Ch. 7
Which of the following BEST describes the common law of agency?
case law establishing the responsibilities of a person who acts for another. Rationale: Agency is a legal relationship that governs the responsibilities and obligations when one person legally acts on behalf of another. The agent acting on behalf of a principal owes the principal fiduciary duties.
All of the following could legally be considered fraudulent, EXCEPT: - deceitful or dishonest practices - generalized exaggerated opinions about the property - omitted statements of material fact - misstatements about the property
generalized exaggerated opinions about the property
A provisional broker sells another firm's listing for $150,000. The commission is 6.5% of the sales price. Of this amount, 55% goes to the listing broker and the remaining 45% belongs to the cooperating broker. If the provisional broker receives 60% of any commission that he generates for the office, he is entitled to receive:
$2,632.50 Rationale: The total commission was $9,750 ($150,000 x 6.5%). The provisional broker sold another firm's listing. The cooperating firm (the provisional broker's firm) received $4,387.50 ($9,850 x 45%). The provisional broker received $2,632.50 ($4,387.50 x 60%).
Designated agency in North Carolina is considered: I. A form of dual agency II. Mandatory if you practice dual agency
I only Rationale: Designated agency is a form of dual agency. It is an optional practice permitted in North Carolina when one firm represents both the buyer and seller. In order to offer designated agency firms must have policies and procedures to insure that the confidential information of the parties is protected. Within the firm one licensee is designated to represent the seller and one licensee is designated to represent the buyer. Firms do not have to offer designated agency to clients.
Rite Stuff Realty is a NC real estate firm that buys and flips homes. All of the homes that Rite Stuff handles are owned by the firm entity. In regard to the listing and sale of these homes, which of the following is a correct statement? - Rite Stuff may offer exclusive buyer representation, dual agency or designated agency to prospective purchasers of their homes - Rite Stuff must act as dual agents in the sale of their homes because they are the owners - None of the agents of Rite Stuff may act as representatives of buyers and must treat all buyers as customers since the firm owns the properties - The North Carolina Real Estate Commission is not concerned with whom Rite Stuff represents so long as agency is properly disclosed
None of the agents of Rite Stuff may act as representatives of buyers and must treat all buyers as customers since the firm owns the properties Rationale: When the properties are owned by the firm, none of the firm's licensees may represent a buyer and the buyer must be treated as a customer.
Can a firm represent both buyers and sellers and not be in dual agency?
Yes, Dual agency only occurs when the buyer and seller hire the same firm in the same transaction.
Which of the following would be dual agency? - a broker-in-charge assisting a buyer client in the purchase of property that was listed by a provisional broker of another firm - a provisional broker and a broker licensee from firms that are cooperating in a transaction - a firm that represents buyers and sellers - a broker having a buyer client for a property the broker personally listed
a broker having a buyer client for a property the broker personally listed Rationale: Dual agency never exists when two different firms are involved. Dual agency is created when the same firm that represents the buyer in a transaction also represents the seller in the same transaction.
A parcel of vacant land 80 feet wide and 200 feet deep was sold for $200 per front foot. How much money would an individual agent receive for a 60% share of the 10% commission earned?
$960 Rationale: The sales price is based on front footage. $200 x 80 = $16,000 sales price. The commission was $1,600 ($16,000 x 10%). Of the $1,600 received by the brokerage, the agent receives $960 ($1,600 x 60%).
A disclosure of agency status should be made by a buyer's agent to the seller: l. With a written confirmation in the offer to purchase and contract ll. At the initial contact with the seller's agent, orally or in writing
Both l and ll Rationale: The Offer to Purchase and Contract contains a confirmation of agency status as do the written employment agreements. The agency status must also be disclosed to other licensee's at initial contact. Disclosure to consumers occurs at first substantial contact.
Jack is a NC real estate licensee. He has decided to sell his own house which he is doing outside of his brokerage as a For Sale by Owner. Jill, a prospective buyer has approached Jack at one of his open houses and has expressed an interest in buying the home. Which of the following is a proper course of action for Jack? - Exclusively represent Jill, but only after full disclosure of his interest in the property. - Enter in a dual agency relationship where Jack represents himself as the seller and also represents Jill as the buyer. - Fully disclose his interest in the property and treat Jill as a customer. - Represent Jill, but do so only on a non-exclusive basis since he has an interest in the property.
