Laws of Agency, Brokerage Relationships and Ethics's

Question 1

A sales agent has a duty to treat all parties to a transaction honestly and fairly:

A) Only when representing a buyer in a transaction
B) Only when representing a seller in a transaction
C) Only when representing a principal in a transaction
D) On all transactions

Answer 1

D) On all transactions

All licensees have an ethical obligation to be fair and honest in all dealings with all parties (client and non-client).

Question 2

Which of the following is the best example of a general agent?

A) A universal power of attorney
B) A property manager
C) A real estate agent
D) A power of attorney given specifically to transfer an automobile

Answer 2

B) A property manager

A universal agent is one who may do anything for the principal, while a general agent may do anything in one specific area, like a property manager. A real estate agent is considered a special agent, having the authority to do only one thing, just like the person given the power of attorney to transfer an automobile; The agent has the authority to do only one thing for the principal.

Question 3

A seller who lives in a small town has posters made up advertising his house for sale.
He posts the posters on many telephone poles around the neighborhood. As part of the poster, he advertises that he will pay 3% to any broker who brings him a buyer.
This type of listing is:

A) An exclusive right to sell
B) Net listing
C) Open listing
D) Switch of agency agreement

Answer 3

C) Open listing

When a seller offers a commission to any broker who finds a buyer, this is known as an open listing, as the seller does not sign exclusively with any one agency.

Question 4

A buyer makes an offer to buy a house, and faxes the offer to the seller in another state. The seller, upon receipt, signs the offer, intending to mail it back to the buyer the next morning. In the meantime, the buyer telephones the seller and withdraws the offer. Which of the following is true?

A) There is no contract, as the acceptance has not been delivered to the buyer
B) Both parties are now bound to the terms of the contract
C) There is a contact, as the seller has accepted the buver’s offer
D) There was never a rightful offer, as the offer was faxed and the seller must have received the original offer

Answer 4

A) There is no contract, as the acceptance has not been delivered to the buyer

There is no contract because there was no delivery of the seller’s acceptance. A contract occurs when there has been an offer, an acceptance of an offer, and delivery or communication of the acceptance back to the party who made the original offer. Even though the seller had accepted the offer, it had not been communicated or delivered back to the buyer, and thus, there is no contract.

Question 5

The term Caveat Emptor literally translated means:

A) Long live the king
B) There is a hole in the exterior
C) Let the Buyer Beware
D) Caesar is emperor

Answer 5

C) Let the Buyer Beware

Caveat Emptor refers to the fact the buyer must examine the goods or property and buy at his or her own risk.

Question 6

Which of the following would be a violation of Florida law?

A) Making the earnest money deposit check payable to the buyer’s broker
B) Making the earnest money check payable to a sales associate
C) Making an earnest money check payable to the seller’s broker
D) Making an earnest money check payable to a non-signatory on the escrow account

Answer 6

D) Making an earnest money check payable to a non-signatory on the escrow account

Florida law requires that the broker be a signatory on the escrow account. Funds cannot be mixed with the broker’s own money or other brokerage funds.

Question 7

Which of the following is not an element in an action for fraud?

A) the statement of fact must have been a material misstatement of fact
B) there must have been an intentional misstatement of fact
C) the defrauded and defrauding parties must have relied on a confidential relationship.
D) the defrauded party must have been entitled to rely upon the misstatement

Answer 7

C) the defrauded and defrauding parties must have relied on a confidential relationship.

There is no requirement that the two parties have relied on a confidential relationship. There is no confidential relationship between a buyer and a seller, but a buyer may maintain an action against the seller for “lying.”

Question 8

Agent A is showing the seller’s property to a prospective buyer, whom Agent A also represents as a buyer’s agent. While touring the home, the seller tells the prospect that the basement is dry and has never flooded. Agent A remembers that during a recent rainstorm, the seller told the agent not to show the property because the basement had flooded. Under this circumstance, what would be the most appropriate action of this dual agent?

