lesson 7, The Agency Relationship and Agency Law

What is a fiduciary?

A fiduciary is someone who acts for the benefit of another in a relationship founded on trust and confidence, such as a lawyer or a trustee. Real estate agents are also fiduciaries under general agency law (though not under Washington law, as you'll see).

describe a general agent

A general agent is authorized to act only in a specified area of the principal's affairs. Within that area, however, the general agent has broad authority. A general agent often handles all matters pertaining to a particular business or property owned by the principal. Property managers are typically general agents, while real estate agents generally are not—as we'll discuss next.

what is a latent defect?

A latent defect is a problem with the property that a buyer wouldn't discover through an ordinary inspection. (This contrasts with a patent defect, which is obvious enough to be discovered through ordinary inspection.)

what is an exception to automatically becoming a buyers agent when providing real estate brokerage services?

A licensee providing basic brokerage services to a buyer does NOT automatically become the buyer's agent if the licensee has a written agreement to the contrary. The most common case of a written agreement to the contrary is a listing agreement with a seller.

describe power of attorney in pertaining to creating an agency relationship

A power of attorney is an express agency agreement in which the principal appoints an attorney in fact to carry out specified actions on her behalf.

what is a special agent?

A special agent has more limited authority. She is authorized only to do a specific thing or conduct a specific transaction. A real estate licensee is usually a special agent.

describe a universal agent

A universal agent is authorized to perform any acts that the law allows one person to delegate to another. This type of agent has the greatest degree of authority.

Agent Ralph represents the sellers in a transaction. At the time he takes the listing, which of the following should he disclose to the sellers? Select your answer below: A.Current market conditions B.Neighborhood's racial demographics C.Presence of asbestos in a neighboring house D.Presence of sex offender in the neighborhood

A.Current market conditions When taking a listing, a seller's agent would need to disclose current market conditions to the seller to give them a better sense of what price might be appropriate. (Note that the other options involve disclosures to prospective buyers, not to the sellers. And even if the question concer

A real estate agent completed a listing agreement form, which the sellers signed. At what point should the agent give the sellers a copy of the form? Select your answer below: A.Immediately after they sign the listing form B.Only after a buyer has made an offer C.Once the listing has been entered into the local MLS database D.When the sellers finish filling out the seller disclosure statement

A.Immediately after they sign the listing form

A real estate agent is working with buyers who are interested in a house in a new rural subdivision. She tells the buyers that the developer will pave the streets. However, she didn't verify this statement; she assumed that was the case, based on the developer's previous subdivisions. If the buyers rely on this statement and decide to buy the house, and the streets never get paved, who is potentially liable? Select your answer below: A.The agent, for engaging in misrepresentation through an unverified statement B.The county, which is ultimately responsible for rural roads C.The developer, for not providing paving as expected D.Nobody, as this is a "let the buyer beware" situation

A.The agent, for engaging in misrepresentation through an unverified statement

A property is considered stigmatized because a violent crime occurred in the house a number of years ago. In this case, a real estate agent should probably: Select your answer below: A.discuss the listing with the designated broker and perhaps an attorney on how to deal with the problem B.not say anything to potential buyers C.discuss the crime with all potential buyers, whether or not they ask D.show the property only to out-of-town buyers who won't have heard of the crime

A.discuss the listing with the designated broker and perhaps an attorney on how to deal with the problem In some states, including Washington, the fact that a violent crime occurred on a property does not have to be disclosed as a material fact. Even so, it may be necessary or appropriate to disclose the information to particular buyers based on the duty of honesty and good faith. Thus, it's a good idea to ask for expert advice in this situation.

A real estate agent has assisted an investor with the purchase of a number of commercial properties. The investor will be out of the country for part of the year and asks the agent to manage all aspects of those properties during that time, including advertising and leasing. The real estate agent will be a/an: Select your answer below: A.general agent B.implied agent C.special agent D.universal agent

A.general agent

what is actual authority?

Actual authority is authority granted to the agent by the principal. The agent is given express actual authority whenever the principal specifically directs him to do something. The authorization may be spoken or written.

describe ratification

An agency is created by ratification if the principal gives approval after the fact to acts that weren't authorized at the time the agent performed them.

describe estoppel

An agency may be created by estoppel when a principal allows a third party to believe that an unauthorized person is acting as her agent. The principal is estopped from denying an agency relationship, because that would be unfair to the third party.

describe implication

An agency may be created by implication when someone behaves in a way that makes another person believe that she's acting as his agent.

what is apparent authority?

