Chapter 8 Challenge Exercises

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The principal allowed a third party to believe that the agent had authority, although the agent actually did not. As a result, the principal cannot later deny the agency relationship.

An agency may be created by estoppel if the principal allows a third party to believe that the agent's unauthorized actions were in fact authorized. The principal is estopped from denying the agency.

A breach of contract is a violation of a duty established by an agreement between the parties, whereas a tort is a violation of a duty fixed by law.

A breach of contract is a violation of a duty established by an agreement between the parties, whereas a tort is a violation of a duty fixed by law.

A real estate agent is taking a listing. The seller insists that the agent not disclose that the property is located in a geologically unstable area. The agent should refuse to handle the listing.

A real estate agent is taking a listing. The seller insists that the agent not disclose that the property is located in a geologically unstable area. The agent should refuse to handle the listing.

Liability imposed on a principal because of the act or omission of his agent is called vicarious liability.

A seller or buyer may be vicariously liable for his real estate agent's mistakes or misdeeds. He then may sue the agent to recover the amount he had to pay the third party.

A transfer disclosure statement is required in any transfer of a one- to four-unit residential property.

Although a transfer disclosure statement is required in most transfers of residential property with up to four units, there's an exemption for transfers related to foreclosure, probate, or divorce proceedings or otherwise ordered by a court.

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

An agency is created by ratification when a principal later authorizes or accepts the benefits of an act that was not authorized when it was performed.

A's conduct led P to believe that A was acting as her agent, although they didn't have an express agency agreement.

An agency relationship may be created by implication, based on the conduct of the agent, even when there is no express agreement.

A real estate agent cannot purchase one of his own listings, because there is a conflict of interest.

An agent can purchase one of his own listings, provided that he discloses his motives for doing so. For instance, if he plans to fix up the property and resell it for a profit, the principal is entitled to know this before signing a purchase agreement.

A broker lists a property and then shows it to a couple who have come to regard him as their agent. He doesn't disclose his agency relationship with the seller to them. His conduct may have created an inadvertent dual agency.

An inadvertent, or accidental, dual agency occurs when a seller's agent unintentionally develops an agency relationship with a prospective buyer.c

Any agent who did not take the listing on the property and who attempts to find a buyer.

Any agents who show property that they did not list are cooperating agents. (The cooperating agent who finds the buyer is the selling agent.)

The listing agent is required to disclose which party he's representing only to the seller, and the selling agent is required to disclose which party she's representing only to the buyer.

Both agents are required to disclose their agency status to both the seller and the buyer in the agency confirmation statement.

A salesperson is usually classified as an employee acting on behalf of the broker she works for.

For tax purposes, a real estate salesperson is usually an independent contractor rather than an employee. Even so, the license law makes the broker responsible for supervising the salesperson.

A real estate broker is required to withhold taxes from a salesperson's compensation.

If a salesperson qualifies as an independent contractor for tax purposes, the broker is not required to withhold taxes from the salesperson's compensation.

Jones signs a 120-day listing with Acme Real Estate, Inc. Thirty days later Jones dies. Because Acme is a corporation with a perpetual existence, the listing will remain in force until the end of the 120-day term.

If either the principal or the agent dies, the agency is terminated. Jones was the principal.

If revoking the agency breaches a contractual agreement, the principal may be liable for any damages suffered by the agent because of the breach.

If the agent suffers damages as a result of the breach of contract, the principal may have to compensate the agent.

In a residential transaction, an agent is required to make an inspection of the property, including condominium common areas and ordinarily inaccessible areas.

In a residential transaction, an agent is required to make an inspection of the property, including condominium common areas and ordinarily inaccessible areas.

An in-house transaction is one in which the listing salesperson and the selling salesperson work for the same broker.

It's an in-house transaction when the buyer and the seller are brought together by two different agents who work for the same broker.

An agent doesn't have to reveal a latent defect to prospective purchasers if the listed property is being sold "as is," indicating that the seller isn't claiming the property is in good condition.