A) The agent should say nothing. Being quiet absolves the agent of liability.
B) The agent should speak up and correct the misinformation because the agent owes the
notice of material fact to both the buyer and seller.
C) Do nothing unless the buyer decides to make an offer
D) The agent should not dispute the seller’s word because he has an obligation of loyalty to the seller’s best interests.

Answer 8

B) The agent should speak up and correct the misinformation because the agent owes the
notice of material fact to both the buyer and seller.

Agent A should speak up. The agent owes duties and confidentiality to both clients, but material defects are not confidential and must be disclosed.

Question 9

A seller lists her home for $120,000. The seller tells the sales associate that she needs at least $115,000 for the home. Following an open house, the sales associate receives two offers on the home. The first offer for $120,000 is contingent on the seller taking back a $15,000 second mortgage. The second offer is for $115,000, with the buyer securing his own financing. The sales associate should:

A) Seek his/her broker’s advice regarding which offer to present
B) Present the second offer to the seller
C) Present both offers, explaining the details of each to the seller
D) Present the full-price offer to the seller

Answer 9

C) Present both offers, explaining the details of each to the seller

The licensee must present all offers and counteroffers in a timely manner to the seller, unless a party has previously directed the licensee otherwise in writing.

Question 10

A listing agreement is a contract between:

A) The seller and the broker
B) The buyer and the broker
C) The seller and the buyer
D) The broker and the agent

Answer 10

A) The seller and the broker

A listing agreement belongs to the broker and not the agent. The sales contract is between the buyer and the seller, while the listing agreement is between the broker and the seller.

Question 11

Designated sales associates are best described as:

A) Single agents for the buyer and the seller in nonresidential transactions where the buyer and the seller meet certain asset thresholds
B) Undisclosed dual agents
C) The sales associates designated to represent the buyer and the seller in a transaction broker relationship
D) The sales associates in charge of the required brokerage disclosure forms for the brokerage office

Answer 11

A) Single agents for the buyer and the seller in nonresidential transactions where the buyer and the seller meet certain asset thresholds

In a real estate transaction other than a residential sale and where the buyer and seller each have assets of $1 million or more, the broker, at the request of the buyer and seller, may designate two sales associates to act as single agents for the buyer and seller in the same transaction. The two sales associates in this arrangement are referred to as designated sales associates.

Question 12

A sales agent states in his advertisements that he will sell chances in a lottery allowing the prospective purchaser to receive the property if he/she wins. This practice is:

A) This is legal as long as this inducement is disclosed between the buyer and seller
B) This is legal as a sales agent may offer anything as an inducement
C) This is a deceptive practice
D) This is legal as long as the advertisement has all the required information

Answer 12

C) This is a deceptive practice

The law prohibits deceptive practices. It is fraudulent and dishonest dealing by trick, scheme, or device for a licensee or registrant to offer lotteries or schemes of sale involving the sale of chances whereby it is represented that the purchaser is to receive property in an order to be determined by chance, whereby the price will depend on chance or the amount of sales made, or whereby the buyer may or may not receive any property.

Question 13

A real estate licensee owes the fiduciary duty of confidentiality to the seller until:

A) One year after the contract expires
B) Until paid the commission
C) The contract expires
D) Forever

Answer 13

D) Forever

The fiduciary duties of confidentiality are owed to the principal forever

Question 14

An owner lists their home with Mohammed, an agent with MNK Realty, a member of the local MLS system. Mohammed knows of several potential buyers for the home, so decides to hold the listing out of MLS until after the first open house, which is two weeks away. At the open house, one of his buyers makes an offer near full price, it is accepted and the transaction closes with no problems. Did Mohammed do the right thing?

A) No, an open house cannot be held until the listing is submitted to MLS.
B) No, he did what was in his best interest, not the client’s.
C) Yes, he got the seller an acceptable offer and the transaction went smoothly.
D) Yes, he did what was in the client’s best interest.

