer 6

General Agent

A special agent is given limited authority for a limited time. A general agent is given broad authority in a specific circumstance. A property manager is typically a general agent for the owner as are most real estate sales associates for the employing broker.

Question 7

A real estate broker signed an agency agreement with a seller. The asking price for the seller’s
house was $499,000. A few days later, the broker met a prospective buyer who was interested in buying a home in the $480,000 to $510,000 price range. The broker agreed to help the buyer locate such a property and to represent the buyer in negotiating a favorable purchase price. Based on these facts, which of these statements is TRUE?

a. The broker’s relationships and the buyer and seller are separate issues, and no dual
agency question arises.
b. The seller is the broker’s client, and the buyer is the broker’s customer; there is no dual agency problem.
c. The broker has created a potential undisclosed dual agency problem and should disclose the relationships to both parties before showing the seller’s home to the buyer.
d. The broker has created a dual agency problem and should immediately terminate the
agreement with either the buyer or seller.

Answer 7

The broker has created a potential undisclosed dual agency problem and should disclose the relationships to both parties before showing the seller’s home to the buyer.

The broker is representing the seller and now is at least implying representation of the buyer in locating a property; hence, there are two clients. If the broker intends to show the seller’s
property, the broker must disclose the relationship with both clients, gain their agreement to a dual agency, and only then proceed.

Question 8

A broker is showing a house to a prospective buyer. The broker points out the rustic charm of the sagging front porch and refers to a weed-choked backyard as a delightful garden. The
broker is engaging in

a. intentional misrepresentation.
b. negligent misrepresentations.
c. puffing.
d. fraud.

Answer 8

Puffing

Because any prudent buyer can see the sagging porch and weed-choked garden, these are puffing statements. Agents must take care that they do not make statements in such a way as to
harm the buyer or take advantage of the buyer’s ignorance, which would constitute fraud.

Question 9

A house built over a ditch covered with decaying timber or a house with ceilings that are improperly attached to the support beams, neither condition being visible, are examples of

a. stigmatized properties.
b. environmental hazards.
c. latent defects.
d. conditions that need not be disclosed.

Answer 9

Latent Defects

A latent defect is a hidden structural defect that would not be discovered by ordinary inspection.

Question 10

The seller’s agent has certain duties to the client-principal.Duties of the principal include

a. cooperating with the agent but being able to limit the availability of the property for showings.
b. compensating the agent but only if an offer at the full listing price is received.
c. suggesting marketing strategies to the agent.
d. dealing with the agent in good faith

Answer 10

Dealing with the agent in good faith.

Marketing is the agent’s responsibility. The principal who hired the agent is responsible for cooperating with the agent, disclosing material defects, and compensating the agent.

Question 11

Every state has a mandatory agency disclosure law that stipulates

a. how an implied agency may occur.
b. when, how, and to whom agents must reveal for whom they provide client-based services.
c. restrictions on disclosure of confidential information.
d. how a customer may be indistinguishable from a client.

Answer 11

When, how, and to whom agents must reveal for whom they provide client-based services.

Mandatory agency disclosure laws now exist in every state. In addition, state laws may require a particular type of written form be used and may require that all agency alternatives be explained.

Question 12

In a real estate sales transaction, who is the agent’s principal?

a. Seller
b. Buyer
c. Person who pays the commission
d. Whoever hired the agent

Answer 12

Whoever hired the agent

The most complete answer is whoever hired the agent. That could be either the buyer or the seller, but payment of compensation is not the determining factor.

Question 13

A broker was hired to represent the seller, to market the property, and to solicit offers to purchase. The broker is called a

a. general agent.
b. special agent.
c. facilitator.
d. nonagent.

Answer 13

Special Agent

A special agent is one who is hired for a limited time and given limited authority. A broker taking a listing is generally a special agent

Question 14

A house was the scene of a drug arrest and a violent murder last year. When it was listed on the market, many people considered it to be a

a. latent property.
b. stigmatized property.
c. damaged property.
d. property with a material defect.

Answer 14

Stigmatized Property

Presuming that the property is physically intact, the drug arrest and violent murder may create a psychological reaction to the property, rendering it stigmatized.

Question 15

An agency relationship can be terminated by

a. the divorce of the party who signed the listing.
b. destruction of the property.
c. an offer made on the property.
d. issuance of a new standard listing agreement.

