Risk Management

If a client asks about the condition of a foundation, which would be the best response? "It looks like a good foundation to me." "The seller has lived here for more than 10 years and has not had a problem." "Because this matter is beyond my expertise, you should discuss the foundation with a qualified engineer." "I have a friend who has just started engineering school and can give you a free opinion."

"Because this matter is beyond my expertise, you should discuss the foundation with a qualified engineer."

In advertising, which of the following is an acceptable phrase? "Bachelor pad" "No smoking" "Couples only" "Just like grandma's house"

"No smoking"

Which one of the following contracts can a licensee assist with? A real estate sale agreement An option contract A mortgage A deed

A real estate sale agreement The types of documents that may be completed by a licensee are those that are incidental to the practice of real estate. However, a licensee should not draft or assist in the preparation of a land sale contract, option contract, deed, mortgage, or complicated lease. All of these documents require the services of an attorney.

Which of these is NOT a risk-shifting method? Purchasing errors and omissions insurance. Directing clients to seek professional advice. Completing a visual inspection of property for sale. Purchasing umbrella liability insurance policies.

Completing a visual inspection of property for sale. Increased policy limits or umbrella liability policies should be explored. The risks covered by traditional liability policies only address injuries to persons or property caused by the insured. These policies do not cover actions undertaken in the course of a professional activity, such as real estate practice. To cover these risks, errors and omissions insurance is available. Another way to shift risk is to direct a client to seek professional advice or counsel relating to matters outside of the licensee's expertise.

Which of the following is NOT a fiduciary duty owed by a licensee to a principal? Care Compliance Disclosure Loyalty

Compliance

Which of the following duties does an agent NOT owe to a third party? Disclosure Care and skill Confidentiality Honesty

Confidentiality An agent is expected to use care, skill, honesty when dealing with third parties, and to disclosure any material facts. An agent owes their principal the full roster of fiduciary duties (Care, Loyalty, Confidentiality, Accounting, Obedience, and Disclosure). An agent owes fewer fiduciary duties to a third party.

Kai has Rick's ranch in Shasta County listed for sale. Rick isn't making his mortgage payments and is facing a foreclosure action. Without Rick's consent, Kai tells buyers that Rick is desperate to sell and encourages them to make any offer. Which fiduciary duty did Kai violate? Care Accounting Confidentiality Disclosure

Confidentiality Kai has violated the fiduciary duty of confidentiality. The fiduciary duty of confidentiality requires the agent not to disclose confidential matters about the client. Confidentiality is one of the duties that extends beyond the agency contract (listing, property management, buyer broker) and at no time in the future may the agent disclose confidential information.

Generally, antitrust laws are enforced through the Antitrust Division of the Department of Justice Department of Housing and Urban Development (HUD) National Association of REALTORS® Equal Employment Opportunity Commission (EEOC)

Department of Justice

With respect to an agency relationship, which of the following activities does NOT immediately result in liability? Disclosed dual agency Breach of fiduciary duties Lack of appropriate disclosure of agency relationships Licensee buying a property for his/her own account without disclosure to the seller

Disclosed dual agency

Which of the following is NOT an acceptable way to decommission an underground storage tank? Drain the oil from the tank and do nothing else Digging up the tank and physically remove it Drain the oil from the tank and fill it with sand or P-gravel Drain the oil from the tank and fill it with slurry

Drain the oil from the tank and do nothing else

Which of these is NOT one of the three primary points of potential liability that comes from doing real estate business over the internet? Advertising rules Privacy protection Economic uncertainty Disclosure law

Economic uncertainty Privacy protection, advertising, and disclosure are the three primary areas of potential liability from using the Internet.

When a licensee ends up being included in a conversation about commission rates with competitors, what is the best defensive action to take? Stop and continue the conversation later. Explicitly state that you have nothing to do with the conversation and leave. Participate in the conversation but do not commit or imply agreement. Say nothing and do not return comments if asked.

