P79 - Review 2 - Agency & Contracts (7-10)

Which of the following is NOT true about the North Carolina Residential Property Disclosure form?

If the seller marks, "No Representation" on the form the licensee is relieved of their duty to discovery and disclose material facts.

When must a licensee working for a buyer reduce the oral agency employment agreement to writing?

Prior to submitting an offer. Rationale: A licensee may work for a buyer under an oral employment agreement, so long as the written agreement is in place prior to submitting an offer.

Which of the following is TRUE regarding oral buyer agency agreements? - They can be exclusive, prohibiting the buyer from working with other agents. - They must be for a set period of time. - If there is an oral agreement then the brochure "Working With Real Estate Agents" must be provided at the time the agreement is reduced to writing. - They are permitted up until a written offer is submitted on behalf of the buyer.

They are permitted up until a written offer is submitted on behalf of the buyer.

An intoxicated individual enters into a sales contract to purchase a home. The contract would be considered:

voidable Rationale: When a person lacks capacity to enter into a contract the contract is voidable. It can be made void at the option of the person who lacked capacity or competency. The other party to the contract is not able to make it void. This same rule applies to minors who lack legal capacity.

At an open house, the seller's agent must disclose his/her agency status to a prospective buyer:

when the prospect begins to talk about his/her property needs and ability to purchase Rationale: The disclosure and use of the WWREA brochure must occur at first substantial contact and that does not occur simply because the buyer walked into an open house. It does occur when the prospect begins to discuss their motivations, confidential information, individual needs or wants concerning the transaction.

Which of the following is not required for a contract to be valid and enforceable?

witnesses Rationale: This question is not asking about a specific type of agreement. It is asking about contracts in general. In general, an enforceable contract must only have the elements of mutual assent, consideration, legal capacity and be for a legal purpose.

Acme real estate brokerage has been in business for many years. A new company, Flat Fee Listers, has been charging much less than the Acme firm charges to list and sell homes. At a recent company meeting the owner of Acme instructed their agents not to show any listings that were being sold by Flat Fee Listers. Such conduct:

would likely be a boycotting violation under the Sherman Antitrust Act. Rationale: The Sherman Anti-Trust Act prohibits unfair practices including boycotting other entities, market allocation and price-fixing.

A broker has an Exclusive Right to Sell Listing Agreement with Fast-Food Market with a $4,000 commission fee. The same broker has a similar listing with Smithy-Hardware Store with a $7,000 commission. Due to changing demographics, the two stores decide to swap locations and ownership of the stores through a 1031 tax deferred exchange. In this case, the broker's commission would be?

$11,000 because the broker assisted in the conveyance of real property. Rationale: Their is no reason the firm would not be entitled to both commissions. An Exclusive Right to Sell Agreement includes instances where the owner sells or transfers th property with or without the assistance of the brokerage.

When must a licensee get an Exclusive Right to Sell Listing Agreement signed?

- at the time of employment or the start of the relationship Rationale: There is no such thing as an oral listing agreement. The listing agreement must be in writing at the time of employment or the start of the relationship. If the licensee does not have a written listing agreement, they do not have a listing and may take no actions on behalf of the seller.

Several months ago, Bill purchased four lots for $24,000 each. He later divided the lots into six lots and sold each for $20,000. What was Bill's percent of profit (loss)?

25% Rationale: Bill's total investment was $96,000 (4 lots at $24,000 each). He divided the lots and sold a total of 6 at $20,000 a piece and received $120,000. His total profit was $24,000 ($120,000-$96,000). If he invested $96,000 and made $24,000, then the amount he made of $24,000 divided by his original investment of $96,000 = 25%.

A buyer is under an exclusive buyer's agency agreement and using their buyer agent they submit an offer to a listing agent who then submits the offer to the seller. The parties have many discussions and negotiations. The seller decides to contact the buyer directly. During their phone call, the buyer and seller agree to the terms of the contract. The seller makes the changes and faxes them directly to the buyer. The buyer initials the changes, dates and signs the counteroffer and faxes it back to the seller. Neither the buyer's agent nor the listing agent are aware of these communications. Which of the following is correct? - The buyer and seller have violated NC licensing law by directly communicating. - A contract has not been formed because all communication must go through the agents when an exclusive agency agreement exists. - A contract has been formed because the parties reached an agreement, the agreement was signed and it was communicated to the seller. - The Uniform Electronic Transactions Act expressly forbids faxed copies to create legally binding contracts.

A contract has been formed because the parties reached an agreement, the agreement was signed and it was communicated to the seller. Rationale: There is no prohibition against the parties communicating directly and here, that activity led to a binding contract. Licensees should properly advise their clients not to have direct communication with the other party, but such activity is not illegal or prohibited.

