Chapter 3: Section 2

The avoidance of conflicts of interest would be a key part of which of the following duties of an agent to a client? Select one: a. Reasonable care and diligence. b. Loyalty. c. Disclosure. d. Confidentiality.

B. Loyalty The avoidance of conflicts of interest is part of an agent's duty of loyalty to the client.

A seller contacted 3 brokers and asked each to suggest the listing price for his property. Broker A said $78,000. Broker B said $79,000. Broker C said $91,000. The seller listed with Broker C and the house later sold for $76,000. Broker C is guilty of violating which of his or her agency responsibilities? Select one: a. Loyalty. b. Reasonable care. c. Disclosure. d. Accountability.

B. Reasonable Care Of the duties listed, reasonable care best describes this situation. The agent must exercise care to properly advise his client, thereby looking out for his client's best interests.

A client is obligated to her agent for... Select one: a. indemnification against loss not caused by the agent. b. reimbursement. c. performance. d. all of the above.

A. A client is obligated to her agent for indemnification against loss not caused by the agent. The correct answer is: indemnification against loss not caused by the agent.

How can an agency relationship be created? Select one: a. Written document. b. Action of the parties. c. Words of the parties. d. Any of these choices.

D. Any of these choices. Agency can be either an express agency, as in a written or oral agreement, or it can be an implied agency, as with action or words.

If a broker accepts a promissory note or post-dated check as a deposit on an offer, that information must be disclosed to the seller. Select one: a. True b. False

True: A broker must acknowledge the fact in the contract when accepting a non-negotiable deposit (for instance, promissory note or post-dated check).

Any of the following could cause a listing agreement to be terminated. Which of the following is NOT by operation of law? Select one: a. The seller discharges the broker. b. The property is destroyed by fire. c. The broker declares bankruptcy. d. The seller dies.

A. Each of the choices would terminate the agency by operation of law except if the seller discharges the broker, which is an action by the seller, not the law. The correct answer is: The seller discharges the broker.

The phrase "a person who is placed in a position of trust to act for someone else's benefit" is the definition of the term: Select one: a. Fiduciary. b. Agent. c. Trustor. d. Intermediary.

A. Fiduciary

Mr. Gregory has a home for sale with a sign, FOR SALE BY OWNER, in the front yard. Salesperson Gary calls, identifies himself and asks for the key to show the property. Mr. Gregory agrees. Which of the following best describes any agency relationship that may exist? Select one: a. Mr. Gregory is Gary's client. b. Gary is Mr. Gregory's agent. c. Gary's broker is the agent of Mr. Gregory for a reasonable time. d. No agency relationship exists.

C. An agency agreement between Gary's BROKER (agent) and Mr. Gregory (client) exists by implication. Gary did identify himself and the seller agreed to let him show the property. In absence of a specified time, the agency would continue for a reasonable time. The correct answer is: Gary's broker is the agent of Mr. Gregory for a reasonable time.

Brokers must hold their client's funds in a/an... Select one: a. office safe. b. savings account. c. trust or escrow account. d. special account managed by the Board of Realtors.

C. Brokers must hold their client's funds in a trust or escrow account.

A salesperson can set up escrow accounts for each of his or her clients, in the name of the client and the salesperson. Select one: a. True b. False

False: The statement is false. The escrow account must be in the name of the brokerage firm.

The client may be obligated to compensate the salesperson for financial losses incurred as a result of actions by the clients. Select one: a. True b. False

True: Yes, the client may be obligated to compensate the salesperson for financial losses incurred as a result of actions by the clients.

Broker Bob has opened an escrow account and has deposited a buyer's earnest money deposit in that account. Broker Bob later learns that a different customer is about to file a lawsuit against him so he deposits $100,000 of his own money in that account. This action constitutes: Select one: a. Conversion. b. Commingling. c. Disintermediation. d. Wise business practice.

B. Broker Bob has commingled his own money with clients' money, which is a violation. [Conversion is theft of the money.] The correct answer is: Commingling.

Property owner Kilmer, who is living overseas, lists his property with Broker Huff. Later the land is rezoned for a higher use, increasing its value. Huff buys the property herself and sells it six months later. Which of the following is true? Select one: a. As long as Huff informs Kilmer of her intent to buy the property before she does so, her action is above reproach. b. Huff can buy the property only after informing Kilmer of the zoning change and the effect that it has on the property. c. Huff cannot legally act for someone who is overseas. d. When Huff resells the property in six months, she has a legal obligation to inform Kilmer.

B. The rezoning of the property is a material fact and the agent of the seller, the broker has the obligation to inform the seller of the zoning change and what effect it will have on the property value. The correct answer is: Huff can buy the property only after informing Kilmer of the zoning change and the effect that it has on the property.

A listing broker has an agency relationship with his client (the seller). The broker also has a moral and statutory obligation to all prospective customers (buyers). One way to describe the relationship with the buyer would be: Select one: a. To obey the letter of the law. b. To do what is right. c. To do those things that are required. d. To do anything that is asked.