Explicitly state that you have nothing to do with the conversation and leave. Any licensee who is in the midst of a prohibited commission rates discussion with competitors should take immediate steps to disavow any connections with the discussion. Silence (not disavowing the conversation verbally) may infer that the licensee participated in a price fixing conspiracy!

Which of the following is a disability under the fair housing law? Compulsive gambling Psychoactive substance use disorders resulting from the current use of illegal drugs HIV/AIDS Homosexuality and bisexuality

HIV/AIDS

Which of these products is LEAST likely to contain VOCs? Hardwood Adhesives Wood finish Drapery materials

Hardwood VOCs are found in carpet, glues and adhesives, pressed-wood products, laminate flooring, cabinet fiberboard, drapery materials, and paint/coating products (such as wood finishes).

Which of these is the main way that asbestos enters the body? Transmission at birth Osmosis Inhalation Skin contact

Inhalation The majority of asbestos fibers enter the body through inhalation. The fibers less frequently enter the body through ingestion. The fibers cannot be absorbed into the body through the skin.

Which of the following would NOT be a defensive record keeping strategy? A telephone log that summarizes all business calls Keeping records of only closed transactions An electronic file of all emails Contemporaneous notes or memoranda in each transaction deal file

Keeping records of only closed transactions

Which of the following statements is true regarding lead-based paint disclosures? The burden of compliance with the lead disclosure law is on the buyer's agent. Lead-based paint disclosure laws apply to all 50 states. Buyers must be provided with a 60-day period to test for lead, if the buyer chooses. Duplexes built before 1952 are exempt from lead disclosure laws.

Lead-based paint disclosure laws apply to all 50 states. Federal law applies to all 50 states. All sellers and licensees should be aware of the provisions of HUD and EPA regulations as they apply to lead-based paint.

Which of the following statements is false? Licensees can be guilty of price fixing even without a formal agreement. Licensees must have a written document or have made a verbal statement as evidence to be guilty of price fixing. A "tacit agreement" is one that is implied or indicated by an act or by silence and is carried on without words or speech. Price fixing occurs when two or more competing brokers agree to set commissions.

Licensees must have a written document or have made a verbal statement as evidence to be guilty of price fixing. Illegal price-fixing is not limited to those cases where a specific fee or commission is agreed upon. Rather, the prohibition extends broadly to all agreements that have the effect of raising, depressing, fixing, pegging, or stabilizing the price of real estate services. Furthermore, cases under the act have not required a showing of an express agreement to adhere to an illegal plan.

Which of the following is NOT an example of anti-competitive conduct that would be deemed illegal? Deciding to fix commission fees to match the commissions arranged by other licensees Requiring an investor to only use their property management brokerage when the investor wants to sell the property Limiting MLS membership using criteria designed to reasonably protect the integrity of the MLS. Working together with other brokers to boycott a competing broker's property listings

Limiting MLS membership using criteria designed to reasonably protect the integrity of the MLS.

Which is the best advice for avoiding an antitrust lawsuit? Never commingle trust funds with your personal account Never discuss setting fixed commission rates with your competitor offices Always make sure records are complete and up to date Avoid dual agency situations

Never discuss setting fixed commission rates with your competitor offices Due to the nature of a price fixing case, never discuss fixing commission rates with other licensees or offices.

Which is NOT a part of proving an intentional misrepresentation? No corrective action was taken after the deception There was an intent to deceive A misleading statement was made that was relied on by complainant Actual damages resulted because of the misrepresentation

No corrective action was taken after the deception The tort of intentional misrepresentation is an active fraud that requires the alleging and proving all of the following elements: False representation of material fact Intent to deceive Misleading statement relied on by the complainant Actual damages resulted

Which of the following is an example of steering? Showing a buyer only the neighborhoods that the buyer indicates they are wanting to live in when the licensee knows them to have very few minorities. Not showing properties to a buyer in certain areas of a city based upon the licensee's assumed perceptions of the buyer's racial preferences. Refusing to sell an insurance policy to a homeowner because of the racial composition of a neighborhood. Encouraging a seller to sell because a particular minority group is moving into the neighborhood.

