Unit 16

Subagency

An agency relationship in which the broker-agent appoints other brokers as subagents to help perform client-based functions on behalf of the principal. The subagent assumes the same fiduciary responsibilities as the agent. In Pennsylvania, the principal must authorize the broker to engage subagents.

Implied Agency

An agency that arises by conduct or inference from other acts or circumstances, often creating an agency relationship when none was intended.

The statement is false. An agent's duty of confidentiality exists not only during the term of the agency relationship but also beyond the expiration of that relationship.

An agent's duty of confidentiality exists during the term of the agency relationship but is extinguished upon the expiration of that relationship.

Disclosure

The agent has a duty to inform the principal of all facts or information that might affect the principal's position in a transaction. Duty of disclosure includes relevant information or material facts that the agent knows or should have known.

Accounting

The agent must be able to report the status of all funds received from or on behalf of the principal. Brokers are required to deposit and account for escrow funds in the manner prescribed in Pennsylvania's licensing law.

By Pennsylvania law, all of the following must receive the Consumer Notice EXCEPT A) a tenant is looking for a rental home. B) a corporation is selling the property. C) an individual is purchasing a home. D) a couple is selling their home.

The answer is a corporation is selling the property. No disclosure notice is required when the transaction is for the sale or lease of commercial property to consumers who are not individuals, such as corporations or other business entities.

At what time should a Pennsylvania licensee present the Consumer Notice to a prospective homebuyer? A) After showing a couple of properties B) At the initial interview C) Within three days of closing D) Prior to the buyer makes an offer

The answer is at the initial interview. In Pennsylvania, licensees must discuss the Consumer Notice at the initial interview or the first substantive discussion between a licensee and a consumer about the consumer's needs before the licensee provides any services, and before they enter into an agency agreement or agreement of sale.

A broker may represent both the seller and the buyer when A) the broker holds a state license as a dual agent. B) both parties give informed written consent to such a transaction. C) the buyer and the seller are related. D) both parties have attorneys who authorize the dual representation.

The answer is both parties give informed written consent to such a transaction. Brokers can provide dual agency only if the buyer and the seller are fully informed and consent in writing to the broker's representation of both parties in the same transaction. The parties must be provided sufficient information to make an intelligent determination about whether or not to agree to the dual representation.

Special Agent

One who is authorized by a principal to perform a specified single act on behalf of a principal.

General Agent

One who is authorized by a principal to represent the principal in a range of matters.

Under the common law of agency, an agent owes the principal the six fiduciary duties of

care, obedience, loyalty, disclosure, accounting, and confidentiality

The relationship between the principal and the agent must be

consensual

Universal Agent

A person empowered to do anything the principal could do personally.

A subagent

is the agent of an agent. If permitted by the original agency agreement, an agent may delegate some authority or responsibility to another party, the subagent.

Agency Coupled With An Interest

An agency relationship in which the agent is given an estate or interest in the subject of the agency (the property).

Principal

(1) A sum loaned or employed as a fund or an investment, as distinguished from its income or profits. (2) The original amount (as in a loan) of the total due and payable at a certain date. (3) A main party to a transaction—the person for whom the agent works.

Latent Defect

A hidden structural defect that is not discovered by ordinary inspection and that threatens the property's soundness or the safety of its inhabitants. Sellers and licensees have a duty to inspect for and disclose latent defects.

Transaction Licensee

A licensee who provides services to a consumer without an agency relationship.

Fiduciary Relationship

A relationship between trustee and beneficiary, attorney and client, or principal and agent.

Consumer Notice

A specific form adopted by the State Real Estate Commission in Pennsylvania to disclose information about permitted business relationships and specific agency procedures in real estate transactions. This notice must be presented at an initial interview to any consumer of real estate services.

Express Agency

An agency relationship based on a formal agreement between the parties.

In Pennsylvania

All exclusive contracts of employment must be in writing.

Care

Principals expect the agent's skill and expertise in real estate matters to be superior to that of the average person. The most fundamental way in which the agent exercises care is to use that skill and knowledge on the principal's behalf. The agent should know all facts pertinent to the principal's affairs, such as the physical characteristics of the property being transferred and the type of financing being used.

Dual Agency

Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.