Answer 14

B) No, he did what was in his best interest, not the client’s.

Most MLS’s require that all listings must be submitted within a day or two. Regardless, Mohammed was looking out for his own best interests in an attempt to secure both sides of the commission. The home may have brought even more is exposed to all buyers through MLS.

Question 15

An agency relationship can be terminated by:

A) The principal revoking the agency relationship
B) The agent revoking the agency relationship
C) Only by mutual agreement of the parties
D) The principal renouncing the agency relationship

Answer 15

A) The principal revoking the agency relationship

A principal revokes an agency relationship, while an agent is the party that would renounce the agency relationship. While an agency relationship can be terminated by agreement of the parties, this is not the only way to terminate an agency agreement.

Question 16

A real estate broker who provides limited representation to a buyer, a seller or both in a real estate transaction Is:

A) A transaction broker
B) Bound to fiduciary duties to both the buyer and the seller
C) A single agent of both the buyer and the seller
D) A dual agent

Answer 16

A) A transaction broker

A transaction broker provides limited representation to a buyer, seller, or both in a real estate transaction, but does not represent either in a fiduciary capacity or as a single agent.

Question 17

The individual who is empowered by the principal to handle a particular transaction for the principal is a:

A) Special agent
B) Third party
C) General agent
D) Universal agent

Answer 17

A) Special agent

A special agent is authorized by the principal to handle only a specific business transaction or to perform only a specific act. A real estate licensee may act as a special agent with a buyer or seller. This occurs when the buyer or seller and the brokerage firm enter into a single agent relationship.

Question 18

A licensee has secured his/her first listing contract. The licensee most likely would be considered:

A) A general agent
B) A special agent
C) A universal agent
D) A lucky agent

Answer 18

B) A special agent

A special agent is committed to doing one thing for his client (marketing the home). A universal agent must do everything for someone (guardian). A general agent does more than one thing, but not everything for his client (property manager).

Question 19

An agent receives an earnest money deposit check of $1,500.00. It would be considered commingling of funds if the agent:

A) Turned the check over to the seller
B) Placed the check in his commercial checking account
C) Endorsed the check with “for deposit only” to the broker’s escrow account
D) Deposited the check in his broker’s escrow account

Answer 19

B) Placed the check in his commercial checking account

Commingling of funds means a mixing of earnest money accounts with other funds. Holding the check until closing may be a violation of law as well, but is not commingling. It may be considered conversion (theft).

Question 20

When is a broker/agent entitled to commission?

A) When a sales contract is signed
B) When the listing agreement is signed
C) When a ready, willing and able buyer is found on terms acceptable to the seller.
D) At the closing table

Answer 20

C) When a ready, willing and able buyer is found on terms acceptable to the seller.

A broker/agent is entitled to commission only after fulfilling the duty of finding a ready, willing and able buyer on the seller’s terms. A willing buyer is one who has signed a sales contract and is willing to buy the property. An able buyer is one who either has the funds to buy the property or has been approved for financing. A ready buyer is one who could close on the property immediately or on a set closing date. The broker/agent receives the commission at the closing, but is entitled to the commission when a ready, willing and able buyer is found.

Question 21

The disclosure of the relationship in which one party (i.e. agent) acts for or represents another (i.e. principal) under the authority of the latter is known as:

A) Abatement
B) Actual Notice
C) Customer representation
D) Agency Disclosure

Answer 21

D) Agency Disclosure

There is no such thing as customer representation, there is only client representation.

Question 22

When counseling seller-clients, an agent should do all of the following, except:

A) Study all factors that will influence the value of the property.
B) Explain agency concepts that will affect them.
C) Query the sellers as to their motivations and urgency before recommending an asking price.
D) Prepare a market analysis that shows a high price for the property, because one never
can tell what a buyer might pay.

Answer 22

D) Prepare a market analysis that shows a high price for the property, because one never can tell what a buyer might pay.