Not showing properties to a buyer in certain areas of a city based upon the licensee's assumed perceptions of the buyer's racial preferences. "Steering" is the practice of discouraging buyers from considering certain neighborhoods or channeling buyers to particular neighborhoods based upon assumed buyer preferences regarding racial, religious, or national original composition of a neighborhood.

Which creates the greatest radon threat? Poor insulation Poor ventilation Poor reticulation Poor filtration

Poor ventilation When no ventilation is present to stir and move the air within a structure, radon will settle out of the air to the lowest levels of the structure.

Which of the following does NOT need to have client status and be represented by a buyer's agent? Close business associates Prospects who call to inquire about an advertised property Relatives First time buyers who need assistance

Prospects who call to inquire about an advertised property

Which of the following childhood health issues is NOT linked to lead exposure? Behavioral problems, such as hyperactivity Rapid growth and development Motor ability and coordination problems Learning difficulties

Rapid growth and development

Redlining is best defined as: Refusing to make mortgage loans or issue insurance policies based upon racial, ethnic, religious, or national-origin composition of a neighborhood. Discrimination based on religious belief. Charging a higher interest rate to an individual who is a member of a minority group. Considering any of the seven protected classes when appraising a property.

Refusing to make mortgage loans or issue insurance policies based upon racial, ethnic, religious, or national-origin composition of a neighborhood. Redlining is the prohibited practice of refusing to make mortgage loans or issue insurance policies in specific geographical areas for reasons other than the qualification of the applicant.

Which of the following is not addressed in The Americans with Disabilities Act of 1990 (ADA)? Residential housing Commercial facilities Public accommodations Employment

Residential housing The Americans with Disabilities Act of 1990 (the "ADA") is not a housing law. It address discrimination in the areas of employment, public services, public accommodations, commercial facilities, and in telecommunications. The Americans with Disabilities Act does not apply to residential housing, but it still has a major impact on real estate.

Which part of a home built before 1978 would be the least likely to contain lead? Potable water supply Outside dirt Paint Sheetrock (wallboard)

Sheetrock (wallboard) Paint, outdoor dirt (due to leaded gasoline deposits), and potable water (due to lead-based solder), are more likely to contain lead than wallboard.

Which one of the following is an example of a permitted practice? Arbitrarily only showing an Indian buyer homes in areas that have a high concentration of Indians Volunteering information about a neighborhood's ethnic composition without having been asked Showing homes in specific neighborhoods to an Asian buyer who has expressed a preference to view homes in neighborhoods with other Asians Charging a higher commission rate based on the seller's race or national origin

Showing homes in specific neighborhoods to an Asian buyer who has expressed a preference to view homes in neighborhoods with other Asians If a real estate agent is showing properties in specific neighborhoods at the request of the buyer, then that client's preference is a nondiscriminatory reason under the Seventh Circuit Court's ruling.

Which one of the following is NOT a federal guideline to help licensees avoid risks when advertising real estate for sale or lease? Handicap: No exclusions or limitations based on handicap. Race, color, or national origin: No discriminatory limitation/preference may be expressed. Source of Income: No income preference may be designated. Familial status: No preference or limitation based upon family size or nature.

Source of Income: No income preference may be designated. The following is a summary of HUD's advertising guidelines: Category: Race, color, national origin. Rule: No discriminatory limitation/preference may be expressed. Category: Religion. Rule: No religious preference/limitation may be expressed. Category: Sex. Rule: No explicit preference based on sex Category: Handicap. Rule: No exclusions or limitations based on handicap Category: Familial Status. Rule: No preference or limitation based upon family size or nature. Category: Advertising media sources. Rule: Selective use of advertising media sources, whether by language or geography, may not have a discriminatory impact. Category: Photographs or illustrations of People. Rule: People should be clearly representative and nonexclusive.

Which of the following statements is NOT TRUE regarding federal and state fair housing laws? The Department of Housing and Urban Development (HUD) has been given the task of administering the federal fair housing laws. States may require enforcement of fair housing laws that are less restrictive than the federal fair housing laws. Unless an exemption applies, no one may discriminate against anyone in the seven protected classes in the sale and rental of housing. States may enact and enforce fair housing laws that are stricter than federal fair housing laws.

