Unit 7 Real Estate Brokerage and the Law of Agency

Question 1

In 1995, the Edina case prompted the North Carolina Real Estate Commission (NCREC) to
A prohibit dual agency.
B revise its agency rule to require licensees to provide specific agency disclosures in writing.
C require that brokers act as single agents only.
D limit liability for brokerage firms who practice dual agency.

Answer 1

B revise its agency rule to require licensees to provide specific agency disclosures in writing.

Question 2

The term principal is synonymous with the term
A client.
B prospect.
C broker.
D seller.

Answer 2

A client.

Question 3

A real estate broker acting as the agent of the seller
A is obligated to render faithful service to the seller.
B has a fiduciary duty to the buyer.
C can agree to a change in price without the seller’s approval.
D can accept a bonus from the buyer without the seller’s approval.

Answer 3

A is obligated to render faithful service to the seller.

Question 4

Fiduciary refers to
A the independent contractor status of a broker.
B the relationship of trust between the agent and the principal.
C the seller’s subagent that is working with the buyer.
D the principal in an exclusive agency relationship.

Answer 4

B the relationship of trust between the agent and the principal.

Question 5

While in the employ of a real estate broker, a provisional broker has the authority to
A act as an agent for the seller.
B assume responsibilities assigned by the broker.
C accept a commission from another broker.
D advertise a property on his or her own behalf.

Answer 5

B assume responsibilities assigned by the broker.

Question 6

The legal relationship between broker and seller is usually a
A universal agent.
B special agent.
C dual agent.
D general agent.

Answer 6

B special agent.

Question 7

Designated agency
A is a form of dual agency.
B prohibited under North Carolina law.
C permitted if the broker-in-charge represents the seller and a provisional broker represents the buyer.
D is more likely to be handled properly with a small firm with a few agents rather than a large firm with many agents.

Answer 7

A is a form of dual agency.

Question 8

A real estate firm who engages brokers as independent contractors must
A withhold income tax from all commissions they earn.
B provide insurance plans offered to firm employees.
C withhold Social Security from all commissions they earn.
D still supervise the brokers and remain civilly liable for the brokerage activities of the brokers.

Answer 8

D still supervise the brokers and remain civilly liable for the brokerage activities of the brokers.

Question 9

Single agency occurs when a real estate agent
A represents only one party in a transaction.
B represents both the buyer and the seller in a transaction.
C chooses to be a designated dual agent.
D has both the listing and the sales sides of a transaction.

Answer 9

A represents only one party in a transaction.

Question 10

An agent who breaches the fiduciary duties may be subject to all of the following EXCEPT
A a civil lawsuit.
B disciplinary action by the state Real Estate Commission.
C suspension of licensure by the Association of REALTORS®.
D criminal prosecution.

Answer 10

C suspension of licensure by the Association of REALTORS®.

Question 11

The principal owes the agent
I the duty of acting in good faith.
II payment of compensation.
A I only
B II only
C Both I and II
D Neither I nor II

Answer 11

C Both I and II

Question 12

In North Carolina, the doctrine of caveat emptor
A has been completely replaced by case law and consumer protection laws.
B is still intact for property owners in real estate transactions.
C is applicable only if the agent acts as a dual agent.
D is overridden by agents’ disclosure laws.

Answer 12

B is still intact for property owners in real estate transactions.

Question 13

Under the common law of agency, a real estate broker owes all of the following duties to the principal EXCEPT
A care.
B obedience.
C disclosure.
D novation.

Answer 13

D novation.

Question 14

An agency relationship may be legally terminated by all of the following means EXCEPT
A the owner decides not to sell the house.
B the broker discovers that list price will not yield an adequate commission.
C the owner dies.
D the broker secures a ready, willing, and able buyer for the seller’s property.

Answer 14

B the broker discovers that list price will not yield an adequate commission.

Question 15

A broker represents the seller at an open house. When should she disclose her agency relationship to a potential buyer at the open house?
A After answering questions for the buyer about the house
B As soon as the buyer enters the open house
C When preparing an offer for the buyer
D At first substantial contact

Answer 15

D At first substantial contact

Question 16

A broker is representing the property seller. She is showing the property to a prospective buyer customer. The buyer likes the house but does not want to pay as much as the seller wants. He asks the broker if the seller would take less than the listing price. The broker knows that the seller is very anxious to sell and would probably agree to $7,000 less than his asking price. The broker suggests that the buyer make an offer at $5,000 less than the listing price. In this situation, the broker
A has done a good job securing an acceptable offer for the seller.
B has violated her fiduciary duties to the seller.
C will now be considered a designated dual agent.
D is making a secret profit from the transaction.

Answer 16

B has violated her fiduciary duties to the seller.

Question 17

An agent is representing the seller. The agent shows the house to his cousin and she is very interested in buying it. The agent presents his cousin’s full price offer to the seller, who eagerly accepts it. Both the seller and the buyer are very happy with the transaction. Which statement is TRUE?
A Because both parties are happy with the transaction, it doesn’t matter whether the agent disclosed his relationship with the buyer to the seller.
B The seller cannot complain about the agent’s actions because the offer was for the full listing price.
C The agent has violated his fiduciary duties to the seller by failing to disclose his relationship with the buyer and could be subject to disciplinary action.
D The agent has done nothing wrong; he was not required to disclose his relationship with the buyer.