Fully disclose his interest in the property and treat Jill as a customer. Rationale: As a NC licensee Jack is prohibited from representing Jill regarding any property in which he has an interest. He cannot represent Jill on any basis, must disclose his interest in the property, disclose agency to Jill and treat her as a customer.
Designated agency can be practiced: I. Between two firms II. Between a broker-in-charge and a provisional broker licensee in their office
Neither I nor II Rationale: Designated agency is never practiced between two firms. It occurs when the same firm represents both the buyer and the seller. A broker-in-charge and a provisional broker can never be designated agents in the same transaction.
A listing agent is showing a house to a prospective buyer customer. The seller told the listing agent that during the past 10 winters, they have been unable to rid the house of rodents. The seller has hidden rodent damage by the strategic placement of a large sofa. Which of the following statements is TRUE? - This information may be withheld since the agent never saw any evidence of infestation or damage. - Disclosing the information could create a fiduciary relationship with the buyer and, thereby, create an unauthorized dual agency situation. - Withholding the information prevents the disclosure of a material fact. - Disclosing the information violates the agency duties with the seller.
Withholding the information prevents the disclosure of a material fact. Rationale: A licensee is required to disclose all material facts. A material fact is any information about the property which could affect a seller's willngness to sell or a buyer's willingness to buy. Material facts must be disclosed to both clients and customers.
Which of the following BEST describes a designated agency transaction? - the listing firm appointing an agent to represent the seller - the selling firm appointing an agent to represent the buyer - some agents in the same firm representing buyers exclusively and other agents in the same firm representing sellers exclusively - a broker-in-charge appointing one agent to exclusively represent the seller as the client and appointing a different agent to exclusively represent the buyer as a client while the firm remains in dual agency
a broker-in-charge appointing one agent to exclusively represent the seller as the client and appointing a different agent to exclusively represent the buyer as a client while the firm remains in dual agency Rationale: It's only designated agency (a form of dual agency) when the same firm represents both the buyer and the seller in the same transaction and the firm has designated two different licensees to each represent the respective interests of a client.
If the broker-in-charge (BIC) is to act as one of the designated agents on a North Carolina in-house transaction, which of the following may be appointed as a designated agent for the other party to the transaction?
a full broker within the firm who has no prior confidential knowledge of the party that the BIC will represent Rationale: In order to be appointed a designated agent a licensee may not already possess prior confidential information about the client and if one of the designated agents is the BIC, the other designated agent must be a full broker.
Which of the following describes designated agency in North Carolina? - designated agency is optional, not mandatory - designated agency does not eliminate dual agency - designated agents cannot have prior confidential knowledge of the other party to the transaction - all of the above.
all of the above Rationale: These are all true statements about designated agency in NC. Designated agency is a form of dual agency and no firm is forced to practice designated agency, it is an optional form of agency that is permitted but not required.
A buyer-client has instructed the agent to show only properties where the seller is willing to pay the buyer agent's commission. The agent contacts an owner selling a property without the assistance of a real estate agent with the hope that the seller would be willing to pay her commission if the buyer decided to purchase the seller's property. In order to comply with North Carolina Real Estate Commission Rules, the agent must do all of the following, EXCEPT: - obtain permission from her buyer-client in order to obtain compensation from the seller - disclose her agency status to the seller at initial contact - convince the seller to list with her and authorize dual agency - provide the Working with Real Estate Agents brochure to the seller
convince the seller to list with her and authorize dual agency Rationale: The buyer's representative is working for the buyer not the unrepresented seller. The licensee would need to disclose their agency status to the seller, provide the Working with Real Estate Agents brochure and have their client's permission to seek compensation from the seller. The licensee should have the seller sign a Commission Protection Agreement to pay the fee, but would remain the representative of the buyer.
All of the following situations will terminate a listing, EXCEPT: - mutual agreement by the parties - breach by either party - death of the individual listing licensee - bankruptcy of the firm
death of the individual listing licensee Rationale: Employment agreement typically end with the death of the parties. However, the death of the licensee does not end the listing because the licensee is not a party to the agreement. The agreement is between the seller and the firm.
The real estate broker's fiduciary responsibility to keep the principal informed of all facts, including property condition and issues that affect a seller's willingness to sell and a buyer's willingness to buy, is the duty of:
disclosure Rationale: A real estate licensee has a duty to disclose to all parties, including their principal and the firm's client all material facts. A material fact about the property is any issue that would affect a seller's willingness to sell and a buyer's willingness to buy.
