Unit 9 Real Estate Agency (Weight 8%)

In a real estate brokerage, A) sales associates are agents of the broker. B) sales associates are agents of the licensing authority. C) a licensed personal assistant of a sales associate is the agent of the sales associate. D) the broker always acts as the agent of a client or customer.

(A) The answer is sales associates are agents of the broker. The broker may or may not be an agent of a client (not the customer), and a licensed personal assistant of a sales associate is the agent of the broker.

The laws enacted by a legislature make up A) statutory law. B) judicial law. C) common law. D) administrative law.

(A) The answer is statutory law. Statutory law consists of the laws enacted by the legislature.

Properties that are considered undesirable because of events that occurred there or because a known sex offender lives in the area are considered A) stigmatized properties. B) unstable properties. C) unmarketable properties. D) stagnant properties.

(A) The answer is stigmatized properties. Stigmatized properties are those that are considered undesirable because of events that occurred there or because a known sex offender lives in the area.

The listing broker and the seller find a small roof leak in the attic. Because the property is being sold "as is," A) the seller and the broker must both disclose this material fact. B) if the buyer's inspector finds a problem, the seller does not have to disclose. C) the seller must disclose, but the broker has no obligation to disclose. D) the seller and the listing broker do not have to disclose anything.

(A) The answer is the seller and the broker must both disclose this material fact. All material facts must be disclosed by both the seller and the broker, even if the property is being sold "as is."

Who is the agent's principal? A) Whoever hired the agent B) Seller C) Buyer D) Person who pays the commission

(A) The answer is whoever hired the agent. The most complete answer is whoever hired the agent. That could be either the buyer or the seller, but the source of the agent's compensation is not the determining factor.

Which of the following is TRUE about the difference between a special agent and a general agent? A) A general agent represents the principal for one certain transaction only. B) A special agent represents the principal for one certain transaction only. C) Both types are limited agents. D) Only a special agent has duties to the principal.

(B) The answer is a special agent represents the principal for one certain transaction only. A special agent represents the principal only for specified transactions, such as the sale of a house.

Upon discovering a latent defect in a property, the real estate professional should discuss the problem with the seller and then A) contact the city building inspector about the defect. B) inform any prospective buyers of the defect. C) personally arrange for the repairs. D) tell the seller that the defect must be repaired.

(B) The answer is inform any prospective buyers of the defect. A seller's agent is expected to disclose information about material defects in the property to prospective buyers.

Which event will terminate an agency in a broker-seller relationship? A) The broker appoints other brokers to help sell the property. B) The owner declares personal bankruptcy. C) The broker discovers that the market value of the property is such that an adequate commission will not be earned. D) The owner abandons the property.

(B) The answer is the owner declares personal bankruptcy. Common law holds that the bankruptcy of either the broker or the seller ends the agency relationship created by the listing.

What is a seller's agent required to disclose to prospective buyers about material defects in the property? A) Only information about material defects the seller has provided the agent B) Only information about material defects that the agent has personally observed C) All information about material defects that the agent knows or should know D) Both information the seller has provided the agent, and material defects that the agent has personally observed

(C) The answer is all information about material defects that the agent knows or should know. Agents are responsible for disclosing information they are told or that they discover on their own, plus information they should have known.

A real estate broker is employed by a buyer, as an agent. When the broker finds a property the buyer might be interested in buying, the broker is careful to find out as much as possible about the property's owners and why the property is on the market. The broker's efforts to keep the buyer informed of all facts that could affect a transaction is the duty of A) loyalty. B) accounting. C) disclosure. D) confidentiality.

(C) The answer is disclosure. The broker's diligent inquiries are followed by the fiduciary duty of disclosure to the buyer, the broker's client.

The answer is the seller and the broker must both disclose this material fact. All material facts must be disclosed by both the seller and the broker, even if the property is being sold "as is." A) The broker is guilty of intentional misrepresentation. B) The broker is guilty of negligent misrepresentation. C) The broker is merely puffing. D) The broker has committed fraud.

(C) The answer is the broker is merely puffing. The broker was puffing—stating something that anyone with common sense and open eyes would know to be an exaggeration.

Which of these statements could be negligent misrepresentation? A) "The simple design is uncluttered and offers many possibilities for decorating." B) "I think these low doorways are a charming part of the Cape Cod style." C) "The size of the bedrooms makes them wonderfully cozy and perfect for your children." D) "The uneven floors just mean that the building dates to colonial times."

