Unit 7: Creation and Termination of Agency

Which of the following is required to create an agency relationship?

Consent

What is imputed knowledge?

Facts known by the agent are considered known by the client.

How is the length of a listing agreement determined?

Length of a listing is negotiated between a broker and a seller.

When can a seller force a broker to continue an agency relationship on the listing?

Never, because the broker can renounce the relationship unilaterally

The fiduciary duty that remains even after the termination of the agency relationship is

confidentiality

Prospective customers ask the listing agent "How long do you think this current roof will last?" Which of the following responses is BEST for the agent?

"The roof was put on 10 years ago, and the owners were given a 30-year warranty."

Paul is a sales agent who is sponsored by AAA Realty. Paul sold a commercial office building owned by Wings, LLP. Paul worked for TNT Realty, Inc. and represented the buyer, YellowBrick Road, LLC, in the purchase. Paul now represents a new buyer, Elton, in the purchase of the YellowBrick Road property. Paul did not have a written buyer representation agreement in the previous purchase and does not have one in the current resale. Paul knows quite a bit of confidential and nonconfidential information about YellowBrick Road and the property. What is Paul's duty to Elton to disclose what he knows about YellowBrick Road?

Paul cannot disclose confidential information regarding the previous purchase of the YellowBrick Road property.

Sandy, a real estate broker, is often asked for her opinion about real estate matters when she attends meetings of the Chamber of Commerce, and even when she attends her children's baseball games. What is the BEST advice for Sandy to follow to avoid potential agency issues?

Refrain from answering questions from nonclients.

Paul is a sales agent who is sponsored by Best Realty. Paul was the selling agent of a commercial office building owned by Wings, LLP. Paul worked for TNT Realty, Inc. and represented the buyer, YellowBrick Road, LLC, in the purchase. Paul now represents a new buyer, Elton, in the purchase of the YellowBrick Road property. Paul did not have a written buyer representation agreement in the previous purchase and does not have one in the current resale. George is a broker with Ace Realty and is serving as YellowBrick Road's agent in the sale and is working with its CEO, Bruce. Bruce and Paul have been friends since the previous transaction, and Bruce is now asking Paul for assistance on a due diligence matter because George is incompetent. What should Paul tell Bruce?

That he is no longer Bruce's agent and Bruce should work directly with George

What happens to a listing agreement if the principal dies?

The agreement terminates.

What happens to an individual broker's listing agreements if the broker dies?

The agreements are terminated.

Janice is a broker who represents Raymond under a written listing contract. Raymond hasn't told Janice about carcinogenic and highly toxic mold in the attic, and Janice has no independent knowledge of the mold. Which of the following BEST describes whether Janice may be liable if Raymond misrepresents or conceals the presence of the toxic mold to Tybalt, the buyer?

The answer is Janice is liable if she knows of the falsity of the misrepresentation and fails to disclose her knowledge. Section 1101.805(d) of the Real Estate License Act states that a "license holder is not liable for a misrepresentation or a concealment of a material fact made by a party to a real estate transaction unless the license holder knew of the falsity of the misrepresentation or concealment and failed to disclose the license holder's knowledge of the falsity of the misrepresentation or concealment."

Which of the following is an example of ostensible agency?

The answer is a seller leads a buyer to believe that a former seller's agent is still the seller's agent, despite the fact that the listing agreement has expired. Ostensible agency is based on leading a third party to believe that an agent was acting as an agent of another party. In that event, a court would likely prevent the principal from denying that an agency relationship existed.

Which of the following is an example of agency by ratification?

The answer is a seller's former agent sells property for the seller after the listing agreement expires, and the seller does not deny the agent's authority to act on seller's behalf. Agency by ratification occurs when a principal gains some benefit from a previously unauthorized act of an agent, and the principals, on learning of the act, do not deny that the agent had authority to perform such an act on their behalf. The principals ratify the action of the agent by accepting the benefits that come from the action.

Which of the following is NOT among the standards that real estate license holders owe to everyone with whom they work?

The answer is advice. Real estate license holders owe good faith, fairness, and honesty to everyone with whom they work. They offer advice and their expert opinions to their clients.

Which of the following must a license holder provide to a client but NOT to a customer?

The answer is advice. The license holder must provide the customer with honesty, fairness, accurate information, and material facts concerning a property. In contrast, the client is entitled to accurate information, opinions, and advice about the significance of facts and information, the available alternative courses of action, and the agent's recommendations.

Which of the following persons are NOT exempted from real estate licensing requirements?

The answer is an active Ohio-licensed attorney selling real estate to a client for his investment portfolio and compensated by a commission. In this situation, the fact that the individual is an attorney with an out-of-state license means nothing because it pertains to exemptions from licensing. This attorney would need to comply with the same license holder requirements as all others who are not specifically exempted under the law.

Which of the following is NOT required to create an agency relationship?

The answer is compensation. The creation of an agency relationship requires consent and control. Some form of authorization (e.g., oral, written, implied, etc.) from the principal is needed for the agent to act on behalf of the principal in dealing with others.