Apparent authority is agency authority that someone appears to have, although the principal didn't actually grant it. We mentioned this situation earlier, in the discussion of creation of an agency relationship by estoppel. An unauthorized person who is behaving like an authorized agent is referred to as an apparent agent or an ostensible agent.

Peter plans to sell a number of different properties. He enters into an agreement with Agent Carla, in which she agrees to act as Peter's special agent. Under this agreement, how many properties can Carla list for Peter? Select your answer below: A.A special agent has no fiduciary obligations, so Carla can only list one property at a time B.A special agent may perform whatever legal acts have been authorized by the principal, so Carla can list as many properties as are stated in the agreement C.A special agent acts as a dual agent, so Carla can only list two properties at a time D.None, because a special agent is in the business of appraising properties, not listing them

B.A special agent may perform whatever legal acts have been authorized by the principal, so Carla can list as many properties as are stated in the agreement

A licensee represents the seller in a transaction. Which of the following duties does she owe to the buyer? Select your answer below: A.Confidentiality B.Honesty C.Loyalty D.Recommend expert advice

B.Honesty One of the duties owed to all parties, whether a principal or not, is the duty of honesty and good faith. Confidentiality, loyalty, and seeking expert advice are duties owed only to a principal.

A real estate agent shows a listing to two different buyers. One buyer decides in the early morning to make an offer on the property for less than the listed price. The agent writes up the offer and plans to meet with the seller later in the day. The other buyer then contacts the agent and says that she'd like to make a full price offer. What should the agent do? Select your answer below: A.Meet with the sellers but present only the first offer, and then present the second offer only if the first offer is rejected B.Present both offers to the seller at the same time C.Tell the second buyer that her offer is invalid because there is already an offer on the property D.Tell the second buyer that he can only present the first offer to the seller, but he'll present her offer if the first one is rejected

B.Present both offers to the seller at the same time

XYZ Realty has the exclusive right to represent a new subdivision. An agent working for the subdivision office, and named on the listing agreement, shows a property to the Meyers, who are not working with their own agent. When the Meyers decide to buy, they have XYZ's agent provide basic help in filling out an offer form. Which of the following is true? Select your answer below: A.The agent owes the buyers the duty of loyalty B.The buyers are not represented by an agent C.The buyers are represented by this agent D.This has created a dual agency

B.The buyers are not represented by an agent Generally, providing any brokerage services creates an agency relationship with a buyer. However, there's an important exception to this rule: if the agent is already representing another party under a written agreement (usually, a listing agreement), then providing minimal services does not create an agency. In this question, the buyers would be proceeding without representation. Most listing agents would strongly encourage the buyers to find representation rather than merely helping them with their offer.

Tina is representing the buyers in a transaction; she described the property's boundaries to her clients without clarifying that she was not sure that the boundaries were exactly precise. The buyers, upon taking possession, built a fence along the boundaries that she described, but the neighbors then filed suit because the fence didn't follow the actual boundaries and encroached on their land. Can Tina be held liable for misrepresentation? Select your answer below: A.Yes, because any offer must include a photocopied legal description of the property B.Yes, because she reasonably knew that the described boundaries might not have been correct C.No, because the description was not in writing D.No, because the buyers were duty-bound to perform their own survey

B.Yes, because she reasonably knew that the described boundaries might not have been correct

The seller tells the buyer's agent that the home has never had flooding issues, but when touring the home, the buyer's agent notices a sump pump in the basement. The buyer's agent should: Select your answer below: A.say nothing because the seller said there was no flooding B.advise the buyer that the sump pump may be a sign of flooding and that she should inquire into whether flooding is an issue C.contact the seller directly to ask about the sump pump/flooding D.instruct the buyer to stop considering the property

B.advise the buyer that the sump pump may be a sign of flooding and that she should inquire into whether flooding is an issue An agent has a duty to disclose not just latent defects, but also red flags that indicate that a latent defect might be present (such as signs that flooding might be a hazard). Even if the seller says there isn't a flooding problem, the most important thing for the buyer's agent to do is to warn the buyer that sump pumps indicate past flooding.