According to North Carolina law, what are the buyer and seller allowed to negotiate after contract formation?

Assuming that they are both interested in negotiating, all terms of the contract may be renegotiated during the contractual period. Rationale: Contracts are mutual agreements. The parties may renegotiate any terms to which they can mutually agree. They need to document their alterations, modifications and changes by executing a written and signed addendum to the contract.

At what point in the transaction must the real estate licensee have an agency discussion with the consumer and use the "Working With Real Estate Agents" brochure?

At first substantial contact. Rationale: First substantial contact occurs when conversation between a broker and consumer shifts from facts about the property to possible confidential information about the consumer's needs, wishes, and abilities or when the consumer or broker begins to act as if there is a fiduciary relationship.

Which of the following statements is/are correct? I. In dual agency, the seller client and buyer client are aware and understand that the firm's dual agency role is to provide balanced and fair representation of the seller client and buyer client and to encourage and effect communication between them rather than as an advocate or exclusive agent or representative. II. In designated agency, the firm designates an agent to represent the seller client and another agent in the firm to represent the buyer client as long as both agents have not actually received confidential information concerning the other client and shall represent the interests of the parties to the extent permitted by law.

Both I and II Rationale: Dual agency limits the representation that a licensee may provide because they cannot advocate and must remain fair and impartial to both the seller and the buyer. Designated agency, while still a form of dual agency, helps alleviate this limited representation by allowing each of the licensees to fully advocate on behalf of and represent their client, so long as they have not already received confidential information regarding the client.

A buyer made an earnest money deposit of $1,500 and gave the licensee a due diligence fee of $500. The licensee submitted the offer to the seller. However, the buyer contacted the licensee and withdrew their offer before it was accepted. The licensee is responsible for taking what action with the earnest money and due diligence fee?

Both the earnest money and the due diligence fee should be returned to the buyer. Rationale: A buyer can terminate or withdraw an offer at any time for any reason prior to acceptance of the offer. When this occurs all monies should be returned to the buyer. The buyer and seller did not enter into a contract.

A deed was not properly recorded. This would best be described as:

Failure of notice, but valid between the parties Rationale: In NC the Conner Act requires a deed to be recorded in order to be enforceable against third parties. However, a deed and the transfer of real estate is complete between the parties once a deed is signed, delivered and accepted. A deed can be valid between parties, but unenforceable as to claims by third parties who were not provided with constructive notice of the transfer due to the non-recordation of the deed.

Adam is a licensed real estate agent and has a written buyer agreement with Sally. At the time that Sally hired Adam she authorized exclusive agency only. Which of the following statements is true regarding the properties which Adam may show to Sally? - He may not show any of his firm's listings without getting oral dual agency authorization - He is not allowed to show his company's listings at all. - He may show an in-house listing, but must get written dual agency authorization prior to Sally making an offer. - He may show an in-house listing so long as he gets Sally to consent to dual agency authorization in writing before showing an in-house listing.

He may show an in-house listing so long as he gets Sally to consent to dual agency authorization in writing before showing an in-house listing. Rationale: Once a written buyer agency agreement has been created, the authorization for dual agency must also be in writing. The disclosure and consent for dual agency must occur before showing a property. Rationale: If Adam had an oral buyer agreement with Sally, then oral disclosure of dual agency would have been acceptable. Once the agreement is in writing, then consent for dual agency must also be in writing.

Lucy Jones, a subagent of the seller and provisional broker with ABC Realty, sold a property listed with XYZ Realty. The buyer made a low offer but told Lucy they would be willing to offer more money and better terms if the sellers did not accept the original offer. Lucy presented the offer to Joe Baker, listing agent, and repeated to Joe the buyer's statement that, "They would be willing to offer more money and better terms." Joe presented the offer, making no mention that the buyers would be willing to go higher. Which agent(s) violated the Law of Agency? I. Joe, the listing agent II. Lucy, working with a buyer, as a seller's subagent

I only Rationale: Only Joe, as the listing agent. Lucy was not representing the buyer. She was working with the buyer as a seller's subagent. She had an absolute duty to disclose the buyer's comments because she owed duties to the seller through subagency. She owed no such duties to the buyer. Joe, who was the listing agent, also had fiduciary duties to the seller and his failure to inform the sellers of the buyer's comments breached his duties of loyalty to his client.

Under North Carolina law and commission rules, which of the following is a correct statement regarding designated agency? I. The BIC cannot be a designated agent. II. An agent cannot be appointed as a designated agent if the agent has prior confidential knowledge about the other party in the transaction.