What are the two basic elements required to create an agency relationship?

The answer is consent and control. If an agency relationship can be created orally, there is no need to reduce the agreement to writing, although it is prudent to do so. A signature is only required of a party who agrees to pay compensation to a broker for brokerage services if the broker attempts to collect payment by filing a lawsuit against the party.

Maria listed her town house with Bob. Bob mails out flyers, places ads in the local paper, and posts notices on the community bulletin board. What type of authority as the listing agent is Bob using while marketing the property?

The answer is implied. Implied authority (not to be confused with implied agency) is authority not specifically (expressly) granted to the agent, but necessary or customary if the agent is to perform his agency duties. For example, the written listing contract between the broker and the seller may not expressly list every marketing strategy the broker will employ. It would be implied, however, by virtue of the seller entering into the contract with the broker, that the seller is granting authority to the broker to use whatever marketing activities are reasonable to accomplish the object. Such activities might include conducting an open house or placing ads in the newspaper.

What is constructive notice?

The answer is imputed notice. The knowledge of or notice to the agent is imputed to the principal by law and deemed constructive notice, even if the information is never actually conveyed to the principal. In other words, notifying the agent is regarded as actually notifying the principal.

Does Texas law hold principals responsible for the unauthorized acts of their agents?

The answer is no, unless they are aware of the acts. Texas contract law will not, presumably, hold principals responsible for the unauthorized acts of their agents unless they are actually aware of the acts. Likewise, there would be no liability under TRELA section 1101.805(d).

Agency can be created by an oral agreement between the agent and the principal, but a broker should establish a written contract to

The answer is protect the interests of both parties. Nothing exists in Texas statutory or common law mandating that the agency relationship be created by written contract. The broker should, however, establish a written contract as soon as possible. The written agreement should, at minimum, address the issues relating to the duties of the agent and principal and the expectations for compensation, and it should be sufficient to protect the interests of both parties.

Which of the following actions does NOT terminate an agency contract?

The answer is relocation. An agency relationship may be terminated at any time for any of the following reasons: lapse of the time specified in the agreement, lapse of a reasonable time if no time is specified, completion of the purpose of the agency, mutual rescission, revocation by the principal, agent's renunciation, abandonment of the agreement by the agent, and incapacity or death of either the agent or the principal. Relocation of either party has no effect on a contract unless it is specifically addressed in the contract.

Georgio listed his property for sale with Tony Principi, principal broker for Principi Realty. Georgio decides to seek a tenant for his property rather than sell, so he asks Tony to remove the property from the market. If Tony agrees to release Georgio from his obligations under the contract, agency has been terminated by

The answer is rescission. Because agency agreements are ideally created with mutual consent of the parties, the parties can jointly decide to rescind the agreement at any time. This is called termination by rescission.

Which of the following is NOT an example of termination of agency by operation of law?

The answer is revocation by the principal. A principal may revoke an agent's authority to act on the principal's behalf. However, that is not considered termination by operation of law. Incapacity, death and a change in the law are all examples of termination of agency by operation of law.

Sonya is a real estate agent. Technically, Sonya does not need a broker or sales agent license if

The answer is she is not compensated for providing real estate services for someone else. A person who engages in brokerage services for another for compensation must be licensed as a broker or sales agent. Even if Sonya has no written contract, she would still need a license if she served as someone's broker or agent for compensation.

Which of the following is NOT an element of agency by ratification?

The answer is the principal denies the agents authority to act. Under the ratification theory, principals are considered to have approved the agency if they accept the benefits of an agent's previously unauthorized act. This is agency after the fact. The four elements are the agent performs an unauthorized act, the principal subsequently learns of the act, the principal does not repudiate or deny the agent's authority to act, and the principal benefits from the act.

Seller Vincent decided to let the listing agreement he had with broker Bob expire and sell the property himself. Prospective buyers who looked at Vincent's farm twice while Bob had the listing remained interested in the property, and they want to buy the farm from Vincent directly. Does Bob retain any interest in this transaction?

The answer is yes, if the buyer is registered under a protection clause. After a listing expires, the seller may have continuing obligations to the former broker for buyers who were shown the property during the listing period by the broker, and who were registered under a protection clause, if included in the listing contract. During a protection period, if a protected buyer attempts to purchase directly from the seller after the listing expires, the seller would still be obligated to pay the broker a commission.

Jane is a sales agent with Ace Realty. She has a listing agreement with Ralph to sell Ralph's mother's property. Ralph is acting under a power of attorney as a universal agent of his mother. During the term of the listing and before anyone makes an offer on the property, Jane suddenly has a heart attack and passes away. How has her death affected the status of the listing agreement.

There is no effect on the listing agreement, as it belongs to Ace Realty, not Jane.

When can a license holder disclose confidential information about a former client?

When the former client consents to the disclosure

George has entered into a written property management agreement with Stella to manage her investment property. The terms of the agreement state that the management services will include leasing the property. The agreement automatically renews in perpetuity. Is there a problem with this type of agreement?

Yes, the Real Estate License Act requires a definite termination date.