Late on a Friday afternoon, an agent receives an offer on a property that she has listed, for $10,000 less than the listed price. The sellers will be away all weekend. The agent should: Select your answer below: A.discard the offer since it is not for the desired amount B.try to get the offer to them as soon as possible on Friday C.wait in the hope that a full-price offer comes in D.have an unlicensed assistant present the offer

B.try to get the offer to them as soon as possible on Friday

Tim and Alisa both work for XYZ Realty. Monday morning, Tim gets an offer on an XYZ listing. Two hours later, Alisa gets an offer on the same house. Alisa's offer is $10,000 higher. The office policy at XYZ is to only present one offer at a time, waiting to present the second offer until the first offer has been rejected. So Tim presents his offer right away, but Alisa cannot present her offer yet. XYZ's policy in regard to presenting offers is: Select your answer below: A.lawful, but unethical, because the agents should also be notifying the second buyer of the existence of the first offer B.unlawful, because licensees are obligated to submit all offers to the seller C.both ethical and lawful, as long as Tim and Alisa get to share the commission D.lawful, as long as the firm's policy was written into the listing agreement

B.unlawful, because licensees are obligated to submit all offers to the seller Real estate agents are legally obligated to submit all written offers and counteroffers to the parties promptly. When multiple offers are received at more or less the same time, they should all be presented together.

Which of the following is a latent defect that would need to be disclosed? Select your answer below: A.Decaying steps to back porch B.Leaking faucet C.A crack in the basement wall that is covered by paneling D.Worn-out carpeting

C.A crack in the basement wall that is covered by paneling A latent defect is a problem that would not be discovered by ordinary inspection. If a crack is hidden by paneling, it is not likely to be observed and therefore must be disclosed to prospective buyers. The other options are all plainly visible upon inspection and therefore are not latent defects.

A seller lists his house and sells it "as is" to a buyer. Shortly after the sale closes, the buyer finds a large hole in the ground next to the house. The hole, which has caused significant damage to the foundation, was almost certainly intentionally concealed with leaves and branches. Which of the following is correct? Select your answer below: A.Only the licensee is liable B.Only the seller is liable C.Both the seller and the licensee may be liable D.Neither is liable, because the house was sold "as is"

C.Both the seller and the licensee may be liable

Which of the following is a material fact that a listing agent should disclose to prospective buyers who are not currently represented by a buyer's agent? Select your answer below: A.Seller is bankrupt B.Seller must move soon for a new job C.Seller owes special assessments on the property D.Seller's spouse died on the property

C.Seller owes special assessments on the property The presence of special assessments on the property that must be paid off is a material fact that should be disclosed. The other items are not considered to be material facts, and should remain confidential.

Under normal circumstances, a real estate agent may do which of the following on behalf of a principal? Select your answer below: A.Receive financial benefits from a sale without the principal's knowledge B.Sign a contract on behalf of the principal C.Submit all written offers D.Withhold disclosure of known defects to protect the principal's interests

C.Submit all written offers One of an agent's duties to his principal (and to all parties) is to present all written communications, including offers. The other options are not permissible.

An elderly woman gives a power of attorney to her son to manage all of her affairs. What sort of agent is he? Select your answer below: A.Ostensible agent B.Special agent C.Universal agent D.Unlimited agent

C.Universal agent

An agent obtained permission to show a FSBO property (for sale by owner). The prospective buyer loved the property and made an offer, which the agent presented to the owner. When the transaction closed, the FSBO owner paid a brokerage commission. Did the agent and the seller have an agency relationship in this case? Select your answer below: A.No, because the agent clearly represented the buyer, and a dual agency relationship is impossible in a FSBO situation B.No, because an agent can never represent the owner of a FSBO C.Yes, but only if they entered into a listing contract D.Yes, because the agency relationship was created when the seller paid the brokerage commission

C.Yes, but only if they entered into a listing contract The payment of a commission does not determine whether an agency relationship exists. An agency relationship with a seller is created by written contract. A licensee can represent a FSBO owner, but only if the owner is willing to sign a listing agreement. (That's true even if the licensee is already representing the buyer.)