States may require enforcement of fair housing laws that are less restrictive than the federal fair housing laws. States, counties, or cities may have standards more stringent than those provided for under the Fair Housing Amendments Act of 1988.

What is the main problem with former meth labs? Ruined carpet Toxic waste Flammable fumes Stained ceilings and walls

Toxic waste Toxic waste is a byproduct of the meth cooking process. All of this waste poses long-term hazards because they can persist in the soil and groundwater for years. Clean up costs are high because solvent-laced soil usually must be incinerated.

"The conditioning of the sale or purchase of one product to the sale or purchase of another product" describes which antitrust violation? Price fixing Group boycott Price gouging Tying arrangement

Tying arrangement An example of a tying arrangement is the conditioning of the sale or purchase of one product to the sale or purchase of another product.

Federal fair housing laws do NOT protect which of the following classes? Race Country of national origin Religion Veteran status

Veteran status

Which one of the following is a red flag that a knowledgeable real estate agent should be able to easily notice that could indicate a potentially serious problem with the property? A crack in the driveway pavement. Mold in the refrigerator. Water stains on walls or ceilings Unhealthy plants in the flowerbeds.

Water stains on walls or ceilings Water stains are a red flag that could indicate an existing water leak.

The classic group boycott is also known as the effort of a group to increase prices in a specific area. anti-interstate commerce activity. price-fixing. a concerted refusal to deal.

a concerted refusal to deal. The classic group boycott is also known as a concerted refusal to deal. Such activity is illegal per se.

A licensee should attempt to minimize liability exposure by developing __________ for risk management. an in-office task force a plan a risk-blaming technique a team of lawyers

a plan A licensee should attempt to minimize liability exposure by developing a plan for risk management.

An individual who violates the Sherman Antitrust Act can receive penalties of: fines of $6,000 for each violation. a prison term of up to 10 years and fines not to exceed $1,000,000. 200 hours of community service and a $1,000 fine. a 1 year prison sentence and a $10,000,000 fine.

a prison term of up to 10 years and fines not to exceed $1,000,000. Today, a criminal violation of the Act is a felony punishable by imprisonment for up to ten years and fines not to exceed $1,000,000 for individuals and $100,000,000 for corporations. Damages awarded to plaintiffs in civil actions are automatically tripled.

A noticeable adverse condition about a property that licensees should be able to recognize and alert their clients to is called an agency disclosure. a limitation of responsibility. a red flag. the fiduciary duty of reasonable skill and care.

a red flag. Although this is an unsettled area of the law, prudence would dictate that licensees should alert their clients to certain obvious conditions that may impact the value of a property. These conditions are often referred to as red flags.

Damages awarded to place an injured party in the same position as before a contract was entered into are called actual damages. punitive damages. promissory damages. nominal damages.

actual damages. The measure of damages is to place the injured party, as far as monetary compensation is possible, in the same position as if the contract had been fully performed. These damages are often referred to as actual damages.

A licensee is allowed to fill in the blanks of a preprinted, standardized form when the buyer or seller missed filling in some of the blanks. after the closing of escrow. when required to do so by federal real estate law. at the direction of a principal to the transaction such as the seller or buyer.

at the direction of a principal to the transaction such as the seller or buyer. A real estate licensee may fill in the blanks of a purchase and sale agreement, a promissory note for earnest money, rental agreements, and most lease agreements. The licensee, however, is to fill in the blanks at the direction of a party to the transaction, such as the seller, buyer, landlord, or tenant.

Risk anticipation means to identify or predict problems that can arise in a transaction. Licensees should attempt to establish a strategy to _____ problems instead of dealing with them after they happen. minimize divert diffuse avoid

avoid "Risk anticipation" means identifying problems that may arise in a real estate transaction. Licensees should establish a strategy to avoid problems instead of trying to deal with problems later.

