Chapter 4 - Real Estate Brokerage and Law of Agency

Question 1

Chapter Objectives

Answer 1

1) Explain the purpose of a listing contract, and identify what parties sign the contract.
2) Explain the difference between a special agent and general agent, and express agency and implied agency, and provide at least one example of each.
3) Summarize the fiduciary duties owed by a seller’s agent to the seller, and provide at least one example of each duty.
4) Summarize the fiduciary duties owed by a principal to their agent, and provide at least one example of each duty.
5) Explain the purpose of the DTPA, and list at least three examples of a misleading act under the DTPA.

Question 2

Brokerage

Answer 2

The business of bringing buyers and sellers together and assisting in negotiations for the terms of sale of real estate.

Question 3

Real Estate Broker

Answer 3

A person who is licensed to buy, sell, exchange, or lease real property for others and to charge a fee for these services. Acts as an agent for a principal/client

Question 4

Agency

Answer 4

The relationship between the principal and the principal’s agent which arises out of a contract, either expressed or implied, written or oral, wherein the agent is employed by the principal to do certain acts dealing with a third party.

Question 5

Agent

Answer 5

A person authorized to act on behalf of another. Will work for a client and with a customer

Question 6

Principal

Answer 6

The employer of an agent.

Question 7

Customer

Answer 7

The party the agent brings to the principal as seller or buyer of the property.

Question 8

Fiduciary Duty

Answer 8

That duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over the latter by the slightest misrepresentation, concealment, duress or pressure.

Question 9

Listing Contract

Answer 9

A contract in which a property owner employs a real estate broker to market the property described in the contract. Describes the obligations of each party.

Also used for leasing/rental

Question 10

General Agent

Answer 10

An agent with full authority over one property of the principal, such as a property manager.

Question 11

Special Agent

Answer 11

An agent with limited authority to act on behalf of the principal, such as created by a listing.

Question 12

Express Agency

Answer 12

An agency relationship created by oral or written agreement between principal and the agent. The terms are ‘expressed’ in the form of documents or oral communication (Listing/Buyer Rep Contracts)

Question 13

Implied Agency

Answer 13

Agency that exists as a result of actions of the parties.

Question 14

Agency by Ratification

Answer 14

like if you were giving advice to a neighbor and they were acting on it - compensation is not required

Question 15

Seven Categories of Agency Termination

Answer 15

1) Death or Incapacity of either party
2) Destruction of property
3) Expiration of term - required by TREC
4) Mutual Agreement
5) Broker can renounce the agency
6) Bankruptcy of Owner of property
7) The completion of purpose of creation

Question 16

Sub-Agent

Answer 16

what a salesperson is to their broker

Question 17

Universal Agent

Answer 17

An agent who is authorized to perform all acts or
duties his/her principal is empowered to perform. The broadest form of agency

Question 18

Statute of Frauds

Answer 18

requires most real estate contracts to be in writing

Question 19

Single Agent

Answer 19

works only for the buyer or the seller

Question 20

Dual Agent

Answer 20

acts concurrently for both principals in the transaction

Question 21

COALD (Acronym - Fiduciary Responsibilities)

Answer 21

Care, Obedience, Accounting, Loyalty, Disclosure
C - Exercise a reasonable degree of care while handling the business
O - Obey the clients instructions (Lawful & Ethical)
A - report and account for all funds received from and on behalf of principal
L - always place client’s interests first
D - disclosure of ALL known facts regarding the transaction

Question 22

Information of Brokerage Services Form (PDF)

Answer 22

used for generally every type of transaction

Question 23

Indemnification

Answer 23

Reimbursement or compensation paid to someone for a loss already suffered.

Question 24

Puffing

Answer 24

The exaggeration of the good points of a product, or real property, and the prospects for future rise in value, profits, and growth. This does not cover “mistakes” where it was an honest mix up - outside of competence circle of knowledge

Question 25

CIIA (Acronym) - Duties of Principal to Agent

Answer 25

Compensation, Information, Indemnification, Availability

C - compensating the fee upon completion of brokers duties
I - provide accurate information
I - to reimburse broker if financial injury is suffered during duty
A - they have to be available to discuss offers, accept notices, allow showings

Question 26

Agents duties to Customers

Answer 26

reasonable care/skill, honesty & fair dealings, disclosure of any known facts about the property

Question 27

Fraud

Answer 27

The intentional and successful employment of any cunning, deception, collusion, or artifice, used to circumvent, cheat or deceive another person whereby that person acts upon it to the loss of property and to legal injury.

Question 28

Latent Defect

Answer 28

known to the seller but not to the buyer, and is not discoverable by ordinary inspections
Example: driveway that crosses the property line

Question 29

Deceptive Trade Practices Act (DTPA)

Answer 29

Protects consumers against false, misleading, or deceptive acts.

• Representing that something is new or original when not the case (or particular quality)
• advertising a prop w/ no intention of selling as advertised
• Making false statement of fact (typically around explaining price reductions)
• Misrepresenting authority of agent to finalize a closing contract
• When work has been done on property but it really hasn’t

Question 30

Caveat Emptor

Answer 30

Let the buyer beware. The buyer must examine the goods or property and buy at his or her own risk.

The responsibility is now placed more and more on the sellers.

Question 31

Sellers Disclosure Notice

Answer 31

Required in Texas that lists certain features or known defects of the property