(D) The answer is "The uneven floors just mean that the building dates to colonial times." Presenting an opinion is acceptable as long as it is not presented as a fact. Uneven floors could mean a latent defect, such as rotten supports.

A broker receives a check for earnest money from a buyer and deposits the money in the broker's personal interest-bearing checking account over the weekend. This action exposes the broker to a charge of A) subrogation. B) accretion. C) novation. D) commingling.

(D) The answer is commingling. The broker has commingled the deposit with the broker's personal funds.

The relationship between real estate broker and seller is generally what type of agency? A) General B) Implied C)Universal D) Special

(D) The answer is special. A broker serves a client—either a buyer or a seller—usually by performing the specific brokerage act spelled out in the employment contract (representation agreement). A specific assignment creates a special agency.

Nonagent

(also referred to as a facilitator, intermediary, transactional broker, transaction coordinator, or contract broker) someone who works with a buyer and a seller (or a landlord and a tenant), assisting one or both parties with the transaction without representing either party's interests. Nonagents are often subject to specific statutory responsibilities. A broker may be considered a nonagent when dealing with a customer (someone other than the person the broker represents). Washington allows a licensee to provide services that do not require agent representation. This is known as facilitation.

Agency relationships in real estate transactions are governed by three kinds of law, which have been mentioned earlier, including...?

- common law, the rules established by tradition and court decisions; - statutory law, the laws enacted by the legislature; - administrative law, the rules and regulations created by real estate commissions and departments, as authorized by the legislature.

Undisclosed dual agency

A broker may not intend to create a dual agency. It might occur unintentionally or inadvertently. Sometimes the cause is carelessness. Other times, a sales associate does not fully understand the fiduciary responsibilities of agency. Some sales associates lose sight of other responsibilities when they focus intensely on bringing buyers and sellers together. For instance, a sales associate representing the seller might suggest to a buyer that the seller will accept less than the listing price. Or the same sales associate might promise to persuade the seller to accept an offer that is in the buyer's best interests. Giving a buyer any specific advice on how much to offer can lead the buyer to believe that the sales associate represents the buyer's interests and is acting as the buyer's advocate. Any of these actions can create an implied agency with the buyer and violate the duties of loyalty and confidentiality to the principal-seller. Because neither party has been informed of the situation and given the opportunity to seek separate representation, the interests of both are jeopardized. This undisclosed dual agency violates licensing laws. It can result in the rescission of the sales contract, forfeiture of a commission, a lawsuit for damages, and possible license problems.

Buyer representation

A buyer who contracts with a broker to locate property and represent the buyer's interests in a transaction is the principal—the broker's client. The broker, as agent, is strictly accountable to the buyer. Although it has been customary in commercial transactions, buyer agency is relatively new to residential practice but is quickly becoming a popular area of expertise. Real estate commissions or boards across the country have developed rules and procedures to regulate the buyer's agent. Local real estate associations have developed agency representation forms and other materials specifically for the buyer's agent. Professional organizations offer assistance, certification, training, and networking opportunities. A buyer agency relationship is established in the same way as any other agency relationship: by contract or agreement. The buyer's agent may receive a flat fee or a share of the commission or both, depending on the terms of the agency agreement.

Listing Agreement

A contract between an owner (as principal) and a real estate professional (as representative of the owner) by which the real estate professional is employed to find a buyer for the owner's real estate on the owner's terms, for which service the owner agrees to pay a commission or other form of compensation.

Implied Agreement

A contract under which the agreement of the parties is demonstrated by their acts and conduct.

General Agent

A general agent may represent the principal in a broad range of matters related to a particular business or activity. The general agent may, for example, bind the principal to any contract within the scope of the agent's authority. An entertainer may employ more than one general agent—an agent to find work, as well as a business manager to hire and supervise staff and make other arrangements. A property manager hired by the owner of income-producing property is typically a general agent for the owner. A real estate sales associate usually is a general agent of the employing broker, authorized to act as the subagent of the broker in a variety of transactions.

Negligent Misrepresentation

A negligent misrepresentation occurs when the real estate professional should have known that a statement about a material fact was false. A real estate professional's lack of awareness of an issue is no excuse. A misrepresentation due to the professional's carelessness will make the professional culpable (subject to liability).