Answer 17

C The agent has violated his fiduciary duties to the seller by failing to disclose his relationship with the buyer and could be subject to disciplinary action.

Question 18

The seller tells the listing agent about a latent defect in the property. The listing agent tells the buyer’s agent about the defect, but the buyer’s agent does not inform the buyer. Who would most likely be held responsible for the omission in North Carolina?
A The seller because he made no representation on the Residential Property Disclosure form regarding the defect
B The listing agent because he has the duty to inform the buyer personally of any latent defects
C The listing firm because the listing firm is liable for all disclosures in a sale transaction
D The buyer’s agent because he should not withhold information from his client

Answer 18

D The buyer’s agent because he should not withhold information from his client

Question 19

If a broker’s misrepresentation causes loss or financial injury to a buyer customer, which of the following could be found liable?
I Principal
II Broker
A I only
B II only
C Both I and II
D Neither I nor II

Answer 19

C Both I and II

Question 20

Which of the following statements about dual agency is/are correct?
I Dual agency can occur within one firm if a broker shows his buyer-client his or her own listing.
II Dual agency can occur within one firm if a broker has become a buyer’s agent and is showing a property listed by the broker-in-charge.
A I only
B II only
C Both I and II
D Neither I nor II

Answer 20

C Both I and II

Question 21

Under North Carolina License Law and Commission Rules, which of the following is/are TRUE concerning designated agency?
I The broker-in-charge cannot be a designated agent.
II An agent cannot be appointed as a designated agent if she has prior confidential knowledge about the other party to the transaction.
A I only
B II only
C Both I and II
D Neither I nor II

Answer 21

B II only

Question 22

It is discovered after a sale that the land parcel is 10% smaller than the owner represented it to be. The broker who passed the erroneous information on to the buyer is
A not liable as long as she only repeated the seller’s data.
B not liable if the misrepresentation was unintentional.
C not liable if the buyer actually inspected what she was getting.
D liable if the broker knew or should have known of the discrepancy.

Answer 22

D liable if the broker knew or should have known of the discrepancy.

Question 23

A broker is representing the property seller. An agent at the same firm is representing a buyer. The two agents confer during a sales meeting and discover the compatible needs of the clients. All of the following are true EXCEPT
A the listing agent is being diligent in trying to find a buyer for the seller.
B the second agent has performed his fiduciary duties to the buyer.
C the broker-in-charge must designate two other brokers who did not attend the meeting to represent the clients.
D if the parties have consented to dual agency, the broker-in-charge can allow the two agents to continue their representation in brokering this transaction.

Answer 23

C the broker-in-charge must designate two other brokers who did not attend the meeting to represent the clients.

Question 24

Which of the following situations would be considered a material fact that would require disclosure by a North Carolina listing agent?
A Owner’s son committed suicide in the basement of the property.
B An upstairs bedroom is believed to be haunted.
C A group home for unwed mothers is located down the street.
D The house was totally re-plumbed after a polybutylene pipe broke in the master bathroom.

Answer 24

D The house was totally re-plumbed after a polybutylene pipe broke in the master bathroom.

Question 25

In auction sales,
A brokers must provide the Working With Real Estate Agents brochure to buyers when brokers represent sellers.
B licensees representing buyers do not have to review the Working with Real Estate Agents brochure with their buyers.
C a written listing agreement between the seller and a broker is required from the outset of the relationship.
D licensees representing buyers in auction sales must disclose their buyer agency status in writing to the seller at the time they bid.

Answer 25

C a written listing agreement between the seller and a broker is required from the outset of the relationship.

Question 26

A North Carolina listing agent has the seller’s permission to practice dual agency. A different agent with the listing firm holds an open house over the weekend. A prospective buyer attends the open house but never shows an interest in the open house property. The buyer begins to discuss his specific needs for property with the agent hosting the open house. The agent must
A disclose that the firm is a dual agent since the buyer is sharing his needs.
B refuse to represent the buyer since the agent already works for the seller.
C stop the buyer’s information sharing until they have reviewed the Working with Real Estate Agents brochure and decided their agency relationship.
D require the buyer to initial the acknowledgement panel on the Working with Real Estate Agents brochure.

Answer 26

C stop the buyer’s information sharing until they have reviewed the Working with Real Estate Agents brochure and decided their agency relationship.

Question 27

A North Carolina broker wishes to consummate a transaction where he represents neither the buyer nor the seller. This relationship
A is termed single agency.
B is prohibited in North Carolina.
C is similar to designated dual agency.
D can be lawful if the buyer and seller provide consent in writing.

Answer 27

B is prohibited in North Carolina.

Question 28

A broker-in-charge wishes to pay a provisional broker under her supervision for closing a transaction. This is permissible if
A the provisional broker is properly licensed.
B the provisional broker is an independent contractor.
C the provisional broker has completed continuing education requirements.
D the broker-in-charge has completed IRS Form 1099.

Answer 28

A the provisional broker is properly licensed.

Question 29

Termination of agency may be accomplished by
A completion or performance of the purpose of the agency.
B destruction or condemnation of the property.
C mutual agreement of the parties.
D all of these.

Answer 29

D all of these.