Latent defects must be disclosed to the buyer, even if the property is being sold "as is."

Puffing refers to a real estate agent's exaggerated statements about the quality of a property, statements that generally could be the basis of a lawsuit filed by a buyer.

Puffing generally can't be the basis for a misrepresentation lawsuit. Because of the exaggerated and subjective nature of the agent's statements, the buyer should have been able to tell that they were not factual assertions.

A latent defect is a hidden problem in a structure or some other aspect of a property that is not observable in a casual inspection of the property.

Real estate agents and sellers have a duty to tell prospective buyers about any latent defects they are aware of. Examples include faulty wiring and leaky roofs.

A tort is a negligent or intentional wrongful act involving a breach of duty imposed by law.

Someone who commits a tort may be held liable and required to compensate the injured party.

An agency disclosure form explains the duties of a seller's agent, a buyer's agent, and a dual agent.

The agency disclosure form explains the different types of real estate agency relationships and sets forth the duties of each type of agent.

ABC Realty manages an office building for Smith under a contract that has six months of its term remaining. If Smith sells the property, the new owner is obligated to honor the existing contract for the remainder of its term.

The agency relationship is between ABC Realty and Smith. The sale of the property terminates the agency.

Broker A sold one of her listings to her brother-in-law for the full asking price. When she presented the offer, she didn't tell the seller about her relationship to the buyer. She hasn't violated her agency duties, because the brother-in-law paid the seller's asking price.

The amount offered by the brother-in-law is irrelevant. The listing agent has a duty to disclose to her client any relationship she has with a prospective purchaser.

A property manager owns a janitorial supply company that provides all of the supplies for the buildings she manages. This is an illegal conflict of interest that makes the property manager subject to disciplinary action by the Bureau of Real Estate.

The arrangement is perfectly legal as long as the property manager discloses it fully, in writing, to the owners of the properties she manages.

Someone who is acting without the principal's authorization, but reasonably appears to a third party to be acting with authorization, is called a/an _______________.

The correct answer is apparent agent.

An ostensible or apparent agency is sometimes called an agency by _______________.

The correct answer is estoppel.

If a seller's agent does not have _______________ to accept a deposit check but accepts a deposit from the buyer anyway, then he is acting as the buyer's agent in regard to the deposit.

The correct answer is express authority.

A property manager with broad authority to handle matters concerning a client's property on an ongoing basis is considered to be a/an _______________.

The correct answer is general agent.

Authority that is necessary in order to carry out duties already expressly authorized by the principal is known as _______________.

The correct answer is implied authority.

A real estate broker who lists a property is generally considered to be a/an _______________.

The correct answer is special agent.

During an open house, a would-be buyer told the listing agent she would be willing to pay full price for the home, but wanted to make a low offer to see if the seller would accept it. By passing this information on to the seller, the listing agent violated the confidentiality requirement.

The listing agent is the seller's agent, and he had a legal duty to pass on the prospect's comments to his principal. Of course, the agent should have made it clear from the beginning of his conversation with the prospect that he was representing the seller, not her.

An agency relationship is terminated when a principal rejects an offer that meets all the terms of a listing agreement.

The rejection of an offer does not fulfill the purpose of the agency, and it does not amount to a revocation by the principal. The principal, however, may be liable to the agent for a commission for the offer that was brought in.

In transactions where the agent is representing a seller or a landlord, a third party is sometimes referred to as this.

The selling broker is the broker the selling salesperson works for.

A buyer who does not have a real estate license purchases a property for $600,000, knowing that he can immediately resell the property to another buyer for $650,000. This information does not need to be disclosed to the seller.

The situation described is legal, because an unlicensed person is buying the property. No disclosure of the buyer's intentions is required. Disclosure would be required, though, if an agent were buying the property in order to profit off an immediate resale.

The true market value of a property would not be considered a material fact during a listing presentation.

The true value of the property is considered a material fact that a listing agent must disclose to the seller. Sellers often rely on the listing agent's expertise and advice in setting the listing price.

