Agency Law

Question 1

An agency

Answer 1

A relationship involving two parties: the principal and the agent

Question 2

The principle

Answer 2

The party who owns the property and employs the agent to locate a buyer or lessee, or find a property to buy or lease.

Question 3

An agency relationship may be …

2 words

Answer 3

Express or implied

Question 4

In an express agency

Answer 4

the principle and agent have an agreement, which is either oral or written.

Question 5

In an implied agency

Answer 5

the parties have an agreement based on the nature of the principle’s business and his/her relationship to the agent’s business. This type of agency implies that the agent has permission to perform certain activities.

Question 6

A person can earn a license to be a real estate broker by…

What is the relationship between the broker and the principle?

Answer 6

meeting educational, testing, and experience requirements that are set by each state. A real estate broker legally serves as an agent for the principal.

Question 7

One who holds a real estate license is a licensee. In most states, he/she may be a

Answer 7

a broker or salesperson.

Question 8

A real estate broker (1 def)
A general agent (1 def)
A universal agent (1def)

Answer 8

is a special agent for the principal because the agent’s powers are limited. This contrasts with a general agent, who is entrusted by the principal with broader powers to act for him/her in the business, or with a universal agent, who has full authority for all of the principal’s businesses.

Question 9

A real estate broker may employ licensed salespeople to…
What prerequisites must the salespeople meet?
The broker is responsible for …
Who pays the salespeople?
What is the relationship between the broker and the salespeople?

Answer 9

assist in performing his role. Typically, these salespeople must meet licensure requirements of education and testing. The broker is responsible for the acts of salespeople he employs. The salespeople are subagents of the broker and are paid by the broker.

Question 10

A REALTOR is…
What is the organization and what does it provide?
Does the organization offer licenses?

Answer 10

a broker or salesperson who is a member of the National Association of Realtors (NAR), which is a trade association. NAR provides educational training, economic data, and political lobbying. It is not a state agency, and it does not offer a license to sell real estate belonging to others.

Question 11

A broker typically represents…
What are the brokers responsibilities to the party they represent?
What must the broker deal with all parties in the transaction?

Answer 11

a single party, either the buyer or seller, in a transaction. Then the broker owes fiduciary duties to that party. Although a fiduciary of one party in a single agency relationship, the broker must deal honestly with all parties in the transaction.

Question 12

As a fiduciary, the broker

Answer 12

• must deal honestly and fairly
• be loyal to and obey his principle’s instruction
• protect confidential matters of his principle
• provide full disclosure to his principle
• properly account for funds
• observe skill and care
• present all offers and counteroffers in a timely manner
• disclose all known material facts about the property and its value

Question 13

The broker may not obey a principal’s request that is

Answer 13

illegal. Of particular interest is the requirement to follow fair housing laws and not violate anyone’s civil rights.

Question 14

A single agency broker must answer questions regarding…

And should refrain from revealing information regarding …

Answer 14

for an owner must not tell a prospective buyer that the owner is desperate to sell at a low price because he is getting a divorce. That is a personal matter not affecting the real estate. However, the broker must honestly answer the buyer’s questions about the condition of the property to the extent of his knowledge because the buyer is interested in buying the property. This is different from answering questions about personal matters of the owner, which the buyer does not acquire.

Question 15

Dual agency occurs…

What must both principle understand?

What is expected in dual agency from the broker?

Answer 15

when a broker or the brokerage firm represents opposing parties (both the buyer and seller) in the same transaction. In states that allow dual agency,

both principals must understand the situation and receive disclosure, often required to be in writing.

Professional behavior is expected of a dual agent, including honesty, skill, care, accounting for funds, and presentation of offers.

Question 16

Transaction brokerage occurs when

Answer 16

when the broker does not represent either party but, instead, provides services and general information to either party, without looking out for the interests of a particular party.

Question 17

No-brokerage agency may occur when …

What must be provided to both parties? And why?

Answer 17

when parties to a transaction have reached agreement but seek help, such as how to fill out a contract for sale.

Written disclosure should be provided to both parties so all can understand and agree to the broker’s role.

Question 18

A listing is …

What 2 conditions do many states require?

Answer 18

a contract between a principal and a broker to offer real estate for sale.

Many states require a listing to be in writing for a broker to collect a commission, and many
states require a listing to have a fixed expiration date.

Question 19

A broker earns a commission when …

What happens if the owner decides not to sell?

Answer 19

he or she brings a ready, willing, and able buyer at the seller’s terms as set forth in the listing. If the owner decides not to sell, the owner still owes the broker the full commission.

Question 20

An open listing

Answer 20

often used for high-value commercial property, gives the owner the right to list the property with more than one broker. The broker who sells the property earns the commission.

Question 21

An exclusive-agency listing

Answer 21

allows only one broker to sell, but the owner may sell through his own efforts without paying a commission.

Question 22

An exclusive right to sell listing

Answer 22

provides a commission to only one broker, even if the owner himself makes the sale.

Question 23

A multiple listing service (MLS) is…

Describe the relationship between the listing broker and the selling broker.

Answer 23

a local organization in which many brokers participate. Typically, the listing broker brings the listing into a pool, through which all listings are known to members. The listing broker usually shares the commission with the selling broker.

Question 24

A net listing is

Answer 24

one in which a minimum selling price is specified. The broker’s commission is the amount above the net price specified. Net listings are frowned upon or illegal in most states because in some contracts for sale, the broker’s interest may be opposed to the owner’s.

Question 25

Ways to terminate an agency relationship include: (6 ways)

Answer 25

1. Death or incompetence of either party
2. Bankruptcy of either party
3. Destruction of the property
4. Performance of the contract
5. Expiration of the contract
6. Mutual agreement of the parties