B. To do what is right. This relationship is best described as doing what is right. Doing anything that is asked could conflict with his client's interests and could also be illegal. To do ONLY things that are required and to obey the letter of the law leaves the broker open to possible suit.

A broker can do which of the following? Select one: a. Accept, as binding, a promissory note given as an earnest money deposit. b. Accept, on behalf of the seller, an offer OVER the listed price of the property. c. Buy and sell property in his own name. d. Represent both buyer and seller, with the permission of the buyer.

C. A broker may NOT accept any terms or conditions contained in the offer. The broker's job is to find a ready, willing and able buyer. Any and all terms of the offer MUST be accepted by the seller. The one exception to this would be if the seller gives the broker a power of attorney to consummate the deal. If a broker is going to represent both buyer and seller, he would need the approval of BOTH parties. The correct answer is: Buy and sell property in his own name.

Broker escrow accounts must be: Select one: a. Provided by every licensed broker. b. The repository for all earnest money deposits, unless otherwise agreed upon by all parties to the contract. c. Designated and labeled as "escrow". d. Transferred to the company's operating account every five days.

C. A principal broker is not required to have an escrow account; but if there is an escrow account, all earnest money, deposits' must be deposited there within five banking days and the account must be labeled as "escrow".

Which of the following would NOT be an agent? Select one: a. A real estate salesperson handling only referrals. b. A property manager employed by the owner. c. A person working for a multiple listing service. d. A person holding a power of attorney.

C. An agency relationship is created when one person (the client) delegates to another (the agent) the right to act on his behalf in a business transaction. All of these choices would be agents except an individual working for a multiple listing service. That person is an employee of MLS. The correct answer is: A person working for a multiple listing service.

The duty of an agent to follow the instructions of the client applies to each of the following instructions, EXCEPT: Select one: a. Do not show the house on Sundays. b. Do not put a lockbox on my door. c. Do not reveal to any buyers that my roof leaks. d. Do not allow buyers to wear shoes inside the house.

C. An agent is only obliged to follow the lawful instructions of the client. Since an instruction not to reveal a leaky roof would be illegal, the agent must not follow that instruction. The correct answer is: Do not reveal to any buyers that my roof leaks.

Sara Seller hired Larry Licensee to sell her home under specified terms. Larry Licensee would most likely be a(n): Select one: a. Subagent. b. Universal agent. c. Special agent. d. General agent.

C. The question describes a listing contract, which almost always make the licensee a special agent -- one whose authority is limited to one specific transaction. The correct answer is: Special agent.

Broker Bob represents both the seller and the buyer as agent in the same transaction. Which of the following statements is correct? Select one: a. This arrangement is always illegal. b. This arrangement is never illegal. c. This arrangement is only legal with the informed consent and written permission of both the buyer and the seller. d. This arrangement is legal only in a few states.

C. This is a dual agency, which is only permissible with the informed consent and written permission of both parties. The correct answer is: This arrangement is only legal with the informed consent and written permission of both the buyer and the seller.

Broker Jane is acting as a dual agent in a real estate transaction and decides to appoint salesperson Sara to represent the seller and salesperson Ben to represent the buyer. Ben and Sara both work in Jane's firm. Select one: a. Jane cannot legally do this. b. Ben and Sara are dual representatives. c. Ben and Sara must be independent contractors. d. Ben and Sara are designated representatives.

D. A designated agent or representative is a licensee who has been assigned by a supervising or principal broker to represent a client when a different client with opposing interests is also represented by that broker in the same transaction. The broker in this situation would be a dual agent.

Broker Macro was showing a tract of land with irregular boundaries. When asked about a boundary, Macro indicated that it ran from the edge of the stone wall to the creek. Macro knew this was not exactly correct. After the buyer contracted for the property, he was shown a survey which reflected the true boundary. Was Macro guilty of misrepresentation? Select one: a. No, verbal statements are not binding. b. No, the buyer was responsible for having the property surveyed. c. Yes, the broker was responsible for verifying the official records. d. Yes, because Macro knew his statement was not completely accurate.

D. Broker Macro knowingly misrepresented the facts about the boundaries to the buyer and is therefore guilty of misrepresentation and possibly fraud. The correct answer is: Yes, because Macro knew his statement was not completely accurate.

All of the following will automatically terminate a listing by operation of law, EXCEPT: Select one: a. Bankruptcy of the client. b. Destruction of the property. c. Condemnation of the property. d. Client's decision.

D. Client's decision A listing (agency agreement) is terminated by law (automatically) by bankruptcy or death of either party (client or agent) or destruction or disposition of the property (including condemnation). A decision by the client to terminate the listing would be an act of one of the parties, rather than by law. The correct answer is: Client's decision.

