Arkansas Real Estate License Agency and Fiduciary Duties Questions and Answers

Question 1

An Arkansas real estate agent representing a seller learns from the seller that the roof, which appears new, has a significant, actively leaking defect that they have tried to patch unsuccessfully. A potential buyer, who is a customer and not represented by an agent, does not ask about the roof. What is the agent's duty in this situation?

Accepted Answer

To disclose the known material defect to the potential buyer, as it impacts the property's value and desirability.

Answer

According to AREC Regulation 10.6, a licensee must "exert reasonable efforts" to learn the material facts about a property and avoid misrepresentation. While an agent's primary fiduciary duty is to their client (the seller), this does not override the obligation of honest dealing with all parties. A known, significant latent defect such as an active leak is a material fact that must be disclosed to a customer, even if it is not requested.

Question 2

Under Arkansas law, which of the following fiduciary duties owed by a licensee to their client CANNOT be waived, even with the client's written consent?

Accepted Answer

The duty of absolute fidelity to protect and promote the client's interests.

Answer

Arkansas Code § 17-42-316 and AREC forms explicitly state that the fundamental fiduciary duties, such as the primary duty of absolute fidelity to protect and promote the client's interests, cannot be waived. While some specific services might be negotiable, the core ethical and legal obligations of agency are statutory and mandatory.

Question 3

A licensee with ABC Realty has a buyer representation agreement. The buyer becomes interested in a property listed by another agent at ABC Realty. To proceed with the transaction, what specific type of agency must be created, and what is required?

Accepted Answer

Dual agency, which requires prior written consent from both the buyer and the seller.

Answer

When one firm represents both the buyer and the seller in the same transaction, it creates a dual agency. According to AREC Regulation 8.3, this is only permissible if all parties give their written consent to the dual representation prior to or at the time of executing any contract, such as the offer and acceptance.

Question 4

Which of the following events would automatically terminate an agency relationship by operation of law in Arkansas?

Accepted Answer

The property is destroyed by a tornado.

Answer

Termination of agency by operation of law occurs due to events beyond the control of the parties. The destruction of the subject matter (the property) makes the fulfillment of the contract impossible, thus automatically terminating the agency relationship. The other options describe termination by acts of the parties (renunciation, revocation) or fulfillment/expiration of the contract terms.

Question 5

A buyer's agent in Arkansas owes the full range of fiduciary duties to their client. To a third-party seller (a customer), the buyer's agent owes a primary duty of:

Accepted Answer

Honesty and fair dealing.

Answer

While a licensee owes fiduciary duties (loyalty, obedience, confidentiality, etc.) to their client, they owe a duty of honesty and fair dealing to all parties in the transaction, including customers. This includes disclosing material facts but does not extend to providing confidential advice or acting in the customer's best interest over their own client's.

Arkansas Real Estate License Practice Test

Arkansas Real Estate License Practice Test

Arkansas Real Estate License Agency and Fiduciary Duties Questions and Answers