Answer 15

Destruction of the property

An offer on the property does not terminate the agency relationship. Neither does the divorce of either party, or issuance of a new standard listing agreement.

Question 16

What is a seller’s agent required to disclose to prospective buyers about material defects in the property?

a. Only information about material defects the seller has provided the agent
b. Only information about material defects that the agent has personally observed
c. Both information the seller has provided the agent, and material defects that the agent has personally observed
d. All information about material defects that the agent knows or should know

Answer 16

All information about material defects that the agent knows or should know.

Agents are responsible for disclosing information they are told or that they discover on their own, plus information they should have known

Question 17

Which of these statements could be negligent misrepresentation?

a. “The uneven floors just mean that the building dates to colonial times.”
b. “I think these low doorways are a charming part of the Cape Cod style.”
c. “The simple design is uncluttered and can give you many possibilities for decor.”
d. “The size of the bedrooms makes them wonderfully cozy and perfect for your children.”

Answer 17

“The uneven floors just mean that the building dates to colonial times.”

Presenting an opinion is acceptable so long as it is not presented as a fact. Uneven floors could mean a latent defect, such as rotten supports

Question 18

The seller’s agent is aware that a new landfill has been approved for development on a nearby property but does not disclose this information to a buyer. This could be an example of

a. negligent misrepresentation.
b. a latent defect.
c. fraudulent misrepresentation.
d. unnecessary disclosure.

Answer 18

Fraudulent misrepresentation

This is an example of misleading a party by withholding a material fact. It is deliberate misrepresentation by silence. The proposed landfill near the property is not a latent defect, because it does not threaten structural soundness or personal safety.

Question 19

A key element of an agent’s fiduciary responsibility of loyalty is to

a. report the status of all funds received from or on behalf of the principal.
b. avoid conflicts of interest.
c. obey the principal’s instructions in accordance with the contract.
d. reveal relevant information or material facts.

Answer 19

Avoids conflicts of interest

Reporting the status of funds is an accounting responsibility. Obeying the principal’s instructions relates to obedience. Revealing relevant information relates to the responsibility of disclosure

Question 20

When a broker places trust funds of others into the company’s operating account and then withdraws funds for the firm’s use, what illegal practice has taken place?

a. Escrowing
b. DBA accounting
c. Conversion
d. Asset-liability management

Answer 20

Conversion

Both commingling the funds and the practice of conversion are illegal.

Question 21

In a real estate transaction, the term fiduciary typically refers to

A. the sale of real property.
B. the people who give someone else the legal power to act on their behalf.
C. the person who has legal power to act on behalf of another.
D.the agent’s relationship to the principal.

Answer 21

The agent’s relationship to the principal.

The answer is the agent’s relationship to the principal. The relationship of the agent to the principal involves care, obedience, loyalty, disclosure, accounting, and confidentiality (COLD AC)—a fiduciary relationship. A person with legal power to act for another is an attorney-in-fact most real estate agents do not have such power.

Question 22

The relationship between real estate broker and seller is generally what type of agency?

A. Special
B.General
C.Implied
D.Universal

Answer 22

Special

The answer is special. A broker serves a client— either a buyer or a seller—usually by performing the specific brokerage act spelled out in the employment contract (representation agreement). A specific assignment creates a special agency.

Question 23

Which statement is TRUE of a real estate broker acting as the agent of the seller?

A. The broker is obligated to render loyalty to the seller.
B.The broker can disclose confidential information about the seller to a buyer if it increases the likelihood of a sale.
C. The broker can agree to a change in price without the seller’s approval.
D. The broker can accept a commission from the buyer without the seller’s approval.

Answer 23

The broker is obligated to render loyalty to the seller.

The answer is the broker is obligated to render loyalty to the seller. Loyalty to the client-seller requires confidentiality—not revealing confidential information; it involves obedience—not publishing a price different from the one set by the client; and it requires disclosure of any fact or action which might affect the principal or the relationship between the agent and principal.

Question 24

A real estate broker lists a home for sale for $189,500. Later that same day, a prospective buyer comes into the broker’s office and asks for general information about homes for sale in the $130,000 to $140,000 price range but refuses representation by the broker’s company at this time. Based on these facts, which statement is TRUE?

