PA RE Practice Quiz #3

The legal relationship between broker and seller is MOST frequently a a. special agency. b. general agency. c. secret agency. d. universal agency.

A. 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.

When hired by a management agreement, the broker represents the a. seller. b. owner. c. buyer. d. tenant.

B. OWNER. The property owner hires a broker through a property management agreement to market, lease, maintain, or manage the owner's property.

Who does the real estate broker represent? a. The seller b. The buyer c. Both the seller and the buyer d. Whoever hired the broker

D. WHOEVER HIRED THE BROKER. The written agency agreement determines representation; the source of compensation does not.

An agent will be liable for any losses that the principal suffers as a result of the agent's exceeding the authority assigned in the contract. a. True b. False

A. TRUE. The fiduciary relationship obligates the agent to act in good faith at all times, obeying the principal's instructions in accordance with the contract. 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.

The broker had a listing with a seller who had a heart attack and is in a coma and is not expected to live. In this situation, what is the status of the listing? a. The seller's heirs are responsible for fulfilling the terms of the listing. b. The agency relationship has been terminated. c. The heirs are obligated to relist with the broker. d. The listing status has not changed.

B. THE AGENCY RELATIONSHIP HAS BEEN TERMINATED. Agency, such as a listing agreement, is terminated by the death or incapacity of either party.

Which of the following is considered dual agency? a. A broker acts for both the buyer and the seller in the same transaction b. Two brokerage companies cooperate with each other c. A broker represents more than one principal d. A broker lists and then sells the same property

A. A BROKER ACTS FOR BOTH THE BUYER AND THE SELLER IN THE SAME TRANSACTION. Dual agency results when one licensee represents both parties in the same transaction or during an in-house transaction when the broker does not permit designated agency.

A person who has the authority to enter into contracts concerning all business affairs of another is called a. a general agent. b. a secret agent. c. a special agent. d. an attorney.

A. A 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.

At what time should a Pennsylvania licensee present the Consumer Notice to a prospective homebuyer? a. At the initial interview b. After showing a couple of properties c. Prior to the buyer makes an offer d. Within three days of closing

A. 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 real estate licensee was representing a buyer. At their first meeting, the buyer explained that he planned to operate a dog-grooming business out of any house he bought. The licensee did not check the local zoning ordinances to determine in which parts of town such a business could be conducted. Which fiduciary duty did the licensee violate? a. Care b. Obedience c. Loyalty d. Accounting

A. CARE. A licensee who has been provided specific information by a client has a duty to exercise care while transacting business on behalf of that client. This duty would include determining suitability of the property for the client's intended use.

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. has violated his agency relationship with the seller. b. was unethical, but the seller did get to sell her property. c. acted properly to obtain a quick offer on the property. d. is expected to encourage such bids for the property.

A. HAS VIOLATED HIS AGENCY RELATIONSHIP WITH THE SELLER. 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.

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

A. 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.

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

A. 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. must promote and safeguard the seller's best interests. b. can disclose the seller's minimum price. c. should present to the seller only the highest offer for the property. d. can accept an offer on behalf of the seller.

A. MUST PROMOTE AND SAFEGUARD THE SELLER'S BEST INTERESTS. Brokers acting in the best interests of their client will always keep confidential information confidential; the broker must not disclose the seller's minimum price and must present all offers.

A transactional broker is NOT an agent of either party. a. True b. False

A. 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.

Subagency arises from the theory under common law that other agents can act on the principal's behalf if the agent of a principal authorizes it. a. True b. False

A. TRUE. Subagency arises from the theory under common law that the agent of a principal can authorize other agents to act on the principal's behalf. However, license law states that a broker must obtain the written consent of the principal to extend subagency.

An agent is permitted to offer advice and counsel as a guide for future action or conduct and has fiduciary obligations to the client. a. True b. False

A. TRUE. There is a distinction between the level of service an agent provides a client and the level of service a licensee provides a customer. An agent has fiduciary obligations to the client and is permitted to offer advice and counsel as a guide for future action or conduct.

In a fiduciary relationship, the agent is primarily responsible to the a. customer. b. client. c. lender. d. lending broker.