Negligence is a result of a licensee not measuring up to a reasonable standard of care. accounting. loyalty. trust.

care. Negligence is a result of a licensee not measuring up to a reasonable standard of care.

Beni put together a listing presentation for her neighbor, Ernie. Beni has lived in the neighborhood for 20 years and feels strongly that Ernie's house should be listed for $320,000. Rather than rely on only her professional opinion, Beni prepared a detailed CMA of all active, sold, and pending properties in a six-block radius that are comparable to Ernie's house. Through her knowledge and careful preparation of a thorough CMA, Beni has demonstrated the fiduciary duty of loyalty. care. disclosure. obedience.

care. The fiduciary duty of care requires the agent to be proactive, competent, act within the bounds of his expertise, and to use his skills and knowledge to the best of their ability for the betterment of the client. Beni's actions are an example of the fiduciary duty of care, also referred to as skill, care, and diligence.

The duty to protect a client's confidential information: requires the licensee to place all case files in a bank safety deposit box as required by state law. is necessary in order to prevent trust fund mismanagement. is only until the transaction closes and the licensee is paid a commission. continues after the agency relationship has terminated.

continues after the agency relationship has terminated. The duty to protect a client's confidential information also continues after the agency relationship has terminated.

When a licensee lists a property, the obligations and duties the agent assumes are based on tort law. the law of negligence. contract law. law of damages.

contract law.

The Equal Credit Opportunity Act allows for discrimination in credit transactions based on: the age and marital status of the applicant. marital status, familial status, and sex of the applicant. marital status and sex of the applicant. credit worthiness of the applicant.

credit worthiness of the applicant. The ECOA prohibits discrimination in all credit transactions based on race, color, national origin, religion, sex, marital status, age, receipt of income from public assistance programs or rights under the Consumer Protection Act.

Usually the best way to control an active complaint is through early communication. documenting all disclosures made. good recordkeeping. a working relationship with a lawyer.

early communication. Of primary importance is dealing with any complaint before it turns into litigation. This means early communication with the complaining party to minimize the issue. Usually, a complaint that is not dealt with in its early stages tends to take on a life of its own.

Tom bought a four-plex and is going to live in one of the units with his family. Tom will screen potential tenants for the other three units carefully to try to find the most desirable and safest neighbors for his family. Tom is: exempt under federal fair housing law, but must check state fair housing law to see what his legal position is under local state law. exempt from state fair housing laws because he has an exemption under federal fair housing law. subject to and must comply with both state and federal fair housing laws when screening prospective tenants. not obliged to follow either state or federal fair housing laws because screening his tenants allows him to protect his family.

exempt under federal fair housing law, but must check state fair housing law to see what his legal position is under local state law. Housing that is not covered under the federal fair housing act includes rental housing of four or fewer apartments in which the landlord is living. States and local jurisdictions may pass fair housing law that are more restrictive than the federal law and the more restrictive will prevail.

If a real estate agent representing a seller intends to purchase the property directly from the seller, this would put the agent in a conflict of interests regarding the fiduciary duty of _____. loyalty care obedience accounting

loyalty When a licensee is acting as a buyer in a transaction, the licensee is placed in a potential conflict of interests, violating the duty of loyalty.

A licensee who unknowingly gives misleading information and who does not exercise due diligence in getting or giving that information is guilty of negligent misrepresentation. the detrimental reasonableness standard. nondisclosure of material fact. intentional fraud.

negligent misrepresentation. The tort of negligent misrepresentation involves a person who unknowingly gives misleading information and who does not exercise due diligence in getting or giving that information.

Dual agency occurs when the same licensee represents two or more principals that are also real estate agents who work for different real estate brokerages. negotiating with each other in the same transaction. family members. both owed a referral fee for business.

negotiating with each other in the same transaction. Dual agency occurs when the same licensee represents two or more principals that are negotiating with each other in the same transaction.