Ed knows that his basement leaks, but doesn't disclose this to Sally, the buyer. Ed has also instructed his agent to keep the information confidential. After the sale closes, Sally finds out that the basement leaks, and she sues for fraud and misrepresentation. Sally can sue: Select your answer below: A.the listing agent only B.the seller only C.both the listing agent and the seller D.no one, under the doctrine of caveat emptor

C.both the listing agent and the seller

The buyers ask a listing agent about a rumor they've heard that a sex offender lives in the neighborhood. The agent should: Select your answer below: A.deny it, because he is the seller's agent B.research the question and report back to the buyers C.inform the buyers where this kind of information can be verified D.tell the seller he must disclose this information to the buyers

C.inform the buyers where this kind of information can be verified State law says that presence of sex offenders in the neighborhood is not a material fact, so the agent would not be bound to disclose this information or research it. However, it would be proper for the agent to let the buyers know that this information is available from the local police department.

Special, general, and universal agency all: Select your answer below: A.create a long-lasting relationship over multiple transactions B.give the agent authority to act on the principal's behalf in all financial matters C.originate with the principal D.terminate with the end of a particular transaction

C.originate with the principal

A seller's agent, upon meeting with a prospective buyer, becomes concerned that the buyer is unlikely to be financially qualified. The agent should: Select your answer below: A.perform a full examination of the buyer's finances B.refuse to accept that buyer's offer C.relay those concerns to the seller, who will decide D.withdraw from the listing

C.relay those concerns to the seller, who will decide A seller's agent has the duty to provide all written offers to the seller for consideration, regardless of the terms of the offer or any of the agent's misgivings about the buyers. The best practice would be simply to let the seller know about the agent's concerns and allow the seller to decide.

The law of agency can best be summed up as: Select your answer below: A.the state's licensing laws B.business regulations C.rules that apply when one person is acting for another D.real estate laws

C.rules that apply when one person is acting for another

An agent is responsible for one particular transaction for her principal. She would be a: Select your answer below: A.designated agent B.general agent C.special agent D.universal agent

C.special agent

Agent Manuel is approached by a retired couple who would like to sell their home and move to Europe as soon as possible. The agent knows that proposed zoning changes would increase the home's value substantially if they go into effect. What should Agent Manuel do? Select your answer below: A.List the property but say nothing about the zoning changes; proposed zoning changes aren't a material fact B.List the property but say nothing unless the zoning actually changes while the property is on the market C.List the property but say nothing about the zoning changes, because the sellers want to sell as soon as possible and waiting is not in their best interest D.Inform the sellers of the proposed zoning changes and let them make the decision

D.Inform the sellers of the proposed zoning changes and let them make the decision If an agent is aware of a proposed zoning change that affects the subject property, that is a known material fact that must be disclosed to the sellers. It is then up to them to decide if they want to list now or wait.

Which of the following is the best definition of a material fact? Select your answer below: A.A defect that could affect the buyer's possibility of receiving clear title B.A defect that is not readily apparent or visible C.Knowledge that can be discovered only through physical inspection of the property D.Knowledge that would affect a buyer's decision whether or not to buy

D.Knowledge that would affect a buyer's decision whether or not to buy A material fact is defined broadly; it could be any knowledge that has a substantial negative effect on the property's value or on a party's ability to complete the transaction. (All of the other options could potentially be considered different subcategories of material facts.)

After listing a property for sale, a licensee learns that the property was used as a beer hall during Prohibition, for illegal drug sales in 2003, and as a homeless shelter in 2009. What is the licensee's duty regarding property disclosures? Select your answer below: A.All of these uses must be disclosed B.Only the most recent use must be disclosed C.The drug sales must be disclosed D.None of these uses must be disclosed

D.None of these uses must be disclosed While any of these prior uses might stigmatize the property, none of them are material facts that would have to be disclosed by a seller or a seller's agent. There would be an exception if a prior use adversely affected the property's physical condition. For example, if the property had been used for illegal drug manufacturing, which may leave behind harmful chemical residues, this would have to be disclosed. However, the question refers only to drug sales, not drug manufacturing.