Nonagency

A nonagent (also called a transaction broker, facilitator, transaction coordinator, or contract broker) is not an agent of either party. A nonagent's job is simply to help both the buyer and the seller with the necessary paperwork and formalities involved in transferring ownership of real property—what may be referred to as ministerial acts. The nonagent is expected to treat all parties honestly and competently, to locate qualified buyers or suitable properties, to help the parties arrive at mutually acceptable terms without acting on behalf of either side, and to assist in the closing of the transaction. The nonagent is equally responsible to both parties and must disclose known defects in a property; however, the nonagent may not negotiate on behalf of either the buyer or the seller and must not disclose confidential information to either party. The buyer and the seller negotiate the sale without the services of the real estate agent(s), though one or both parties may be represented by an attorney during that process.

Buyer Representation Agreement

A principal-agent relationship in which the real estate professional acts on behalf of the buyer, usually as an agent, with fiduciary responsibilities to the buyer.

Buyer's Agent

A real estate professional who is under contract to locate property for a buyer and represent the buyer's interests in a transaction.

Implied Agency

A relationship created as a result from the parties' behavior

Express Agency

A relationship created by an oral or written agreement between the parties

Special Agent

A special agent, or limited agent, is authorized to represent the principal in one specific act or business transaction only. A real estate broker is usually a special agent. If hired by a seller, the broker is limited to finding a ready, willing, and able buyer for the seller's property. A special agent for a buyer would have the limited responsibility of finding a property that fits the buyer's criteria. A special agent for a tenant will find a property that meets the client's requirements. As a special agent, the real estate broker may not bind the principal to any contract.

Universal Agent

A universal agent is a person empowered to do anything the principal could do personally. The universal agent's authority to act on behalf of the principal is virtually unlimited. A court-appointed guardian, for instance, will have the authority granted by the court, which can include caring for both the person and the property of the guardian's ward—the individual who is the subject of the guardianship. A real estate professional typically does not have this scope of authority in a real estate transaction.

Disclosed dual agency

Although a conflict of interest still exists, disclosure is intended to minimize the risk for the broker. The disclosure alerts the principals that they might have to assume greater responsibility for protecting their interests than they would if they had independent representation. Because the duties of disclosure and confidentiality are sometimes limited by mutual agreement, they must be carefully explained to the parties in order to establish informed consent.

Express Agreement

An oral or written contract in which the parties state the contract's terms and express their intentions in words.

Property management

An owner may employ a broker to market, lease, maintain, or manage the owner's property. Such an arrangement is known as property management. The broker is made the agent of the property owner through a property management agreement. As in any other agency relationship, the broker has a fiduciary or statutory responsibility to the client-owner. Sometimes, an owner may employ a broker for the sole purpose of marketing the property to prospective tenants. In this case, the broker's responsibility is limited to finding suitable tenants for the owner's property. Some states recognize a special real estate license for those who exclusively handle property rentals. A broker can also represent the tenant of either residential or commercial property. A knowledgeable real estate broker is an important resource for a transferred employee needing suitable housing, as well as for the owner of a business seeking to find a larger (or smaller) property or expand to an additional location.

Fraud

Deception intended to cause a person to give up property or a lawful right.

Designated Agency

Designated agency, also called assigned agency or appointed agency, is available in some states to accommodate an in-house sale in which two sales associates of the same broker are involved. The broker designates one sales associate to represent the seller and another sales associate to represent the buyer. Thus, a designated agent, or designated representative, is the only sales associate in the company who has a fiduciary responsibility toward the principal. When one sales associate in the company is a designated agent, the other sales associates are free to represent (through the broker) the other party in a transaction. Disclosure of the designated agent status of the sales associates to both parties is required, as is the consent of both parties to the arrangement.

Puffing

Exaggerated or superlative comments or opinions.

An express agreement occurs when the actions of the parties indicate that they have mutually consented to an agency. True False

False

The universal agent's authority to act on behalf of the principal is significantly limited. True False

False

Seller representation

If a seller enters a listing agreement with a broker to market the seller's real estate, the broker becomes an agent of the seller; the seller is the principal, the broker's client. The broker is obligated to deal honestly with all parties in the transaction and act within the licensing law. The broker is strictly accountable to the principal. The listing contract, the document that usually forms the agency relationship of broker and seller, typically authorizes the broker to use the services of sales associates employed by the broker, as well as the services of other cooperating brokers in marketing the seller's real estate.

Compensation

In a real estate transaction, the source of compensation does not determine agency. An agent does not necessarily represent the person who pays the agent's commission. In fact, agency can exist even if no fee is involved (called a gratuitous agency).