II only Rationale: Designated agency requires that the confidential information of the client not be shared with other agents in the office. If the agent already possesses the confidential information they cannot be appointed a designated agent. A BIC is permitted to be a designated agent, they just can never be a designated agent with a provisional broker in the same transaction.

An agency relationship is BEST established in what way?

In a written agreement. Rationale: All answers are ways in which agency relationships get established. The question asks what is the BEST way. It is preferable to have written agreements so that the parties clearly know that an agency relationship has been created and understand their respective obligations and duties.

A seller notified his listing agent that the water heater was not working properly. The agent failed to mention this to a buyer's agent. Who would be at fault if the buyer is harmed due to the malfunctioning water heater?

Listing agent Rationale: Only the listing agent. The seller is never required to disclose any defects, so long as they make no representations to the buyer or the buyer's agent. The listing licensee must disclose everything they know and should have known. The buyer's agent is not liable because this type of defect is not something that the buyer's agent exercising a reasonable standard of care should have known.

Mary Smith is broker-in-charge of Smith Realty, which has several affiliated agents. Mary is actively involved in listing and selling properties. Sue Long, a provisional broker with Smith Realty, has a buyer client who has expressed interest in one of Mary's listings. Which of the following agency agreements is permissible in this situation? - Mary and Sue may act as dual agents. - Mary and Sue may act as designated agents. - Mary and Sue may both represent the seller, treating the buyer as a customer. - Mary may represent her seller, and Sue may represent her buyer.

Mary and Sue may act as dual agents. Rationale: Mary and Sue work for the same firm. Therefore, they cannot be single agents. The relationships formed will be either dual agency or designated agency. However, under the law of designated agency, a broker-in-charge cannot be a designated agent with a provisional broker whom they are required to supervise. When a BIC and a provisional broker are representing parties in the same transaction they will always be dual agents.

Broker Ron Thompson listed and sold Mr. Simpson's property. Thompson did not disclose to Mr. Simpson that there was a potential zoning change in the works that would allow the property to be used as a convenience store. The new use would substantially increase the value of Mr. Simpson's property. Which of the following is/are true? I. Thompson did not have to divulge the zoning change since it had not been put into effect. II. Thompson did not have to divulge the zoning change since the property sold at its fair market value.

Neither I nor II Rationale: Changes in zoning, new highways and changes in the neighborhood are all material facts and they must be divulged or disclosed to all parties in the transaction, regardless of whom the licensee represents.

A seller's residence is listed with a broker and the seller stipulates that they want to receive $100,000 from the sale and the broker can keep any amount higher than that as the commission. What type of listing agreement is this?

Net listing Rationale: When the broker agrees to provide the seller with a set amount and keep any additional money as a commission, it is a net listing. Net listings are legal, but not encouraged. Licensees involved in net listings must make certain that they have fulfilled their fiduciary duties to their clients regarding proper advice on the price and value of the property.

Does a listing agreement terminate when the listing agent leaves the firm?

No Rationale: The listing agreement is between the firm and the client. The listing agent is not a principal in the agreement.

The Statute of Frauds requires that certain agreements must be in writing in order to be enforceable. Which of the following types of agreements is subject to the Statute of Frauds?

Offers to purchase and contract Rationale: The statute of frauds requires all contracts for the sale or transfer of real property to be in writing in order to be enforceable. Employment agreements and leases for less than 3 years do not have to be in writing pursuant to the statute of frauds.

Jim, a provisional broker, is an agent for ABC Realty. While discussing agency with a prospective buyer which of the following would be a correct statement that Jim can make to the buyer? - You don't have to decide you want to hire me until you are ready to write an offer. Let's start out by me just showing you homes. - I can present your offer so long as we have a buyer's agency agreement in writing before closing. - Our firm practices designated agency. If we look at at home that is listed by my BIC, then my BIC will act as the designated agent for the seller and I can fully represent you as your designated agent. - Once you hire me, I agree to protect and promote your interests and to protect your confidential information, even if our agreement is oral.

Once you hire me, I agree to protect and promote your interests and to protect your confidential information, even if our agreement is oral. Rationale: Whether working under an oral or written agreement, a licensee who is hired by a buyer must work to protect and promote the buyer's interest. The licensee owes fiduciary duties to the buyer including confidentiality.

Which of the following would be used to terminate a contract in a situation where the buyer is entitled to be relieved of all liability and have all of their money returned?

Rescission Rationale: Rescission is the process of restoring the parties to their original condition before the contract was executed.