In a dual agency situation, brokers may be compensated by both the seller and the buyer if A) the buyer and the seller are related by blood or marriage. B) both parties are represented by attorneys. C) they have informed either the buyer or the seller that they will receive a commission from both parties. D) both parties give their informed written consent to the dual compensation.

The answer is both parties give their informed written consent to the dual compensation. Representation is an agency issue; compensation is a contract issue. When the broker represents both the buyer and the seller in the same transaction, the dual representation must be fully disclosed and both parties must give their informed consent in writing. The broker may be compensated by both buyer and seller as stipulated in the agency contracts.

In the case of real estate agency, who is the individual who is authorized and consents to represent the interest of another? A) Broker of record B) Salesperson with whom the consumer is working C) Anyone who enters into an agency agreement D) Associate broker who manages the office

The answer is broker of record. In the real estate business, a firm's broker is the agent and shares this responsibility with the licensees who work for the firm.

In a fiduciary relationship, the agent is primarily responsible to the A) client. B) customer. C) lending broker. D) lender.

The answer is client. In a fiduciary relationship, the primary responsibility of an agent is to protect the interests of the client in a transaction. The agent is morally, ethically, and legally responsible to the client if there is a breach of the fiduciary duties owed to the principal.

In addition to the Consumer Notice, the broker of the real estate firm must also establish procedures for disclosing A) how the firm's fees are in line with other brokerage firms. B) the racial composition of the neighborhood. C) company policies regarding dual agency and designated agency. D) the firm's policies for assigning consumers to the licensees based on national origin.

The answer is company policies regarding dual agency and designated agency. The disclosure process does not end with the Consumer Notice; however, brokers and their licensees may not discuss protected classes or to even hint that their fees are set in cooperation with other brokerages.

In real estate, the relationship between the principal/consumer and agent/broker must be A) consensual. B) compatible. C) synchronized. D) in harmony.

The answer is consensual. The relationship between the principal and agent must be consensual; that is, the principal delegates authority and the agent consents to act. The parties must agree to form the relationship

An errors and omissions insurance policy would most likely offer protection against an allegation of A) antitrust activity. B) forgetting to turn on the burglar alarm after showing the property. C) not showing the property to Asians. D) fraudulent activity.

The answer is forgetting to turn on the burglar alarm after showing the property. No errors and omissions insurance policy will protect a licensee from a lawsuit or prosecution arising from criminal acts. Insurance companies normally exclude coverage for violation of civil rights and antitrust laws as well.

A person who has the authority to enter into contracts concerning all business affairs of another is called A) attorney. B) special agent. C) secret agent. D) general agent.

The answer is general agent. A general agent represents the principal in a broad range of business matters and has the power to bind the principal to contracts within the scope of the agent's authority.

The sellers listed their home with a broker for $190,000. The broker tells a prospective buyer to submit a low offer because the seller is desperate to sell. The buyer offers $180,000 and the seller accepts it. In this situation, the broker A) acted properly to obtain a quick offer on the property. B) is expected to encourage such bids for the property. C) was unethical, but the sellers did get to sell their property. D) has violated his agency relationship with the seller.

The answer is has violated his agency relationship with the sellers. Confidentiality is a key element of fiduciary duties. If the principal is the seller, the agent may not reveal such things as willingness to accept less than the listing price or urgency to sell, unless the principal has authorized the disclosure.

In Pennsylvania, all exclusive contracts for real estate activities must be A) in writing. B) verifiable. C) supervised by an independent third party. D) completed within a stated time frame.

The answer is in writing. In Pennsylvania, all exclusive contracts of employment must be in writing. Furthermore, the Real Estate Commission's regulations prohibit a licensee from marketing or advertising the sale or lease of real estate or otherwise soliciting prospective buyers without the written authority of the seller or owner (or the owner's agent).

What is a transaction licensee obligated to disclose? A) Seller will accept less than the asking price B) Material defects in the property C) Parties will accept different financing terms than those offered D) Buyer will pay more than the submitted offered price

The answer is material defects in the property. A transaction licensee provides real estate services without having any agency (i.e., fiduciary) relationships with a consumer; however, the transaction broker may only disclose material defects, nothing else.

The broker provided the seed money for developing a property and is now acting as the listing agent. In this situation, the developer A) must go to court to partition the company. B) may not revoke the listing agreement. C) is entitled to co-list with other real estate brokers. D) may revoke the listing agreement if not enough units have sold.