Dual agency

In dual agency, the agent represents two principals in the same transaction. Dual agency requires equal loyalty to two different principals at the same time—a high burden that means neither principal has the full, undivided loyalty of the agent. Dual agency arises, for example, when a real estate broker is the agent of both the seller and the buyer. The broker's sales associates, as agents of the broker, also have fiduciary or statutory responsibilities to the same principals. The challenge is to fulfill these fiduciary obligations to one principal without compromising the interests of the other. While practical methods of ensuring fairness and equal representation may exist, it should be noted that a dual agent can never fully represent either party's interests because the duty of undivided loyalty cannot be shown to both principals at the same time. Similarly, it is impossible to maintain both confidentiality and full disclosure to parties whose interests are in opposition.

Single Agency

In single agency, the agent represents only one party to a transaction. The real estate agent must provide fiduciary common law or statutory duties exclusively to one principal within the transaction (who may be either the buyer or the seller—or the landlord or the tenant). The customer is the party not represented by the agent.

Disclosure of agency

Real estate professionals are required to disclose the parties they represent. Understanding the scope of the service a party can expect from the agent allows consumers to make an informed decision about whether to seek their own representation.

Fiduciary responsibilities

The agency agreement between a broker and client usually authorizes the broker to act on the principal's behalf. The agent's fiduciary relationship of trust and confidence means that the real estate broker owes the principal certain duties. These duties are not simply moral or ethical, they are the law—the common law of agency and/or the statutory law governing real estate transactions. Under the common law of agency, an agent owes the principal the six duties of care, obedience, loyalty, disclosure, accounting, and confidentiality, which can be remembered as COLD-AC.

A buyer who is a client of the broker wants to purchase a house that the broker has listed. Which statement is TRUE? A) The seller and the buyer must be informed of the situation and agree in writing to the broker's representing both of them. B) The buyer should not have been shown a house listed by the broker. C) The broker may proceed to write an offer on the property and submit it. D) The broker should refer the buyer to another broker to negotiate the sale.

The answer is the seller and the buyer must be informed of the situation and agree in writing to the broker's representing both of them. Both buyer and seller must give informed, generally written, consent for dual representation.

Customer

The third party or nonrepresented consumer for whom some level of service is provided.

A universal agent is a person empowered to do anything the principal could do personally. True False

True

An express agreement, in which the parties formally express their intention to establish an agency and state its terms and conditions, may be either oral or written. True False

True

In traditional common law, the relationship in which the agent is held in a position of special trust and confidence by the principal is one of a fiduciary. True False

True

What are the reasons an agency may be terminated?

_ Completion, performance, or fulfillment of the purpose for which the agency was created - Death or incapacity of either party - Destruction or condemnation of the property - Expiration of the terms of the agency - Mutual agreement by all parties to cancel the contract - Breach by one of the parties - By operation of law, as in bankruptcy of the principal (bankruptcy terminates the agency contract and title to the property transfers to a court-appointed receiver)

The fundamentals of general agency law have changed dramatically over the past two hundred years. True False

false

Agency

the fiduciary relationship between the principal and the agent by which the agent is authorized to represent the principal in one or more transactions. Fiduciary—the relationship in which the agent is held in a position of special trust and confidence by the principal.

Principal

the individual who hires the agent and delegates to that agent the responsibility of representing the principal's interests. In a real estate transaction in which an agency relationship is established, the principal is the buyer or the seller or the landlord or the tenant. The broker is the principal in dealings with sales associates.

Agent

the individual who is authorized and consents to represent the interests of another person in dealings with a third person. Many different agency relationships are possible in a real estate transaction. The sales associates of a real estate broker act as agents (representatives) of the broker. In a real estate transaction, a firm's broker will be the agent of a client and may share this responsibility with the sales associates who work for the firm. As agents of the broker, the sales associates historically have had the same relationship to a client of the firm that the broker does. Because of the number of transactions that are "in-house" (the same firm dealing with both seller and buyer), it is now possible for a sales associate to represent a buyer as the buyer's designated agent, even when the sales associate's firm also represents the seller in the transaction.

Client

the principal in a real estate transaction for whom a real estate broker acts as agent. The term client is also used when a broker represents someone in a relationship other than an agency

Customer

the third party or nonrepresented consumer who is not a principal but for whom some level of service may be provided and who is entitled to fairness and honesty. The customer may be represented by a separate agent.