Licensee Larry has held a real estate license for many years and has completed many residential transactions but never any commercial transactions. His neighbor owns a small strip mall and asks Licensee Larry to sell the property. Licensee Larry should be especially careful to consider which of the following duties to the client? Select one: a. Disclosure. b. Accounting. c. Confidentiality. d. Reasonable care and due diligence.

D. Since Licensee Larry has no experience in commercial transactions, he should give special consideration to whether or not he can provide reasonable skill and due diligence. He should either decline the listing or partner with someone who can help him. The correct answer is: Reasonable care and due diligence. Due diligence means that we take necessary precautions in a given situation.

Which of the following choices would be the most accurate definition of the term "agency relationship" in real estate practice? Select one: a. A contract whereby a seller hires an agent to represent the seller in the sale of a property. b. A contract whereby a buyer or seller hires an agent to represent the buyer or seller in a real estate transaction. c. A contract which is effectively a power-of-attorney. d. A contract whereby a client hires an agent to represent the client in a real estate transaction of some kind.

D. The choice about the power-of-attorney is false. There is a measure of truth in all of the other choices, but the best answer is that the client hires an agent to represent the client in a real estate transaction of some kind because it is the broadest statement of the remaining choices. Not all agency relationships are with buyers or sellers -- property managers are also agents of their clients. The correct answer is: A contract whereby a client hires an agent to represent the client in a real estate transaction of some kind.

Dave and Pat want to purchase the home that is occupied by their grandparents. They want to take title in such a way that will result in the least amount of income tax liability for them. How should a real estate salesperson or broker advise them? Select one: a. Advise them to take title as tenant-in-common with their grandparents. b. Advise them to acquire title as joint tenants with each other. c. Advise them to take title as tenants-in-common but each with an equal interest. d. Refer Dave and Pat to an attorney or tax advisor.

D. This is a problem that real estate people should NOT get involved in. Tax matters can be very complex. You will be doing them a favor and keeping yourself out of possible trouble. The correct answer is: Refer Dave and Pat to an attorney or tax advisor.

An escrow account is maintained by a broker for the purpose of Select one: a. earning interest for the broker. b. earning interest for the broker's clients. c. disposition of money to the buyer. d. impartial protection of both parties.

D. impartial protection of both parties An escrow account is maintained by a broker for the purpose of impartial protection of both parties.

Escrow records must be kept only until the transaction closes. Select one: a. True b. False

False: Escrow records must be kept for a period years (which varies by state). The correct answer is: False

Landlord Lloyd hires Property Manager Paul to manage an apartment complex owned by Lloyd. Property Manager Paul would most likely be considered a(n): Select one: a. Subagent. b. General Agent. c. Universal agent. d. Special agent.

Property managers are typically general agents because they represent the owner of the property in many different aspects of property management. The correct answer is: General Agent.

A salesperson took a listing on a property which had a crack in the foundation caused by water seepage. The owner had filled and painted over the crack and advised the sales agent that the seepage problem had been corrected, but it was obvious to the agent that the problem had not been corrected. If the salesperson shows the property without advising potential buyers of the problem, the salesperson would be guilty of: Select one: a. Fraud. b. Misrepresentation. c. Puffery. d. Nothing.

A. Fraud This is fraud because it is intentional. The agent must disclose all adverse material facts about the property to prospective buyers.

Broker Betty has a listing on Seller Sara's house. Broker Betty puts the listing on the local MLS -- agreeing to share the commission with any other member broker who finds a buyer for the house. Up through the 1970s if another broker found the buyer, that broker would be considered a(n): Select one: a. Subagent. b. General Agent. c. Universal agent. d. Special agent.

A. Subagent Prior to the late 1980s and sometimes into the 1990s cooperating brokers were always acting as subagents of the listing broker.

When a broker accepts a listing he or she has created an agency relationship. Which of the following is not an agency responsibility? Select one: a. To obey all the instructions of the seller. b. To use care in filling out contract forms. c. To be accountable for documents and funds. d. To be loyal to the seller.

A. The broker or any other agent is under no obligation to obey ALL instructions of the principal. Only those instructions which are legal need be obeyed. The correct answer is: To obey all the instructions of the seller.

Under Common Law Agency, the listing agent should disclose material facts to the seller AND buyer. Which of the following would NOT be a material fact? Select one: a. Worn carpeting. b. Seasonal flooding in the basement. c. A foundation crack covered with paneling. d. A faulty heating system.

A. Worn carpeting Material facts about the property means just that...Worn carpets are probably not "material" and are readily discoverable by the buyer. The other answer choices would be. The correct answer is: Worn carpeting.

Unless agreed to in writing by all the parties, the broker is not entitled to a commission until the transaction has been consummated. Select one: a. True b. False

True: The statement is true. Unless agreed to in writing by all the parties, the broker is not entitled to a commission until the transaction has been consummated.

An agent's authority can arise from: Select one: a. Ratification. b. Custom. c. Implication. d. All of these choices.

d. All of these choices.