The answer is may not revoke the listing agreement. The broker holds what is called an agency coupled with an interest, a relationship in which the agent is given an interest in the subject of the agency, such as the property being sold (because the broker has invested in the property). An agency coupled with an interest cannot be revoked by the principal or be terminated upon the principal's death.

A real estate broker acting as the agent of the seller A) can make a profit, if possible, in addition to the commission. B) can accept a commission from the buyer without the seller's approval. C) can agree to a change in price without the seller's approval. D) is obligated to render faithful service to the seller.

The answer is obligated to render faithful service to the seller. As an agent of the seller, the broker owes full fiduciary duties to the principal-seller. Faithful service to the seller when acting as the seller's advocate is of utmost importance under the agent's fiduciary duties to the principal-seller.

A buyer and a seller approach a broker and explain that they have agreed on the sale of the seller's home. They ask the broker to assist them with the rest of the transaction. In Pennsylvania, the broker A) is not permitted to do this. B) is permitted to act as a transaction broker. C) must represent both parties as a dual agent. D) must represent at least one party as a single agent.

The answer is permitted to act as a transaction broker. If both the buyer and seller negotiate the sale without representation, a nonagent (transaction broker) is not an agent of either party and solely helps with the necessary paperwork and formalities involved in transferring ownership of real property.

Which of the following may obligate a buyer client to owe a fee to the real estate agent? A) Agent takes the buyer to see a property B) Signed a written agency agreement C) Asks for assistance in locating a home to purchase D) Signed the Consumer Notice

The answer is signed a written agency agreement. The licensee may not expect a fee for representing a buyer unless the buyer has entered into an agency relationship with a written agency agreement. An agent may perform services before an agreement is signed, but the licensee is not entitled to recover a fee in the absence of a signed agreement. The Consumer Notice is not an agency agreement; it simply describes the various relationships available to the consumer.

The legal relationship between broker and seller is MOST frequently a A) special agency. B) secret agency. C) general agency. D) universal agency.

The answer is special agency. When a broker is engaged by a seller to represent the seller in the sale of a property, the broker is a special agent. The broker is authorized to represent the seller in one specific act with detailed instructions as specified in a contract.

The Consumer Notice must include a discussion of A) stigmatized properties. B) the service fees charged by the licensee's firm. C) of any physical defects in the property. D) the Real Estate Recovery Fund.

The answer is the Real Estate Recovery Fund. The Pennsylvania law requires that the Consumer Notice provide information about the Real Estate Recovery Fund and provide the reference in the law for complete details.

A licensee lists a residence for $187,000. For various reasons, the owner must sell the house quickly and confides to the licensee that a lower price would probably be acceptable, although the asking price is reasonable. To expedite the sale, the licensee tells a prospective purchaser that the seller will accept up to $5,000 less than the asking price for the property. Based on these facts, which statement is TRUE? A) The disclosure was improper, and possibly illegal, regardless of the motive of the licensee. B) The licensee has not violated any agency responsibilities to the seller. C) The licensee should have disclosed this information, regardless of its accuracy. D) The licensee should only have disclosed that the seller would reduce the price.

The answer is the disclosure was improper, and possibly illegal, regardless of the motive of the licensee. The broker owes fiduciary duties to the seller-client, including the obligation to work in the seller's best interest and be an advocate for the seller's position. Disclosing the lowest price that the seller would accept would be a violation of the broker's duty to the seller.

Which event terminates an agency in a broker-seller relationship? A) The broker discovers that the market value of the property is such that an adequate commission will not be earned. B) The owner declares personal bankruptcy. C) The broker appoints other brokers to help sell the property. D) The owner abandons the property.

The answer is the owner declares personal bankruptcy. An agency relationship may be terminated in a number of ways. One is by operation of law, such as personal bankruptcy of the principal. The relationship between the seller and the agent-broker terminates and title to the property transfers to a court-appointed receiver.

The term fiduciary refers to A) those who authorize another to act on their behalf. B) the principal-agent relationship. C) principles by which sellers must conduct their business affairs. D) the sale of real property.

The answer is the principal-agent relationship. The term fiduciary refers to the nature of the relationship created when the agent is placed in the position of trust and confidence when representing the principal.

