Unit 9 Exam

Question 1

Match the Following:

Principal
Customer
Agency
Agent

A)
Individual who is authorized and consents to represent the interests of another person

B)
Individual who hires someone and delegates to that person the responsibility of representing his or her interests

C)
Fiduciary relationship between the principal and the agent

D)
Third party or nonrepresented consumer

Answer 1

Principle = B
Customer = D
Agency = A
Agent = C

Question 2

The fundamentals of general agency law have changed dramatically over the past two hundred years.

Answer 2

False.

100 years

Question 3

In traditional common law, the relationship in which the agent is held in a position of special trust and confidence by the principal is one of a fiduciary.

Answer 3

True

Question 4

Determine which of the two agency agreements is correct for each example. Implied or Expressed Agency?

1)
Buyer signs representation agreement

2)
Broker shows homes and makes offer for buyer

3)
Seller signs listing agreement

4)
Buyer asks to see other homes at open house

Answer 4

Express Agency
Implied Agency
Express Agency
Implied Agency

Question 5

Match the following with COLD-AC

A)
Revealing to a prospective buyer that the agent is related to the property seller

B)
Following a buyer’s instructions as to the type of property that is sought

C)
Using a reasonable degree of skill and expertise in acting on a principal’s behalf

D)
Refusing to withhold an offer from a seller unit a second offer is received

E)
Following state law regarding the receipt of funds from clients and customers

F)
Keeping the principal’s personal information private

Answer 5

Obedience = B
Accounting = E
Care = C
Loyalty = D
Confidentiality = F
Disclosure = A

Question 6

An express agreement occurs when the actions of the parties indicate that they have mutually consented to an agency.

Answer 6

False.

Question 7

An express agreement, in which the parties formally express their intention to establish an agency and state its terms and conditions, may be either oral or written.

Answer 7

True.

Question 8

Match the following:

A)
Represents the principal in a broad range of matters related to a particular business or activity

B)
A sales associate designated by the broker to act as the agent of a specific principal

C)
Represents the principal in one specific act or business transaction only. A real estate professional usually fits this category.

D)
A person empowered to do anything the principal could do personally

Universal Agent
Special Agent
General Agent
Designated Agent

Answer 8

Universal = D
Special = C
General = A
Designated = B

Question 9

A universal agent is a person empowered to do anything the principal could do personally.

Answer 9

True

Question 10

The universal agent’s authority to act on behalf of the principal is significantly limited.

Answer 10

False

Question 11

Puffing or Fraud?

A)
Real estate professional states that a property has ‘the best yard, finishes, and room layout of all houses on this block.’

B)
Real estate professional emphasizes the open layout of the house.

C)
Real estate professional makes an exaggeration of a property’s benefits.

D)
Real estate professional states that a home is structurally sound even though he is aware that the foundation walls are significantly damaged.

E)
Real estate professional makes a false statement about a property.

F)
Real estate professional states that the furnace is only two years old when in fact it is ten years old.

Answer 11

A - C = Puffing

D - F = Fraud

Question 12

Exaggeration of a property’s benefits is called puffing and is illegal.

Answer 12

False.

Puffing is legal, though not recommended

Question 13

The real estate professional’s duty to a third party (customer) includes disclosure of all facts that the real estate professional knows or should reasonably be expected to know that materially affect the value or desirability of the property.

Answer 13

True.

Question 14

Which of the following is considered dual agency?

A)
Two brokerage companies cooperating with each other
B)
A broker representing more than one principal
C)
A broker listing a property and then, after it is relisted with another broker, selling the same property
D)
A broker acting for both parties in the same transaction

Answer 14

Explanation
The answer is a broker acting for both parties in the same transaction. In dual agency, the agent represents two principals in the same transaction. Because the agency originates with the broker, dual agency arises when the broker is the agent of both parties to a transaction, such as the buyer and the seller.

Question 15

A broker is permitted to represent both the seller and the buyer in the same transaction when

A)
the broker is a subagent rather than the agent of the seller.
B)
commissions are collected from both parties.
C)
the principals are not aware of such action.
D)
both parties have been informed and agree in writing to the dual representation.