An oral real estate sales contract is unenforceable under:

Statute of Frauds Rationale: Not all contracts must be in writing in order to be enforceable, only certain types of agreements. However, the transfer of any interest or ownership in real estate must be in writing in order to be enforceable. This is due to application of the statute of frauds.

An agent works for Smith & Wesson Realty and is acting as a buyer's agent. The buyer is interested in a property that is listed with Jones Realty. From whom will the agent receive her commission check?

The Smith & Wesson Realty firm. Rationale: All compensation passes through the firm with which the licensee is affiliated.

Jones is acting as a buyer's agent under a signed buyer agency agreement. Jones assists the buyer in preparing an offer to purchase, which the buyer signs. The buyer then immediately leaves town on business. Jones presents the offer to the listing agent. The seller signs the offer without any changes, and Jones is notified of the acceptance at 4 p.m. Jones checks his voice mail messages at 5 p.m. and discovers that the buyer left him a message a 2 p.m. withdrawing his offer. Which of the following statements regarding this situation is true? - The contract became legally binding when Jones was notified of the seller's acceptance. - No contract was legally created because the buyer withdrew his offer before his agent was notified of the seller's acceptance. - The contract is voidable because the buyer was not notified personally of the acceptance. - The contract is voidable because the buyer withdrew the offer before it had been accepted.

The contract became legally binding when Jones was notified of the seller's acceptance. Rationale: A buyer may withdraw their offer at any time prior to acceptance. In order to be effective, the withdraw must be communicated to either the listing agent or the seller. That did not occur. The seller accepted the offer and the acceptance was communicated to the buyer's agent before the withdraw was communicated to the listing agent or the seller.

Barney Buyer made an offer to a seller which was accepted. Three days prior to closing, Barney dies. What is the status of the agreement between the buyer and the seller?

The contract is still valid and enforceable. The contract is now an obligation of the estate and the probate court will direct the proper way to proceed with the agreement. Rationale: Death of one of the parties does not end a purchase contract. The contract is still valid and enforceable and will become an obligation of the estate.

Smith and Baker executed a valid contract to buy and sell a home. The home burns down. What is the status of the contract?

The contract is void. Rationale: Destruction of the property would cause the contract to be void. Voidable occurs when a party lacks capacity or the parties have created contigencies which allows one of them to take action to void the agreement.

A seller entered into an Exclusive Right to Sell Listing Agreement. A qualified buyer presented an offer for the listed price. The seller refused to sell to the buyer. Which of the following is a correct statement? - The seller can refuse to sell, but a commission may still be owed to the firm. - The seller can refuse to sell and has no legal liability to anyone. - The seller must accept the offer because it was for the listed price. - The seller must still sell based on the obligation he agreed to in the Exclusive Right to Sell Listing Agreement.

The seller can refuse to sell, but a commission may still be owed to the firm. Rationale: The Exlusive Right to Sell Listing Agreement is not an agreement to sell the property. It is an employment contract hiriing the broker to find a ready, willing and able buyer. The seller cannot be forced to sell and has not agreed to sell anything. If the broker fulfils the terms of the agreement by finding a ready, willing and able buyer, the firm may be entitled to a commission.

A licensee has a listing agreement with the seller. The seller dies before the agent can enter the listing into the MLS. What should the licensee do?

There is no valid agreement and the agent must cease all activity. Rationale: All employment agreements including listings and buyer representation agreements are personal contracts for services and they terminate at the death of the party. The licensee no longer has a listing if the seller dies.

Mr. Jones makes a full price offer on a home contingent on his wife approving the contract within one week after the offer becomes legally binding. If the seller accepts Mr. Jones' offer what is the status of the agreement between the parties to the contract?

This is a valid agreement, although the contract will be voidable at the Jones' option should Mrs. Jones not approve of the agreement. Rationale: Mr. Jones cannot bind his wife to an agreement. Her signature will be required for the transaction to close, however, this is a valid contingency and a contract exists.

A buyer and seller enter into a contract. The seller backs out and the buyer sues for specific performance. What is the buyer seeking in this lawsuit?

Transfer of the property Rationale: Specific performance is a remedy for the default on a contract. Specific performance is a court action seeking to enforce the terms of a contract and force the parties to carry out contractual obligations. The buyer is seeking a court order to force the seller to sell the home.

True or False? Contracts are assignable, unless the contract specifically prohibits assignment.

True Rationale: This is the general rule regarding the assignment of contracts. Rationale: Assignments do not transfer all of the obligations. The assignor remains liable. Rationale: This is only true under the NCAR/NCBA Offer to Contract and Purchase because the contract specifically prohibits assignment, but that is not the general rule.