Agents must be careful to study all factors influencing value. For some sellers time on market is more critical than price. A market analysis should always reflect the most realistic situation.

Question 23

An agent is:

A) One who represents the agent of another
B) One who is owed a fiduciary duty
C) One who is represented by another
D) One who acts, or has the power to act for another

Answer 23

D) One who acts, or has the power to act for another

An agent works for a principal. The person for whom the agent works is owed a fiduciary duty. A customer is not owed any fiduciary duty. A person who acts on behalf of another agent is known as a subagent.

Question 24

A person finds out that another individual is attempting to sell the first person’s automobile. However, the first person takes no steps to stop the individual from offering the automobile for sale to the general public. What type of agency relationship has been created, if any?

A) Dual agency
B) Agency by expressed agreement
C) Apparent agent
D) Agency by ratification

Answer 24

C) Apparent agent

Allowing someone to appear to be your agent without any expressed authority is called apparent agency. Even though the agent would have no actual authority from the principal, he or she could indeed bind the principal through representations as that person’s agent. A real estate contract should be created by expressed written agreement.

Question 25

A real estate agent knows of a defect in a listed property but fails to tell the buyer. The agent is guilty of:

A) Misrepresentation
B) Nothing, as he is looking out for his seller, as he should be.
C) Negligence
D) Fraud

Answer 25

D) Fraud

Misrepresentation is negligence, so answers “A” and C” are the same. Fraud is an intentional lie or intentional misrepresentation.

Question 26

The person authorized to act in place of someone else in legal matters is called:

A) Attorney in fact
B) Power of attorney
C) Pro Se
D) Attorney at law

Answer 26

A) Attorney in fact

The person designated under a power of attorney to act on behalf of another is called an attorney in fact. An attorney at law is licensed by a state to practice law in courts and for the benefit of other people, but may not be granted all the power of an attorney in fact. The words pro se mean “for one’s self”’, i.e. representing yourself in a court of law.

Question 27

The commercial broker listed a store front for rent. A tenant was procured. After the lease was signed, the owner refused to pay the listing broker. In order to get his fee, the broker could:

A) File a complaint with the Division of Real Estate
B) Sue for specific performance
C) Sue in criminal court because the fee was $30,000.
D) Lien the property

Answer 27

D) Lien the property

The Commercial Lien Law now permits a broker to lien a piece of commercial property if he is under contract and has earned his fee and the owner refuses to pay. This is not true of residential property. The broker would have to file suit in Civil Court to get his fees in a residential dispute.

Question 28

In real estate transactions, a real estate sales person has a direct fiduciary relationship to:

A) The sponsoring broker
B) The buyer
C) ther sales persons participating in the transaction
D) The seller

Answer 28

A) The sponsoring broker

While the sales person has a fiduciary duty to the broker’s client, direct fiduciary duty is owed to the sponsoring broker.

Question 29

The difference between fraud and misrepresentation is as follows:

A) Fraud is unintentional, while a misrepresentation is an intentional act
B) A buyer can only recover compensatory damages for fraud
C) There is no difference between fraud and misrepresentation
D) Fraud is intentional misrepresentation, while misrepresentation may be unintentional

Answer 29

D) Fraud is intentional misrepresentation, while misrepresentation may be unintentional

Fraud is defined as intentional misrepresentation of a material fact, while misrepresentation may be an inadvertent misstatement of fact. If fraud is proven it can give rise to both compensatory damages and punitive damages

Question 30

What type of listing is most desirable from the point of view of the broker?

A) Net listing
B) Exclusive right to sell
C) Open listing
D) Exclusive agency listing

Answer 30

B) Exclusive right to sell

The exclusive right to sell is most desirable because the seller relinquishes to the broker all rights to market and show the property. An exclusive agency listing will gain the broker a commission only if an agency, not the seller, finds the buyer. Under a net listing arrangement, the broker receives all monies over and above a certain net price fixed by the seller, but. many states have declared net listings illegal. In an open listing, the seller has not signed to any agency agreement with any broker, but makes an open offer to all brokers; A broker who finds a buyer will receive a commission

Question 31

A seller signs an exclusive right to sell listing agreement with a broker. However, the next day, the seller’s brother-in-law makes an offer on the property, not realizing it has been placed in a listing. Which of the following statements is true?