Answer 15

Explanation
The answer is both parties have been informed and agree in writing to the dual representation.

Real estate licensing laws that permit dual agency typically require that the buyer and the seller must be informed of the nature of the proposed relationship and give written consent to the broker’s representation of both parties in the same transaction.

Question 16

The relationship of broker to client in an agency relationship is that of

A)
a subagent.
B)
an attorney-in-fact.
C)
a fiduciary.
D)
a trustee.

Answer 16

Explanation
The answer is a fiduciary. The client in an agency relationship is the principal to whom the agent gives advice and counsel. The agency agreement usually authorizes the broker to act for the principal. The agent’s fiduciary relationship of trust and confidence with the principal means that the broker owes the principal certain specific duties.

Question 17

A real estate broker is employed by a buyer, as an agent. When the broker finds a property the buyer might be interested in buying, the broker is careful to find out as much as possible about the property’s owners and why the property is on the market. The broker’s efforts to keep the buyer informed of all facts that could affect a transaction is the duty of

A)
accounting.
B)
loyalty.
C)
disclosure.
D)
confidentiality.

Answer 17

Explanation
The answer is disclosure. The broker’s diligent inquiries are followed by the fiduciary duty of disclosure to the buyer, the broker’s client.

Question 18

A sales associate of a broker told a prospective buyer that the house being shown is “the best house in the area.” Because of this statement,

A)
the sales associate was practicing puffing.
B)
the broker was guilty of fraud because he is responsible for actions of the sales associate.
C)
the sales associate was guilty of fraud.
D)
the sales associate is guilty of fraud only if the buyer purchases the house.

Answer 18

Explanation

The answer is the sales associate was practicing puffing. Exaggeration of a property’s benefits is called puffing.

Question 19

A real estate agent’s duty of confidentiality usually extends for the period of time

A)
before the property that is the subject of the transaction is resold or released.
B)
specified in state law.
C)
that ends with the closing of the transaction.
D)
agreed to in the agency agreement.

Answer 19

Explanation
The answer is specified in state law. In addition, a real estate licensee who is a member of the National Association of Realtors® must observe the duty of confidentiality forever.

Question 20

In the common law of agency, an agent owes the principal all of the following EXCEPT

A)
loyalty.
B)
obedience.
C)
disclosure.
D)
consideration.

Answer 20

Explanation
The answer is consideration. The agent owes the duties of COLD-AC: care, obedience, loyalty, disclosure, accounting, and confidentiality.

Question 21

Which of the following is TRUE about puffing?

A)
It occurs when a real estate professional exaggerates the features of a property.
B)
It is never allowed.
C)
It is illegal.
D)
It occurs when a real estate professional underplays the features of a property.

Answer 21

Explanation
The answer is it occurs when a real estate professional exaggerates the features of a property. Exaggeration of a property’s benefits is called puffing. While puffing is legal, real estate professionals must ensure that none of their statements can be interpreted as fraudulent.

Question 22

In MOST situations, the relationship between real estate broker and seller is what type of agency?

A)
Universal
B)
General
C)
Special
D)
Implied

Answer 22

Explanation
The answer is special. A broker serves a client—either a buyer or a seller—usually by performing the specific brokerage act spelled out in the employment contract (representation agreement). A specific assignment creates a special agency.

Question 23

The federal legislation known as Megan’s Law has promoted the establishment of

A)
local registries of residential information on sex offenders.
B)
a criminal registry that is maintained by state real estate offices.
C)
a federal registry of residential information on sex offenders.
D)
state registries of residential information on sex offenders.

Answer 23

Explanation
The answer is state registries of residential information on sex offenders. Megan’s Law promotes the establishment of state registration systems to main residential information on every person who kidnaps children, commits sexual crimes against children, or commits sexually violent crimes.

Question 24

A buyer who is a client of the broker wants to purchase a house that the broker has listed. Which statement is TRUE?