Sam, a prospective buyer, signs an option contract and pays the seller $500 for an option fee. Which term best describes this contract?

Voidable Rationale: Options are unilateral contracts which bind only one party. An option binds the seller, but the buyer is under no obligation to buy. Since the contract can be made void by one of the parties, the contract is considered voidable by the buyer should they so choose.

Jason is a licensee who is representing a seller. At the open house a buyer indicates that they are interested in purchasing the home. Jason has an agency discussion with the buyer, provides them with the Working with Real Estate Agents brochure and has the buyer sign a buyer brokerage agreement. What else must Jason have from both the seller and buyer in order to proceed with the transaction?

Written disclosure and consent to dual agency representation. Rationale: When both employment agreements are in writing, the licensee must have written disclosure and consent to dual agency when representing both parties in the transaction.

Sam was recently declared incompetent and sister Sally was appointed his guardian by the courts. To raise funds to assist with Sam's medical needs, Sally hires a real estate agent to sell a home which is in Sam's name. A buyer is found and Sally signs the Offer to Purchase and Contract on behalf of Sam as his legal guardian. Is this legal?

Yes, because a court appointed guardian would be able to enter into contracts on behalf of their ward. Rationale: The purpose of a guardianship is to empower another person to act on behalf of someone else. The person taking action is the guardian and the person over whose affairs the guardian has control is called their ward.

Once a binding contract exists between two parties, the document that the licensee would use to make any changes or modifications to an already existing contract or to add to the terms of a contract would be called a(an):

addendum Rationale: An addendum changes or alters the terms of an existing contract. All changes, alterations or modifications must be in writing pursuant to the statute of frauds and the parties must mutually agree to the changes.

A valid and binding contract is created by a seller when acceptance of an offer is:

communicated to either the buyer representative or the buyer Rationale: To create a binding contract the seller's acceptance only needs to be communicated to either the buyer or the buyer's representative. Although licensees must provide all documents to the parties immediately, but never later than 5 days, the delivery of the documents is not necessary to create acceptance and a binding contract.

Under which type of listing agreement does the seller lose his/her right to compete for the commission?

exclusive right to sell listing Rationale: Under an exclusive right to sell listing agreement, the firm will be entitled to compensation regardless of who sells the property. Even if the owner sells the property themselves, they will still be obligated to pay the firm a commission.

A broker receives two offers on a property that he has listed. He submits the first offer at 9:00 AM to the seller but does not submit the second offer until the seller has decided how to respond to the first offer. The actions of the broker would best be described as:

not allowed, because the broker must submit all offers to the seller. Rationale: A licensee must submit all offers immediately, but never later than 5 days. The licensee must submit all offers in their possession at the same time to fulfill the fiduciary duties to their client. Such conduct would be a breach of the licensee's fiduciary duties to the principal.

A contract that binds the owner of real estate to hold an offer to sell open for a set period of time, and gives the buyer the legal right to either accept or withdraw is a(n):

option to purchase contract Rationale: In an option to purchase, the seller is obligated to sell and the buyer is not obligated to buy. Another way of saying this is to say that an offer is binding on the optionor (the person giving the option) but not binding on the offeree (the person receiving the option).

A broker has an exclusive right to sell listing on a building. An offer to purchase the building is received while the owner is out of town. The offer requires a commitment from the seller before the seller is scheduled to return to the city. Under these circumstances, the:

the broker must obtain the acceptance of the seller to effect a contract. Rationale: A contract cannot exist without an offer and acceptance by the parties to the agreement.

All of the following are true regarding the "Working with Real Estate Agents Brochure" EXCEPT: - the brochure must be provided at first substantial contact. - the buyer must sign the brochure before the agent can work as a buyer's agent - if first substantial contact is by phone, the brochure must be mailed within 3 days - the brochure includes a place for disclosure of seller subagency and an acknowledgement of such agency status by the prospective buyer.

the buyer must sign the brochure before the agent can work as a buyer's agent. Rationale: It is not required that the client/customer sign the brochure. The licensee, however, should document the date and retain the tear off flap in the real estate file as evidence of a proper agency disclosure with the consumer.

If a seller's agent or subagent has been informed of a latent defect in the property and the seller on the property disclosure statement checks "No Representation" and the agent fails to inform the buyer of the defect who is liable?

the seller's agent Rationale: The seller does not have a duty to disclose. However, the seller's agent has a duty to disclose all defects which they know about or should have known about.

A buyer's agent is permitted to have an oral agency employment agreement with a buyer so long as the licensee gets the written employment agreement no later than the:

time an offer is submitted Rationale: A written buyer brokerage agency agreement must exist at the time an offer is submitted.