B. 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.

A broker did not have enough money in the business account to pay two salespeople, so he wrote two checks out of a trust account. After the next closing, the broker put the money back into the trust account. This an example of a. commingling. b. conversion. c. a reasonable business practice. d. what needs to be done in the rat race.

B. CONVERSION. Conversion is the illegal use of such entrusted money; trust money must be strictly accounted for. Commingling is combining trust and personal funds in the same account.

The State Real Estate Commission's regulations permit a licensee to market the lease of real estate but not solicit prospective buyers without the written authority of the seller. a. True b. False

B. FALSE. In Pennsylvania, all exclusive listing agreements and other 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).

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

B. 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.

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

B. 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 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. a. True b. False

B. 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.

Responsibility for compensation is determined by regulations promulgated by the real estate commissioners. a. True b. False

B. 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.

Under the duty of obedience, an agent must NOT show the seller's property to any protected class without the permission of the seller. a. True b. False

B. FALSE. 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, the agent may not obey instructions that are unlawful or unethical.

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 at least one party as a single agent. d. must represent both parties as a dual agent.

B. IS PERMITTED TO ACT AS A TRANSACTION BROKER. If both the buyer and the seller agree to dual representation, in writing, then the broker can represent both parties.

A licensee is hired as a buyer's agent by a first-time buyer to help with the purchase of a home. The buyer confides that being approved for a mortgage loan may be complicated by buyer's bankruptcy filing two years ago. The buyer would like to find a seller who will accept an installment sale. In this situation, a correct statement about the licensee's responsibility regarding this information during the presentation of an offer to purchase a property is that the licensee is a. required to disclose it under the Fair Credit Registry Act. b. required to disclose it because it is a material fact—information important to the seller's evaluation of the offer. c. not required to disclose it because the seller might reject the offer. d. not required to disclose it because the licensee has no agency relationship with the seller.

B. REQUIRED TO DISCLOSE IT BECAUSE IT IS A MATERIAL FACT—INFORMATION IMPORTANT TO THE SELLER'S EVALUATION OF THE OFFER. Because the buyer is asking for the seller to finance the property, the fact that the buyer has negative financials is useful information for the seller and must be disclosed.

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 owner abandons the property. d. The broker appoints other brokers to help sell the property.

B. 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 relationship of a broker to a client is that of a. a trustee. b. a subagent. c. a fiduciary. d. an attorney-in-fact.

C. A FIDUCIARY. The relationship of a broker to a client is one of a fiduciary; brokers owe care, obedience of lawful instructions, and utmost loyalty to their client's interests.

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

C. 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.

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

C. 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. Salesperson with whom the consumer is working b. Associate broker who manages the office c. Broker of record d. Anyone who enters into an agency agreement

C. 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.

Helping the seller determine a fair market value is an example of the fiduciary duty of a. loyalty. b. accounting. c. care. d. obedience.

C. CARE. The most fundamental way in which the agent exercises care is to use that skill and knowledge on the principal's behalf, such as helping the seller arrive at an appropriate and realistic listing price, discovering and disclosing facts that affect the seller, and properly presenting the contracts that the seller signs.

An errors and omissions insurance policy would most likely offer protection against an allegation of a. fraudulent activity. b. antitrust activity. c. forgetting to turn on the burglar alarm after showing the property. d. not showing the property to Asians.

C. 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.

In Pennsylvania, all exclusive contracts for real estate activities must be a. completed within a stated time frame. b. supervised by an independent third party. c. in writing. d. verifiable.

C. 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).

A seller lists a home with a broker for $198,000. Later that week, an acquaintance comes into the broker's office and asks for general information about homes for sale in the $190,000 to $200,000 price range. Based on these facts, which statement is TRUE? a. Both the seller and the buyer are the broker's customers. b. The seller is the broker's customer; the buyer is the client. c. The buyer is the broker's customer; the seller is the broker's client. d. If the buyer asks the broker to present an offer to the seller, the broker must ask both parties to sign a disclosed dual agency agreement.

C. THE BUYER IS THE BROKER'S CUSTOMER; THE SELLER IS THE BROKER'S CLIENT. The seller and the broker have created an agency relationship, with the seller being the principal or client of the broker. There is no agency relationship with the prospect inquiring about homes for sale, so the buyer-prospect is a customer of the broker.