The amount of compensation due to a licensee from the brokerage firm is determined by:
in-house employment contracts Rationale: The commission splits and amounts paid by brokerages to their individual licensees is contained in their independent contractor agreements. These splits do not appear in listings, buyer-broker agreements or the Offer to Purchase and Contract. They are a matter of private agreements and are not regulated by either the state regulatory agencies or local real estate boards.
Upon discovering a latent defect in the property, the listing agent should discuss the problem with the seller, and then:
inform any prospective buyers of the defect Rationale: A latent defect is a defect that is not readily apparent or is hidden. The seller does not have an obligation to disclose such defects, but a real estate licensee has a duty to disclose to all prospective buyers material facts which the licensee knows or should have known.
Iris, a subagent of the seller who is working with a buyer customer, is told by the buyer customer that he wants to offer a low price on a property. The buyer customer says to Iris, "I want to offer $85,000 initially; however, I'll go as high as $90,000 to get the property." Iris wrote the offer and delivered the offer to the listing agent, Lucy. Iris told Listing Agent Lucy that the buyer customer is offering $85,000 initially, but he will go as high as $90,000 to get the property. Listing Agent Lucy did not tell the seller the buyer would be willing to go for a higher price. The seller accepted the buyer's offer of $85,000. Who violated the Law of Agency? l. Lucy ll. Iris
l only Rationale: Iris is working as a seller's subagent and therefore her fiduciary duties are to the seller. Iris had a duty to disclose the information she possessed regarding the buyer to Lucy. Iris properly fulfilled her agency duties. Lucy also had a duty as the seller's representative to disclose this information, but did not disclose it with the offer. Lucy violated her fiduciary duties to the seller.
An agent must have the buyer sign a written agency agreement by what specific point in time? l. At the time of first substantial contact ll. Prior to the submission of an offer on the buyer's behalf lll. At the time the agent attempts to limit the buyer's ability to work with another agent
ll and lll only Rationale: Licensees are permitted to practice non-exclusive oral agency with buyers. They must still disclose agency at first substantial contact but may work under an oral agreement up until the submission of an offer on the buyer's behalf. At the time of submission of an offer the licensee must have a written buyer representation agreement. Oral buyer representation cannot be exclusive (prevent a buyer from working with another agent) and it cannot involve a specific time period.
A real estate broker was responsible for a chain of events that resulted in the sale of one of his client's properties. This is referred to as:
procuring cause Rationale: Procuring cause is a concept that allows for a licensee to be entitled to a commission when they are involved in a chain of events that resulted in the sale, even if the client eventually purchased through another licensee or firm.
All of the following are TRUE regarding the North Carolina Working With Real Estate Agents brochure, EXCEPT: - the consumer is not required to sign the brochure - if the first substantial contact is by phone, the brochure must be provided within 3 calendar days - the brochure's use is mandatory in all real estate transactions, including residential sales, commercial transactions and property management - the brochure must be given in all sales transactions at first substantial contact
the brochure's use is mandatory in all real estate transactions, including residential sales, commercial transactions and property management Rationale: Use of the brochure is not required in property management.
A seller has listed a home with a broker for $90,000, and the broker suggests to a prospective buyer-customer that they submit a low offer because of the seller's urgent need to sell. The buyer offers $85,000, and the seller accepts it. In this situation:
the broker has violated his agency relationship with the seller Rationale: The broker licensee represents the seller. Their fiduciary duties are to the seller. In this instance the broker provided the seller's confidential urgency to a buyer customer and violated the law of agency to protect and promote their client's interest.
Under the general principles of agency, when a licensee is acting on behalf of a client and acts improperly who is liable for the acts of the licensee?
the client, the licensee, the firm and or the broker-in-charge Rationale: The concept of agency means that someone is legally acting on behalf of another. Therefore the agent's actions are considered the actions of the principal and the firm or broker in charge also had duties of supervision.
The North Carolina Working With Real Estate Agents brochure must be given:
to all consumers in a sales transaction no later than first substantial contact Rationale: The WWREA brochure is a mandatory agency disclosure that requires licensees and consumers to discuss, disclose and decide on agency options. It must be provided to all consumers in sales transactions no later than first substantial contact.
The listing broker tells a prospective buyer that the seller is on the verge of bankruptcy. The broker's actions are:
unacceptable unless the seller has authorized the broker to share the information with potential buyers Rationale: A licensee must keep the financial and personal information confidential unless they are specifically authorized by their client to disclose such information.