A)
The broker should refer the buyer to another broker to negotiate the sale.
B)
The buyer should not have been shown a house listed by the broker.
C)
The broker may proceed to write an offer on the property and submit it.
D)
The seller and the buyer must be informed of the situation and agree in writing to the broker’s representing both of them.

Answer 24

Explanation
The answer is the seller and the buyer must be informed of the situation and agree in writing to the broker’s representing both of them. Both buyer and seller must give informed, generally written, consent for dual representation.

Question 25

The functions of a facilitator or intermediary are those of

A)
a fiduciary.
B)
a principal.
C)
a nonagent.
D)
an agent.

Answer 25

Explanation
The answer is a nonagent. Someone who works with a buyer and a seller (or landlord and tenant), assisting one or both with the transaction without representing either party’s interests acts as a nonagent and may be called a facilitator, intermediary, transactional broker, transaction coordinator, or contract broker.

Question 26

An agency relationship between a seller and a broker is usually created by a written employment contract called a

A)
disclosure agreement.
B)
listing agreement.
C)
implied agreement.
D)
buyer representation agreement.

Answer 26

Explanation

The answer is listing agreement. A listing agreement is also sometimes called a seller representation agreement.

Question 27

Which of the following is TRUE about the difference between a special agent and a general agent?

A)
A general agent represents the principal for one certain transaction only.
B)
A special agent represents the principal for one certain transaction only.
C)
Both types are limited agents.
D)
Only a special agent has duties to the principal.

Answer 27

Explanation
The answer is a special agent represents the principal for one certain transaction only. A special agent represents the principal only for specified transactions, such as the sale of a house.

Question 28

Which of the following is TRUE regarding dual agency?

A)
It is legal in all states.
B)
Some states allow it, with certain conditions.
C)
It does not require an agency agreement.
D)
It is illegal in all states.

Answer 28

Explanation
The answer is some states allow it, with certain conditions. Because of the risks inherent in dual agency—ranging from conflicts of interest to outright abuse of trust—the practice is illegal in some states. In those states where dual agency is permitted, all parties must consent to the arrangement, usually (and always preferably) in writing.

Question 29

A real estate professional’s duties to a customer do NOT include

A)
care and skill in performance.
B)
honest and fair dealing.
C)
being primarily responsible to the customer.
D)
disclosure of all facts that the real estate professional knows or should reasonably be expected to know that materially affect the value or desirability of the property.

Answer 29

Explanation
The answer is being primarily responsible to the customer. Even though an agent’s primary responsibility is to the principal, the agent also has duties to third parties. Any time a real estate professional works with a third party, or customer, the real estate professional is responsible for adhering to state and federal consumer protection laws, as well as the ethical requirements imposed by professional associations and state regulators. In addition, the real estate professional’s duties to the customer include reasonable care and skill in performance, honest and fair dealing, and disclosure of all facts that the real estate professional knows or should reasonably be expected to know that materially affect the value or desirability of the property.

Question 30

A house was the scene of a drug arrest and a violent murder last year. When it was listed on the market, many people considered it to be

A)
a stigmatized property.
B)
a damaged property.
C)
a latent property.
D)
a property with a material defect.

Answer 30

Explanation
The answer is a stigmatized property. Presuming that the property is physically intact, the drug arrest and violent murder may create psychological reactions to the property, rendering it stigmatized.

Question 31

Some states allow two sales associates in the same brokerage to represent opposing sides to a transaction without creating a dual agency by using

A)
a designated agency.
B)
a disclosed dual agency.
C)
a facilitator relationship.
D)
an undisclosed dual agency.

Answer 31

Explanation
The answer is a designated agency. In a designated agency, also called assigned agency or appointed agency, two sales associates of the same broker represent seller and buyer separately as agents with fiduciary responsibilities to that client.

Question 32

The individual who is authorized and consents to represent the interests of another person in dealings with a third person is

A)
the client.
B)
the principal.
C)
the customer.
D)
the agent.

Answer 32

Explanation
The answer is the agent. In an agency relationship, the agent is authorized and consents to represent the interests of the principal in dealings with a third person. In a real estate agency, the principal is usually referred to as the client, and the third person is referred to as the customer.

