Unit 3
By Pennsylvania law, all of the following must receive the Consumer Notice EXCEPT A) a corporation is selling the property. B) a couple is selling their home. C) an individual is purchasing a home. D) a tenant is looking for a rental 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) Within three days of closing B) After showing a couple of properties C) Prior to the buyer makes an offer D) At the initial interview
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) the buyer and the seller are related. C) both parties have attorneys who authorize the dual representation. D) both parties give informed written consent to such a transaction.
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.
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) Associate broker who manages the office B) Salesperson with whom the consumer is working C) Anyone who enters into an agency agreement D) Broker of record
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) lending broker. B) customer. C) lender. D) client.
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) the firm's policies for assigning consumers to the licensees based on national origin. B) how the firm's fees are in line with other brokerage firms. C) the racial composition of the neighborhood. D) company policies regarding dual agency and designated agency.
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) in harmony. C) compatible. D) synchronized.
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) not showing the property to Asians. B) antitrust activity. C) forgetting to turn on the burglar alarm after showing the property. 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) general agent. B) secret agent. C) attorney. D) special 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) has violated his agency relationship with the seller. B) was unethical, but the sellers did get to sell their property. C) is expected to encourage such bids for the property. D) acted properly to obtain a quick offer on the property.
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) supervised by an independent third party. B) completed within a stated time frame. C) verifiable. D) in writing.
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) Parties will accept different financing terms than those offered B) Material defects in the property C) Buyer will pay more than the submitted offered price D) Seller will accept less than the asking 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) may not revoke the listing agreement. B) must go to court to partition the company. 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 agree to a change in price without the seller's approval. B) can accept a commission from the buyer without the seller's approval. C) is obligated to render faithful service to the seller. D) can make a profit, if possible, in addition to the commission.
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 permitted to act as a transaction broker. B) must represent at least one party as a single agent. C) is not permitted to do this. D) must represent both parties as a dual 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) Signed a written agency agreement B) Agent takes the buyer to see a property 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) general agency. C) secret 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) of any physical defects in the property. B) stigmatized properties. C) the service fees charged by the licensee's firm. 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 licensee has not violated any agency responsibilities to the seller. B) 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. D) The licensee should have disclosed this information, regardless of its accuracy.
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 owner abandons the property. B) The owner declares personal bankruptcy. C) The broker appoints other brokers to help sell the property. D) The broker discovers that the market value of the property is such that an adequate commission will not be earned
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.
Who does the real estate broker represent? A) Both the seller and the buyer B) The seller C) Whoever hired the broker D) 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) Disclosing the information could create an undisclosed fiduciary relationship with the buyer. B) Disclosing the information violates the fiduciary to the seller. C) Withholding the information protects the confidence of the seller. D) Withholding the information prevents the buyer from making an informed decision.
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.