Principles of Agency

Question 1

Principal

Answer 1

One who employs another to act on her behalf

Question 2

Who does an agent owe a fiduciary duty?

Answer 2

The principal who employs her; MAY OR MAY NOT be who pays her

Question 3

Agent

Answer 3

Person who is employed to represent a principal

Question 4

Subagent

Answer 4

Common-law definition is the person who is employed to represent an agent representing a principal

Question 5

Third-Party/Customer

Answer 5

A party to the transaction who is not a party to the particular agency agreement

Question 6

Agent’s Duties to Third-Party/Customer

Answer 6

Duties of honesty and fair dealing

Question 7

Fiduciary responsibilities

Answer 7

Obedience, Loyalty, Disclosure, Confidentiality, Account, and Reasonable Care & Skill (OLD CAR)

Question 8

What information requires confidentiality?

Answer 8

Price, terms, motivation (PTM)

Question 9

What does accounting include?

Answer 9

All money and personal property given to the broker

Question 10

Special Agency

Answer 10

Created when a brokerage firm/agent is authorized to perform a particular act WITHOUT the ability to bind the principal (e.g., seller contracts with a brokerage firm using a listing contract, buyer contracts with a brokerage firm using a buyer brokerage contract)

Question 11

General Agency

Answer 11

Created when a brokerage firm/agent is authorized to perform a series of acts associated with the continued operation of a particular business; LIMITED POWER TO BIND (e.g., salesperson is licensed to a broker, property manger is employed by a property owner)

Question 12

Universal Agency

Answer 12

Created when a brokerage firm/agent us authorized to perform in place of the principal; TOTAL power to bind principal

Question 13

What document is used to create universal agency?

Answer 13

A power of attorney, which appoints the attorney-in-fact

Question 14

List types of Agency from least comprehensive to most comprehensive

Answer 14

Special agency, general agency, universal agency

Question 15

Express Agency

Answer 15

created through an oral or written listing or buyer representation agreement

Question 16

Implied Agency

Answer 16

created through the actions of the parties and SHOULD NOT be used for listing as it is not in writing

Question 17

Liability for an Agent

Answer 17

Each employing broker is responsible for all professional acts and conduct performed by the broker or by a salesperson/associate broker working under him or her

Question 18

Material Misrepresentation

Answer 18

Brokers or salespersons MAY NOT misrepresent property or conceal material facts

Question 19

Disclosure of Representation

Answer 19

A broker must disclose representation, either orally or in writing, prior to showing or receiving any confidential information; if representation changes, a new disclosure form is required at once; must disclose if representing a relative or if licensee is the principal

Question 20

Dual Agency

Answer 20

When a brokerage represents both the seller and the buyer; requires the written consent of both parties

Question 21

Property Management

Answer 21

An agreement is signed by the employing broker who will then be a GENERAL agent of the landlord

Question 22

Property Managers Obligations

Answer 22

Generate income & maintain physical condition of the property; markets space to attract tenants (most important is careful selection of the most qualified candidates); collects rents and security deposits; develops annual budget and prepares financial reports; negotiates leases, including investigating applicants’ applications; DOES NOT spend the profits

Question 23

Who owns the listing agreement?

Answer 23

The brokerage firm (NOT the individual salesperson)

Question 24

Exclusive Right-to-Sell Listing

Answer 24

brokerage firm is paid even if the seller or someone else finds the buyer; gives maximum broker protection by eliminating procuring cause disagreements (MOST COMMON)

Question 25

Exclusive-Agency Listing

Answer 25

Owner retains right to sell himself without paying a commission; if anyone other than the owner obtains the buyer, the brokerage firm gets paid; agent may be less motivated to put the property in the MLS due to competition from the seller

Question 26

Open/Non-Exclusive Listing

Answer 26

Owner may list with more than one brokerage or may just offer to pay anyone who brings an offer; listing brokerage is paid only if the brokerage obtains buyer AND is the procuring cause of the sale; may be terminated at any time prior to performance

Question 27

Essential Elements of a Listing

Answer 27

Express agreement (in writing and signed); commissions are negotiable in all cases; price & terms; specific termination date

Question 28

How does a listing terminate?

Answer 28

1. Performance by both parties (closing the sale) 2. Expiration on the termination date listed in the contract 3. Mutual recession 4. Death or incapacity of either employing broker or seller (death of a salesperson DOES NOT terminate the listing) 5. Destruction of premises 6. Bankruptcy of either broker or seller 7. Breach or failure to uphold the agreement by either the broker or seller

Question 29

What happens if a listing contract expires while the property is under contract?

Answer 29

The listing broker agrees to close the transaction in order to receive a commission

Question 30

Protection Clause/Extension Clause/Holdover Clause/Safety Clause

Answer 30

This clause provides for a broker to collect a commission for a certain length of time after the termination of the listing, if a buyer the broker procured during the listing purchases the property (NOT to be confused with loan clauses such as alienation, acceleration, or co-insurance); this clause will likely be terminated if the seller signs a new listing

Question 31

Obligations of the Listing Broker

Answer 31

1. Present all written offers 2. Complete a written offer, if the buyer requests it 3. Only pay referral fees for other brokerage firms, never to the other firm's broker associates or sales people (NO fees may be paid to unlicensed person) 4. Put all agreements in writing, have them signed, and give all parties copies 5. Verify that all marketing is correct and truthful (includes disclosure of material facts and property information such as property taxes, HOA dues, etc.); buyer must receive the seller's property disclosure prior to making an offer 6. If a seller misrepresents a LATENT defect in the sellers property disclosure (but, as long as the broker had performed a visual inspection and found no obvious defects, the broker would not be held liable for the misrepresentation

Question 32

Obligations of all Brokers

Answer 32

1. Verify information and statements made buy the buyer and seller, especially if they appear to be untrue 2. Complete a competitive marketing analysis (CMA), even if the broker or salesperson believes they know the current value 3. Material facts must be disclosed immediately to all parties (e.g., a hail damaged roof) 4. Complete a visual inspection of the property looking for material defects and request a seller's property disclosure (AND, recommend that the buyer have an inspection to check for latent defects and environmental issues; point out other "red flags" like sagging floors, water stains, etc.) 5. Answer third-party questions with honesty and clarity

Question 33

Buyer Representation Agreement

Answer 33

1. Exclusive right to represent authorizes one broker to represent the buyer and requires the buyer to compensate the agent when purchasing property through any source; 2. Termination is the same as listing agreements; buyer representation agreements must have a definite termination date 3. An agent who showed property based on potential commission, not because of the buyer's needs would be violating the duty of loyalty; 4. A buyer who hired an agent using an Exclusive Agency contract would not pay a commission if the buyer found and bought a property on her own accord

Question 34

Sherman Antitrust Act

Answer 34

Prohibits competitive behavior such as price-fixing

Question 35

How are commissions determined?

Answer 35

Commissions are ALWAYS negotiable

Question 36

Can brokers discuss commissions with one another?

Answer 36

NO ABSOLUTELY NOT