Question 33

When the broker should have known that a statement about a material fact was false, it is considered

A)
accidental misrepresentation.
B)
negligent misrepresentation.
C)
civil misrepresentation.
D)
unintentional misrepresentation.

Answer 33

Explanation
The answer is negligent misrepresentation. Negligent misrepresentation occurs when the broker should have known that a statement about a material fact was false.

Question 34

The individual who is authorized and consents to represent the interests of another person is

A)
a principal.
B)
a customer.
C)
a client.
D)
an agent.

Answer 34

Explanation
The answer is an agent. The agent is the individual who is authorized and consents to represent the interests of another person.

Question 35

Properties that are considered undesirable because of events that occurred there or because a known sex offender lives in the area are considered

A)
unmarketable properties.
B)
unstable properties.
C)
stigmatized properties.
D)
stagnant properties.

Answer 35

Explanation
The answer is stigmatized properties. Stigmatized properties are those that are considered undesirable because of events that occurred there or because a known sex offender lives in the area.

Question 36

A broker helps a buyer and a seller with paperwork but does not represent either party. This relationship is

A)
prohibited in all states because a broker must always represent one party.
B)
dual agency.
C)
a transactional brokerage.
D)
a designated agency.

Answer 36

Explanation
The answer is a transactional brokerage. A nonagent (transactional broker, facilitator, coordinator, or contract broker) is not an agent of either party. A nonagent’s job is simply to help both the buyer and the seller with the necessary paperwork and formalities involved in transferring ownership of real property.

Question 37

In the common law of agency, the relationship of broker to client is that of

A)
an attorney-in-fact.
B)
a trustee.
C)
a subagent.
D)
a fiduciary.

Answer 37

Explanation
The answer is a fiduciary. The client in an agency relationship is the principal to whom the agent gives advice and counsel. The agency agreement usually authorizes the broker to act for the principal. The agent’s fiduciary relationship of trust and confidence with the principal means that the broker owes the principal certain specific duties.

Question 38

In a real estate transaction, the term fiduciary typically refers to

A)
the people who give someone else the legal power to act on their behalf.
B)
the agent’s relationship to the principal.
C)
the sale of real property.
D)
the person who has legal power to act on behalf of another.

Answer 38

Explanation
The answer is the agent’s relationship to the principal. The relationship of the agent to the principal involves care, obedience, loyalty, disclosure, accounting, and confidentiality (COLD AC)—a fiduciary relationship. A person with legal power to act for another is an attorney-in-fact most real estate agents do not have such power.

Question 39

A facilitator functions as

A)
a principal.
B)
a nonagent.
C)
an agent
D)
a fiduciary.

Answer 39

Explanation
The answer is a nonagent. Someone who works with a buyer and a seller (or landlord and tenant), assisting one or both with the transaction without representing either party’s interests acts as a nonagent and may be called a facilitator, intermediary, transactional broker, transaction coordinator, or contract broker.

Question 40

A real estate agent’s duty of confidentiality usually extends for how long?

A)
The period of time specified in state law
B)
The time period specified in the agency agreement
C)
The period of time that ends with the closing of the transaction
D)
No set period, but at least until the property that is the subject of the transaction is resold or released

Answer 40

Explanation
The answer is the period of time specified in state law. In addition, a real estate licensee who is a member of the National Association of Realtors® must observe the duty of confidentiality forever.

Question 41

The fiduciary responsibilities of an agent to the principal under the common law of agency include

A)
obedience to all instructions of the principal.
B)
loyalty to the principal’s interests unless they conflict with the agent’s interests.
C)
care and skill in representing the principal equivalent to that of the average person.
D)
disclosure of material facts that the agent knows.

Answer 41

Explanation
The answer is disclosure of material facts that the agent knows. The agent must exercise a reasonable degree of care, which should be superior to that of the average person. The agent must obey all lawful instructions of the principal that are in accordance with the contract and place the principal’s interests above the agent’s.