Who does the real estate broker represent? A) The buyer B) The seller C) Whoever hired the broker D) Both the seller and the buyer

The answer is whoever hired the broker. The written agency agreement determines representation; the source of compensation does not.

A salesperson representing the seller shows a house to a prospective buyer. The salesperson knows that the house has a wet basement. Which of the following is TRUE? A) Withholding the information protects the confidence of the seller. B) Disclosing the information violates the fiduciary to the seller. C) Withholding the information prevents the buyer from making an informed decision. D) Disclosing the information could create an undisclosed fiduciary relationship with the buyer.

The answer is withholding the information prevents the buyer from making an informed decision. The agent is obligated to discover and disclose facts that a reasonable person would feel are important in choosing a course of action, regardless of whether they are favorable or unfavorable to the principal's position. The agent may be held liable for damages for failing to disclose such information.

Single Agency

The broker acts as the agent of one principal, either the seller/landlord or the buyer/tenant, in a transaction. The broker may practice exclusive single agency or may represent sellers and buyers, but never both in a transaction.

Loyalty

The duty of loyalty requires that the agent place the principal's interest above those of all others, including the agent's own self-interest.

Obedience

The fiduciary relationship obligates the agent to act in good faith at all times, obeying the principal's instructions in accordance with the contract. However, that obedience is not absolute. The agent may not obey instructions that are unlawful or unethical. On the other hand, an agent who exceeds the authority assigned in the contract will be liable for any losses that the principal suffers as a result.

Client

The person who is the principal who hires the agent and delegates to the agent the responsibility of representing the principal's interests. In a real estate transaction, the client may be the seller/property owner or buyer/tenant who has an agency relationship with the broker.

Designated Agency

The process wherein one or more licensees are designated by the employing broker to act exclusively as agent(s) on behalf of the principal to the exclusion of all other licensees within the broker's employ.

Agency

The relationship between a principal and an agent, wherein the agent is authorized to represent the principal in certain transactions.

An agency relationship is one whereby the licensees in the employ of the broker act in a fiduciary capacity for a consumer, with the express authority of the broker.

The statement is false. By definition in the real estate licensing law, an agency relationship is one whereby the broker or licensees in the employ of the broker act in a fiduciary capacity for a consumer of real estate services, with the express authority of the consumer.

In Pennsylvania, a broker may NOT represent both the seller and the buyer in the same transaction. True or False?

The statement is false. Pennsylvania licensees may act for more than one party in a transaction, but only with the knowledge and written consent of all parties being represented.

Responsibility for compensation is determined by regulations promulgated by the real estate commissioners. True or False?

The statement is false. Responsibility for compensation is determined by specific arrangements in the listing and buyer agency agreements. Traditionally in residential real estate, the seller compensated the broker as agreed to in the listing contract. With the emergence of buyer agency, alternative arrangements have become more common.

The Consumer Notice is a written contract between the real estate licensee and the consumer who signs the Notice. True or False?

The statement is false. The required form specifically notes "THIS IS NOT A CONTRACT." Instead, the Consumer Notice provides the information about various agency relationships available to consumers working with a real estate licensee.

A transactional broker is NOT an agent of either party. True or False?

The statement is true. A nonagent (also called a 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 estate.

In Pennsylvania, a listing agreement must be in writing to be enforceable. True or False?

The statement is true. In Pennsylvania, all exclusive contracts of employment must be in writing, and a real estate licensee must have written authority before marketing the property.

A buyer at an open house cannot expect representation from the listing agent. True or False?

The statement is true. The Notice specifically notes, in BOLD print, that until the consumer selects a business relationship by signing a written agreement, the licensee is NOT representing the consumer, and the consumer should not reveal any confidential information, especially any financial information.

The major provisions of the Consumer Notice are

a statement advising the party that a licensee is not representing the consumer unless an agency relationship is selected by signing a written agency agreement; general duties a licensee owes all consumers, regardless of the nature of the business relationship; descriptions of the business relationships permitted in Pennsylvania: seller agency, buyer agency, dual agency, designated agency, and transaction licensee; contractual terms that must be included in all agreements; and a statement about the Real Estate Recovery Fund.

An intermediary

between a buyer and a seller, or a landlord and a tenant, who assists one or both parties with a transaction without representing either; also known as a facilitator, transaction broker, transaction coordinator, and contract broker.

The law of agency defines

the rights and duties of the principal and the agent.