A) The seller will not have to pay a commission.
B) The broker is entitled to a commission.
C) The broker is not entitled to a commission.
D) Since the seller found the buyer, the listing is void.

Answer 31

B) The broker is entitled to a commission.

In an exclusive right to sell listing, the broker is entitled to the commission, regardless of who finds the buyer. If this were an exclusive agency agreement, the seller would not owe a commission since he found the buyer.

Question 32

S & T Realty had a listing on a property. After the property sold and closed, P&M Realty asserted its rightful claim to the commission. What type of listing did P&M Reality have?

A) Exclusive Right to Sell
B) Net
C) Exclusive Listing
D) Open

Answer 32

D) Open

Only the procuring broker is entitled to the commission in an Open listing. If the seller finds the buyer in an exclusive agency listing, he owes no commission. In an exclusive right to sell listing, the listing broker gets paid the commission, no matter who sells the property. The broker receives what ever is left over after the seller gets his predetermined net amount.

Question 33

A listing agent is showing a buyer a home. The buyer sees a large crack in the wall and it is seeping water. However, the buyer buys the property and later sues the agent for non-disclosure of a property defect.

A) The agent is not liable under the doctrine of Caveat Emptor
B) The agent should have instructed the sellers to hide the defect behind paneling or boxes
C) The agent is liable for damages because they did not tell the buyer of the crack
D) The agent should have fixed the crack prior to showing the property

Answer 33

A) The agent is not liable under the doctrine of Caveat Emptor

The agent is under no duty to disclose a patent defect. A latent or hidden defect must be disclosed. The term Caveat Emptor refers to “Let the Buyer Beware,” and the buyers should be aware of things that they can readily see. Obviously the sales agent would not want to hide this condition, as that would make a patent defect into a latent defect.

Question 34

A sales agent is about to take a listing. The sellers indicate that they do not wish to have the property shown to anyone of a certain racial background. The real estate agent complies with the sellers’ request.

A) The broker is liable for the sales agent’s misconduct even though the broker did not know
of the discriminatory acts
B) The broker has no liability for the sales agent’s act
C) The sales agent has no liability, as he was following the seller’s request.
D) The seller has no liability since the sales agent will actually be the only person showing the property

Answer 34

A) The broker is liable for the sales agent’s misconduct even though the broker did not know of the discriminatory acts

The broker has what is known as “ostensible” liability. The broker is always liable for any discrimination by its agents, whether the broker knows about the discriminatory acts or not. In reality, the sales agent, the broker, and the seller all could be charged with discrimination and all are liable for the salesperson’s actions.

Question 35

During a 90 day listing agreement, the seller dies:

A) The agent can continue to show the property to any interested buyer
B) The listing agreement is terminated
C) The listing agreement can be enforced against the seller’s executor or heirs
D) The agent’s death is the only thing that would terminate the listing

Answer 35

B) The listing agreement is terminated

By law, if either the seller or the broker dies, the listings are terminated. The listing is between the broker and the seller, not the agent, so the agent’s death would have no effect upon the listing. The listing could not be enforced against the seller’s executor or heirs, thus the sales agent cannot continue to show the property.

Question 36

A real estate sales associate must disclose to a prospective buyer that:
A) The seller has been diagnosed with HIV
B) Families of other racial groups live in the immediate area
C) The family room addition does not comply with local building codes
D) A former occupant of the property committed suicide in the home

Answer 36

C) The family room addition does not comply with local building codes

Licensees have a duty to disclose to buyers all known facts that materially affect the value of residential real property and are not readily observable to the buyer.