Free Real Estate Sales Agency Law and Fiduciary Duties Questions and Answers — Questions and Answers
Question 1: A real estate agent represents a seller. A potential buyer, who is a customer without representation, reveals to the agent that they are willing to pay more than their initial offer. Which of the following statements BEST describes the agent's fiduciary duty?
- The agent must disclose this information to the seller. (Correct answer)
- The agent must keep this information confidential.
- The agent can use this information to negotiate a higher commission.
- The agent must advise the buyer to get their own representation.
Correct answer: The agent must disclose this information to the seller.
The agent's primary fiduciary duty of loyalty and disclosure is to their client, the seller. The buyer's willingness to pay more is a material fact that could influence the seller's decisions, and therefore, the agent must disclose it to the seller.
Question 2: Which of the following fiduciary duties survives the termination of an agency relationship?
- Obedience
- Loyalty
- Confidentiality (Correct answer)
- Disclosure
Correct answer: Confidentiality
The duties of confidentiality and accounting continue even after the agency relationship has ended. An agent must continue to protect the former client's confidential information and account for any money or property received during the relationship.
Question 3: A broker is representing both the buyer and the seller in the same transaction with the informed written consent of both parties. This type of agency is known as:
- Designated Agency
- Subagency
- Universal Agency
- Dual Agency (Correct answer)
Correct answer: Dual Agency
Dual agency occurs when a single real estate agent or brokerage represents both the buyer and the seller in the same transaction. This requires full disclosure and written consent from all parties involved.
Question 4: An agent is showing a house to a buyer client. The agent knows the seller is facing financial hardship and is desperate to sell quickly. What is the agent's responsibility regarding this information?
- Disclose the information to the buyer client as it is a material fact. (Correct answer)
- Keep the information confidential as it was learned through the agency relationship with the seller.
- Advise the buyer to make a significantly lower offer.
- Ignore the information as it does not relate to the property's physical condition.
Correct answer: Disclose the information to the buyer client as it is a material fact.
The fiduciary duty of disclosure requires an agent to disclose all material facts to their client. The seller's motivation is a material fact that could affect the buyer's negotiating position and decisions. Therefore, the buyer's agent must disclose this to their buyer client.
Question 5: The fiduciary duty of 'Accounting' requires a real estate agent to do which of the following?
- Provide a detailed market analysis for the property.
- Safeguard and account for all money and property entrusted to them. (Correct answer)
- Disclose all known material defects of the property.
- Obey all lawful instructions from the client.
Correct answer: Safeguard and account for all money and property entrusted to them.
The duty of accounting obligates an agent to safeguard and be accountable for all funds, documents, and property belonging to the client that are entrusted to the agent, such as earnest money deposits.
Question 6: A seller's agent is instructed by the client not to disclose a latent defect in the property. Which of the following is the agent's proper course of action?
- Follow the client's instructions to maintain the duty of obedience.
- Disclose the defect to potential buyers, as this duty overrides the duty of obedience. (Correct answer)
- Terminate the listing agreement immediately.
- Advise the client that the defect must be repaired before showing the property.
Correct answer: Disclose the defect to potential buyers, as this duty overrides the duty of obedience.
An agent's duty of obedience does not apply to unlawful instructions. State laws and real estate regulations require agents to disclose known material facts, including latent defects, to all parties. The duty to treat all parties honestly and disclose material facts overrides the duty of obedience to an unlawful instruction.
Free Real Estate Sales Agency Law and Fiduciary Duties Questions and Answers
A real estate agent represents a seller.
A potential buyer, who is a customer without representation, reveals to the agent that they are willing to pay more than their initial offer.
Which of the following statements BEST describes the agent's fiduciary duty?