Peter is showing a home to the Littletons. Peter is aware of all of the following information; which piece of information MUST be disclosed? Select your answer below: A.The sales price of a similar home that sold a week earlier B.The price the current owner paid for the home three years ago C.The amount of the current owner's unpaid mortgage D.That the property was flooded and suffered some water damage last year

D.That the property was flooded and suffered some water damage last year Known material facts, such as water damage, must be disclosed. A material fact is one that has a substantial adverse effect on the value of the property or the ability of one of the parties to perform as agreed, or that defeats the purpose of the transaction.

A seller asks an agent to list her property "as is." After signing the listing agreement and completing the disclosure statement, she also orders an inspection that finds black mold behind some insulation in the attic. The seller tells the agent about the inspection results, but neither the seller nor the agent gets around to telling the buyer. Can the buyer sue if he finds the mold at a later date? Select your answer below: A.No, because it was an "as is" sale B.No, because the buyer is obligated to perform his own inspection C.No, because mold is not considered a latent defect D.Yes, because the seller and agent did not disclose the mold

D.Yes, because the seller and agent did not disclose the mold Both the agent and the seller are obligated to disclose all known latent defects to prospective buyers, even in an "as is" sale. Mold behind some insulation, not easily discoverable upon a simple visual inspection by the buyer, would be a latent defect.

ABC Realty signed a property management agreement to manage property for XYZ Apartment Rentals. Do they have an agency agreement and, if so, what kind of agency authority has been created? Select your answer below: A.No; to create an agency relationship, they would have to sign a listing agreement B.No; XYZ has only hired ABC Realty to manage the properties, not to be its agent C.Yes; ABC has been hired by XYZ to be a special agent D.Yes; ABC has been hired by XYZ to be a general agent

D.Yes; ABC has been hired by XYZ to be a general agent A property management agreement creates a general agency relationship, in which the agent (ABC Realty) is authorized to handle all of the principal's (XYZ Apartment Rentals) affairs in one or more specified area

A seller's agent knows that the seller intentionally failed to disclose on the property disclosure statement that the basement leaks during heavy rains. The seller's agent must: Select your answer below: A.complete a new property disclosure statement himself B.inform the local housing authority C.inform the Department of Licensing D.inform the prospective buyer that there is misrepresented information on the disclosure form

D.inform the prospective buyer that there is misrepresented information on the disclosure form A real estate agent has the duty to disclose known material facts to the parties in a transaction, even when the agent's principal would prefer not to have the information disclosed. A leaking basement is a latent defect and certainly qualifies as a material fact. Click Here for the Next Question

Exaggeration about a property's positive characteristics would be considered: Select your answer below: A.fraud B.misrepresentation C.overstating D.puffing

D.puffing

Gerald engages a licensee to list his property and find a buyer for it. In this context, the licensee is acting as a: Select your answer below: A.general agent B.power of attorney C.property manager D.special agent

D.special agent

A seller tells her agent that there have been leaks in a bathroom wall from some faulty plumbing, but that the leaks were repaired and that there haven't been any other problems with those pipes. The seller tells the agent not to disclose this information to the buyers, since the problem has been fixed. The agent should: Select your answer below: A.say nothing, since he owes the duty of loyalty to the seller B.say nothing about the leak, even if asked C.tell the buyers about the leak, but emphasize that the leak was a minor issue D.tell the buyers about the leak and that the buyers are entitled to request an inspection

D.tell the buyers about the leak and that the buyers are entitled to request an inspection The agent and seller should disclose the previous leaking. Buyers should also be informed of their right to request an inspection.

A seller tells a prospective buyer that the attic's insulation is 16 inches thick. The seller's agent, however, observes that the insulation is only six inches thick. The seller's agent should: Select your answer below: A.say nothing, but advise the buyer to get an inspection B.say nothing because of the duty of loyalty to the seller C.say nothing because this does not rise to the level of material fact D.tell the prospective buyer that the insulation is only six inches thick

D.tell the prospective buyer that the insulation is only six inches thick A licensee has the duty to disclose material facts to the appropriate party, even if the principal doesn't disclose that information himself. The insulation depth could be a material fact, since insufficient insulation could have a negative effect on the property's value.

what do the following fall under ? an agent's actions may be binding on the principal, the principal may be held liable for the agent's mistakes and misconduct, and the principal may be held to know information that is known by the agent.