For a salesperson to be classified as an independent contractor, her compensation must be substantially commission-based and she must work under a written contract with the broker.

These are the two prerequisites to being treated as an independent contractor for tax purposes. They are IRS requirements.

Someone who is hired as an employee works independently and is not closely supervised.

This describes an independent contractor, rather than an employee. An employee is supervised and controlled much more closely than an independent contractor.

In relation to his principal, a real estate broker is almost always considered an independent contractor rather than an employee.

A broker's principal is concerned with the ultimate result of the broker's work, not how the broker goes about achieving the result.

Several days after a seller accepted an offer to purchase her property, an offer from another buyer is delivered to the seller's agent for presentation. Since the property has already sold, the agent has no duty to present the second offer.

A licensee must present all written offers in a timely manner, even if the property is already subject to a contract.

A material fact is information that could influence a person's judgment in a transaction.

A material fact is one that could affect someone's decision in a transaction. If a real estate agent knows a material fact that is not apparent or readily ascertainable by a party, the agent must disclose it.

An instrument authorizing someone to act as another's agent, to the extent stated in the instrument. For example, the instrument might be used to authorize a person to sell another's real property.

A power of attorney is an instrument (a legal document) in which a principal authorizes another to act as her agent. An agent with a power of attorney is called the principal's attorney in fact.

A real estate agent who is representing a seller, but fails to make that clear to a buyer and gives the buyer the impression that she is acting as the buyer's agent.

A seller's agent who gives a buyer the impression that she is representing the buyer may be considered an inadvertent dual agent.

An oral (spoken) agency disclosure is sufficient, as long as there are witnesses to the disclosure.

Agency disclosures must be in writing. Each party must sign an agency disclosure form and an agency confirmation statement (typically part of the purchase agreement) to acknowledge the disclosures.

If a real estate broker has a signed listing agreement with a seller, the broker cannot renounce her agency before the listing expires.

An agency can be renounced at any time. If the renunciation is a breach of contract, the agent may be required to pay damages to the principal. But the agent cannot be forced to continue representing the principal.

Agency confirmation statements must be provided to the buyer and the seller after the transaction closes.

An agency confirmation statement, which discloses which parties the agents are representing, must be provided to each party before or at the same time he or she signs the purchase agreement.

Stated in words, whether spoken or written.

An agency is created by express agreement when the principal's authorization of the agent is stated in words, either orally or in writing.

The broker of the salesperson who lists a property.

The listing broker is the broker the listing salesperson works for

Abernathy and Broker Hunt own some raw land. Hunt has a 10% interest; Abernathy owns the other 90%. They decide to sell the land and list the property with Hunt's firm. Ten days later, Abernathy notifies Hunt he is revoking the listing. He can do this because he owns a majority interest.

The listing can't be revoked, because it is an agency coupled with an interest.

A person who has engaged the services of an agent. In the real estate context, this person could be a seller, a buyer, a landlord, or a tenant.

The principal in a real estate agency relationship is called the client.

A seller tells his listing agent he will accept as much as $20,000 less than the listing price. To encourage offers, the agent passes this information on to prospective buyers. This is not a violation of the agent's duties to the seller, because the seller has already indicated that low offers would be acceptable.

The seller's willingness to accept less than the listing price was obviously intended to be confidential information, and the agent should not have passed it on to potential buyers without the seller's knowledge and consent.

The broker of the salesperson who finds a buyer for a property.

The selling broker is the broker the selling salesperson works for.

The salesperson who procures a buyer for a property. This person may or may not have taken the listing for the property sold

The selling salesperson is the procuring cause of the sale, the agent who found the buyer.

Although a transfer disclosure statement is required in most transfers of residential property with up to four units, there's an exemption for transfers related to foreclosure, probate, or divorce proceedings or otherwise ordered by a court.

The standard remedy is compensatory damages, intended to compensate the injured party for losses suffered. Punitive damages are sometimes added to compensatory damages to punish the defendant and to discourage others from similar wrongful conduct.


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