A. Both the seller and the potential buyer are the broker’s customers.
B. The seller is the broker’s client; the buyer is a customer.
C.The broker owes fiduciary duties to both seller and buyer.
D.If the buyer later asks for buyer representation by the broker’s firm, it will not be possible because of the firm’s earlier agreement with the seller.

Answer 24

The seller is the broker’s client; the buyer is a customer.

The answer is the seller is the broker’s client; the buyer is a customer. One who lists property with a broker is the broker’s client. A prospective purchaser who refuses buyer representation is a customer. Customers are not owed fiduciary duties but may later contract with the broker for buyer representation.

Question 25

In a dual agency situation, if it is permitted by state law, a broker may represent both the seller and the buyer in the same transaction provided

A. the broker informs either the buyer or the seller of this fact.
B. the buyer and the seller are related by blood or marriage.
C. both parties consent in writing to the dual agency.
D. both parties are represented by attorneys.

Answer 25

Both parties consent in writing to the dual agency.

The answer is both parties consent in writing to the dual agency. Dual agency requires nothing less than written, informed consent from both parties.Any family relationship of the parties or whether they have legal representation does not change this rule.

Question 26

Which event will terminate an agency in a broker-seller relationship?

A. The broker discovers that the market value of the property is such that an adequate commission will not be earned.
B. The owner declares personal bankruptcy.
C. The owner abandons the property.
D. The broker appoints other brokers to help sell the property.

Answer 26

The owner declares personal bankruptcy

The answer is the owner declares personal bankruptcy. Common law holds that the bankruptcy of either the broker or the seller ends the agency relationship created by the listing.

Question 27

Designated agency is MOST likely to occur when

A. there is a client-buyer and a customer-seller.
B. the seller and the buyer are represented by different companies.
C. both the buyer and the seller are customers.
D. the buyer and the seller are represented by the same company

Answer 27

The buyer and the seller are represented by the same company

The answer is the buyer and the seller are represented by the same company. Designated agency is a process that accommodates an in-house sale in which two different sales associates of the same broker are involved. The broker designates one sales associate to represent the seller and one sales associate to represent the buyer.

Question 28

A real estate broker hired by an owner to sell a parcel of real estate must comply with

A. the common law of agency in the state in which the property owner lives.
B. a prospective buyer’s instructions.
C.the concept of caveat emptor.
D.all lawful instructions of the owner.

Answer 28

All lawful instructions of the owner.

The answer is all lawful instructions of the owner. Lawful instructions from one’s broker require obedience. An agency statute may modify aspects of the common law of agency. Caveat emptor is a warning to purchasers, not brokers.

Question 29

Which of the following is a valid reason to terminate an agency relationship?

A.The agent found a home for a buyer to purchase, but the buyer didn’t like it.
B.The buyer wanted to work with a new agent, but the terms of agency had not yet expired and the current agent did not agree to terminate.
C.The property was condemned.
D.The buyer got married.

Answer 29

The property was condemned.

The answer is the property was condemned. If theproperty is destroyed or condemned, there is nolonger a valid subject for the contract. Terminationof agency requires mutual agreement by all parties tocancel the contract.

Question 30

A seller tells his agent in confidence that he must sell fast and may accept less than the list price. The agent tells a buyer the seller will accept up to $5,000 less than the list price. Which is TRUE?

A. The agent has not violated any agency responsibilities to the seller.
B. The agent should have disclosed this information, regardless of its accuracy.
C. Disclosure was improper and possibly illegal, regardless of the agent’s motive.
D. The relationship between the agent and the seller ends automatically if the purchaser submits an offer

Answer 30

Disclosure was improper and possibly illegal, regardless of the agent’s motive.

The answer is disclosure was improper and possibly illegal, regardless of the agent’s motive. Such action is an example of the agent’s failure to maintain confidentiality—a breach of the agent’s fiduciary duty

Question 31

A buyer who is a client of the broker wants to purchase a house that the broker has listed. Which statement is TRUE?

A. The broker may proceed to write an offer on the property and submit it.
B. The broker should refer the buyer to another broker to negotiate the sale.
C. The seller and the buyer must be informed of the situation and agree in writing to the broker’s representing both of them.
D. The buyer should not have been shown a house listed by the broker.

Answer 31

The seller and the buyer must be informed of the situation and agree in writing to the broker’s representing both of them.