General agency law

describe an agency relationship

In an agency relationship, the principal authorizes an agent to represent him in dealings with third parties. A real estate firm is the agent of its client (the seller or buyer).The client is the firm's principal.

why are real estate agents typically special agents?

In most cases, a licensee is authorized only to represent a seller or a buyer in a single transaction, and only in a limited way—that is, the agent generally can't actually sign the purchase and sale agreement.

what are 3 examples of an express agreement?

Listing agreement buyer agency agreement power of attorney

define express agreement

Most agency relationships are created by express agreement (written or oral) between the principal and agent.Consideration is not required for an agency agreement.

what is an express agreement?

Most agency relationships are created by express agreement. The principal appoints someone to act as his agent, and the agent accepts the appointment.

as of 1997 what now governs real estate agencies in washington state?

Real Estate Brokerage Relationships Act

what is a Ostensible agent?

Someone acting on another's behalf without authority to do so, or exceeding the scope of her authority, may be referred to as an ostensible agent or apparent agent.

what are the two situation where vicarious liability applies?

The principal participated in or authorized the real estate agent's negligent or wrongful conduct. The principal benefited from the real estate agent's conduct, and a judge decides that the injured party probably won't be able to enforce a judgment against the agent.

how might an agency be created by Implication?

This can occur when one person is behaving in a way that implies that he's acting as another person's agent. If the other person believes that the first person is acting as her agent, and the first person fails to correct that impression, he may be held to owe agency duties to her.

real estate agency

Under Washington's Real Estate Brokerage Relationships Act, an agency relationship can be created by express agreement or just by rendering real estate brokerage services to someone.A licensee working with a buyer is the buyer's agent unless there is a written agreement to the contrary.

how are buyer agency relationships typically formed?

Under the Real Estate Brokerage Relationships Act, a licensee who provides real estate brokerage services to a buyer generally automatically becomes the buyer's agent.

Another way in which an agency relationship can be created is by estoppel. what is estoppel?

Under the legal doctrine of estoppel, a person cannot take a position that contradicts her previous conduct, if someone else has relied on the previous conduct.

what is general agency law?

a body of law that applies to the agency relationships in nearly any context

what is a tort?

a mistake, accident or misconduct that results in an injury or financial harm to another person

someone who is acting without the principals authorization but reasonably appears to a third party to be acting with authorization is called a/an

apparent agent

how is an agency created?

by ratification if the principal gives approval after the fact to acts that weren't authorized at the time they were performed. The unauthorized acts may have exceeded the authority that the principal originally granted to the agent. Or the agent may be someone who originally had no authority to act for the principal.

an ostensible agent or apparent agency is sometimes called an agency by

estoppel

the principal allowed a third party to believe that the agent had the authority although the agent actually did not

estoppel

stated in words whether spoken or written

express agreement

What is puffing?

expressing an opinion not facts

a property manager with broad authority to handle matters concerning a clients property on an ongoing basis is a/an

general agent

the agents conduct led to the creation of an agency relationship without an express agreement

implication

authority that is necessary in order to carry out duties already expressly authorized by the principal is know as

implied authority

what is an instrument authorizing someone to act as another's attorney in fact to the extent stated in the intrument

power of attorney

the later authorization or confirmation of an act that was not authorized when it was performed

ratification

what are the egent duties under washington state law?

reasonable skill and care honesty and good faith present written offers disclose material facts account for trust funds provide agency law pamphlet disclose agency status

a real estate licensee who merely lists a property is a/an

special agent

who is the person that has been authorized to act as the principals representative?

the agent

who is the person that authorizes the other to represent them?

the principal

what is the scope of agents authority?

the varying degrees of authority to her their agent

a person outside the agency relationship who deals with the principal through the agent is referred to as what?

third party

what is the duty of loyalty?

this is defined as the agent being legally obligated to act in the principals best interest.

what is implied authority?

to do whatever is necessary to carry out the acts that the principal expressly authorized.

someone who has been appointed by a court to act as another persons legal guardian in all matters is a/an

universal agent

what is it called when a principal is held liable for their agents negligent or wrongful acts as if they had committed them themselves

vicarious liability

what does a subagent require to act upon the principals behalf?

written approval and authorization from the principal

can an agency agreement be orally reciprocated?

yes