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 licensee has not violated any agency responsibilities to the seller. b. The licensee should have disclosed this information, regardless of its accuracy. c. The disclosure was improper, and possibly illegal, regardless of the motive of the licensee. d. The licensee should only have disclosed that the seller would reduce the price.

C. 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.

A buyer who is a client of the broker wants to purchase a house that the broker has listed for sale. Which of the following is TRUE? a. If the listing salesperson and the selling salesperson are two different people, there is no conflict of interest. b. The broker should refer the buyer to another broker to negotiate the sale. c. The seller and the buyer must be informed and agree to have the broker represent both of them. d. The buyer should not have been shown a house listed by the broker representing them.

C. THE SELLER AND THE BUYER MUST BE INFORMED AND AGREE TO HAVE THE BROKER REPRESENT BOTH OF THEM. The broker has created an agency relationship with both the buyer and the seller. This dual agency is permitted only after full disclosure and the informed consent of both parties. Informed consent must be in writing in Pennsylvania.

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 could create an undisclosed fiduciary relationship with the buyer c. Withholding the information prevents the buyer from making an informed decision d. Disclosing the information violates the fiduciary to the seller

C. 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.

Under the law of agency, a real estate broker owes all of the following to the principal EXCEPT a. care. b. obedience. c. disclosure. d. advertising.

D. ADVERTISING. Fiduciary duties an agent owes the principal include care, obedience, accounting, loyalty (including confidentiality) and disclosure. Advertising is not a fiduciary duty.

In Pennsylvania, under what condition is a broker permitted to represent both the seller and the buyer in the same transaction? a. The principals are not aware of such action b. The broker is a subagent rather than the agent of the seller c. Commissions are collected from both parties d. Both parties have been informed and agreed in writing to the dual representation

D. BOTH PARTIES HAVE BEEN INFORMED AND AGREED IN WRITING TO THE DUAL REPRESENTATION. Pennsylvania licensees may act for more than one party in a transaction only with the knowledge and written consent of all parties being represented. Payment of commission does not determine agency duties.

In real estate, the relationship between the principal/consumer and agent/broker must be a. in harmony. b. synchronized. c. in harmony. d. consensual.

D. 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.

In an office, one affiliated licensee represents the seller, and another affiliated licensee represents the buyer. This is an example of a. single agency. b. disclosed dual agency. c. transaction licensees. d. designated agency.

D. DESIGNATED AGENCY. Although the broker remains a dual agent, in designated agency, the broker can designate one affiliated licensee to represent the seller and another to represent the buyer in the same transaction.

By law, the sellers who are required to complete a Seller Property Disclosure Statement are those selling a. any real property. b. commercial property. c. agricultural property. d. residential one- to four-family dwellings.

D. RESIDENTIAL ONE- TO FOUR-FAMILY DWELLINGS. The requirement to complete a Seller Property Disclosure Statement applies only to sellers of one- to four-family dwellings, not commercial, industrial, or agricultural properties or even large apartment buildings.

Designated agency is MOST likely to occur when a. there is a client-buyer and a customer-seller. b. the seller and the buyer are represented by different companies. c. both the buyer and the seller are customers. d. the buyer and the seller are represented by the same company.

D. THE BUYER AND THE SELLER ARE REPRESENTED BY THE SAME COMPANY. Under designated agency in Pennsylvania, the broker can designate one affiliated licensee to represent the seller and another to represent the buyer, in the same transaction. The broker is a dual agent, but not the affiliated licensees.

The term fiduciary refers to a. the sale of real property. b. principles by which sellers must conduct their business affairs. c. those who authorize another to act on their behalf. d. the principal-agent relationship.

D. 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.

In Pennsylvania, the broker is providing communication and document preparation services and is assisting both parties in a transaction without advocating for either party. This broker is a a. single agent. b. dual agent. c. designated agent. d. transaction licensee.

D. TRANSACTION LICENSEE. A nonagent (also called a transaction licensee, facilitator, coordinator, or contract broker) is not an agent of either party and may not negotiate on behalf of either the buyer or the seller. A nonagent must not disclose confidential information to either party.