The answer is the seller and the buyer must be informed of the situation and agree in writing to the broker’s representing both of them. Both buyer and seller must give informed, generally written, consent for dual representation

Question 32

What does the phrase the law of agency is a common law doctrine mean?

A. It is a legal doctrine that is not unusual.
B. It is one of the rules enacted by legislatures and other governing bodies.
C. It is part of a body of law established by tradition and court decisions.
D. It may not be superseded by statutory law.

Answer 32

It is part of a body of law established by tradition and court decisions.

The answer is it is part of a body of law established by tradition and court decisions. The basic framework of the agency law that governs the legal responsibilities of real estate brokers to the people they represent is known as common law.

Question 33

A broker helps a buyer and a seller with paperwork but does not represent either party. This relationship is

A. dual agency.
B. prohibited in all states because a broker must always represent one party.
C. a transactional brokerage.
D. a designated agency.

Answer 33

A transactional brokerage

The answer is a transactional brokerage. A nonagent (transactional broker, facilitator, coordinator, or contract broker) is not an agent of either party. A nonagent’s job is simply to help both the buyer and the seller with the necessary paperwork and formalities involved in transferring ownership of real property.

Question 34

A real estate sales associate represents a buyer. At their first meeting, the buyer reveals plans to operate a dog-grooming business out of the purchased house. The sales associate did not check the local zoning ordinances to determine in which parts of town such a business could be conducted. Which common law duty did the sales associate violate?

A. Care
B. Obedience
C. Loyalty
D. Disclosure

Answer 34

Care

The answer is care. The broker was careless in failing to check zoning for a proposed business. To be careless is to fail to use proper care.

Question 35

A broker tells a buyer, “This home has the most beautiful river view.” In fact, the view includes the river and the back of a shopping center. Which is TRUE?

A. The broker has committed fraud.
B. The broker is guilty of negligent misrepresentation.
C. The broker is guilty of intentional misrepresentation.
D. The broker is merely puffing.

Answer 35

The broker is merely puffing

The answer is the broker is merely puffing. The broker was puffing—stating something that anyone with common sense and open eyes would know to be an exaggeration.

Question 36

A real estate broker’s responsibility to keep the principal informed of all the facts that might affect a transaction is the duty of

A. care.
B. disclosure.
C. obedience.
D. accounting.

Answer 36

Disclosure

The answer is disclosure. The agent’s duty of disclosure requires that the principal be informed of all facts or information that might affect a transaction.

Question 37

Which of the following is considered dual agency?

A. A broker acting for both parties in the same transaction
B. Two brokerage companies cooperating with each other
C. A broker representing more than one principal
D. A broker listing a property and then, after it is relisted with another broker, selling the same property

Answer 37

A broker acting for both parties in the same transaction.

The answer is a broker acting for both parties in the same transaction. In dual agency, the agent represents two principals in the same transaction. Because the agency originates with the broker, dual agency arises when the broker is the agent of both parties to a transaction, such as the buyer and the seller.

Question 38

The relationship of broker to client in an agency relationship is that of

A. a trustee.
B. a subagent.
C. a fiduciary.
D. an attorney-in-fact.

Answer 38

fiduciary

The answer is a fiduciary. The client in an agency relationship is the principal to whom the agent gives advice and counsel. The agency agreement usually authorizes the broker to act for the principal. The agent’s fiduciary relationship of trust and confidence with the principal means that the broker owes the principal certain specific duties.

Question 39

A real estate broker acting as the agent of the seller

A. must promote and safeguard the seller’s best interests.
B. can disclose the seller’s minimum price.
C. should present to the seller only the highest offer for the property.
D. can accept an offer on behalf of the seller.

Answer 39

Must promote and safeguard the seller’s best interests

The answer is must promote and safeguard the seller’s best interests. A broker acting as the agent of the seller is responsible to the seller and must promote and safeguard the seller’s best interest.

Question 40

A broker is permitted to represent both the sellerand the buyer in the same transaction when

A. the principals are not aware of such action.
B. the broker is a subagent rather than the agent of the seller.
C. commissions are collected from both parties.
D. both parties have been informed and agree in writing to the dual representation.

Answer 40

Both parties have been informed and agree in writing to the dual representation.

The answer is both parties have been informed and agree in writing to the dual representation. Real estate licensing laws that permit dual agency typically require that the buyer and the seller must be informed of the nature of the proposed relationship and give written consent to the broker’s representation of both parties in the same transaction.