The main purpose of errors and omissions insurance is to: reimburse the owner of a brokerage for damage to his/her office building that resulted from a wind storm. compensate a licensee for injuries to a client from an automobile accident in which the client was involved while the licensee was showing the client some properties for sale. protect a licensee from claims brought by an unhappy client because of the actions taken by that licensee during the course of representation. protect the owner of the brokerage from adverse claims against the ownership of the business.

protect a licensee from claims brought by an unhappy client because of the actions taken by that licensee during the course of representation. The risks covered by traditional liability policies only address injuries to persons or property caused by the insured. These policies do not cover actions undertaken in the course of a professional activity, such as real estate practice. To cover these risks, errors and omissions insurance is available.

The main purpose of RESPA is to protect the public. reduce government spending. protect mortgage-related businesses. reduce government interference with loan products.

protect the public. The purpose of the Real Estate Settlement Procedures Act (RESPA) is consumer-oriented in that it requires numerous consumer disclosures and prohibits certain abusive settlement practices.

The information gained by an agent representing a seller or buyer must be __________ in order to avoid confidentiality risks. used for marketing purposes protected applied as leverage during closing immediately destroyed, even if the information is material

protected The information gained by an agent representing a seller or buyer must be protected.

Punitive damages are awarded as a means of __________. punishment breach of contract restitution annulment

punishment Punitive damages usually come about when the conduct of a party is so bad, egregious, or unconscionable that the court finds it is desirable to craft a remedy designed to punish. These damages are awarded in addition to those awarded to compensate for actual loss.

If a structure was flooded, the sheetrock should be: completely removed and disposed of as hazardous waste. removed only if it shows evidence of mold on the exterior visual surface. removed to at least 12 inches above the high watermark. does not have to be removed if sprayed with a bleach solution.

removed to at least 12 inches above the high watermark.

Directing a client to seek professional advice or counsel relating to matters outside of the licensee's expertise is a risk management strategy known as: education. risk shifting. avoidance. risk calculation.

risk shifting.

The liquidated damages agreed to in a real estate transaction usually consist only of not more than 2% of the buyer's down payment. the earnest money deposit agreed to by the buyer and seller. the amount of earnest money deposit that is left after the listing broker's expenses are reimbursed by the seller. up to 10% of the transaction price but not less than 2% of the buyer's down payment.

the earnest money deposit agreed to by the buyer and seller. The liquidated damages agreed to in a real estate transaction usually consist only of the earnest money deposit agreed to by the buyer and seller.

Tort law attempts to right an injured party by awarding monetary damages to the one who has been wronged. the insurance carrier. the licensee. the party who was guilty of specific performance.

the one who has been wronged. Tort duties are legal liabilities independent of contract standing and apply to the involuntary assumption of liability and risk. For these injuries, tort law attempts to right the wrong by awarding monetary damages to the one who has been wronged.

The California agency disclosure form is required to be given in a transaction involving manufactured or mobile homes when not attached to land. a business opportunity. the sale of a residential two-unit duplex. All of the above

the sale of a residential two-unit duplex. The disclosure form is required on any sale or exchange of single-family residential property of 1-to-4 units, any sale or exchange of multi-unit residential property with 5 or more dwelling units, any commercial real property, any vacant land, any ground lease coupled with improvements, and mobile or manufactured home when sold by a real estate licensee (i.e., the dwelling is permanently attached to land). The residential duplex requires the exchange of the agency disclosure form. Real estate licensees are only permitted to sell mobilehomes when they are attached to the land and become real property. The form is not provided in business opportunity sales.

If a brokerage will only take a listing if the seller agrees to use the brokerage's partner escrow service, this is called: collusion group boycotting tying arrangement price fixing

tying arrangement A tying arrangement has been defined by the Supreme Court as the conditioning of the sale or purchase of one product to the sale or purchase of another product.

George is looking for a property manager. Real estate agent Marcus has the necessary experience to manage George's properties and is willing to give George a discount on the property management fee if George agrees to list his rental properties with Marcus' brokerage when George wants to sell. This arrangement is called a: price fix tying arrangement VOW group boycott

tying arrangement Marcus has conditioned a discount for property management services based on the fact that George will have to list his rental properties with Marcus when George wants to sell them. This is called a tying arrangement.