Real Estate License Practice Test – Brokerage Responsibility and Agency Management
What is the legal status of listing brokers' and sellers' agency relationships?
Correct answer: Specific agency.
A licensee with specific agency (or special agency) can only operate on behalf of a principal in limited ways for a limited time, usually for only one transaction. A general agency is one in which the agent is authorized to serve as an agent for a variety of purposes. Universal agency refers to the principal's unrestricted ability to act on his or her behalf. A restricted power of attorney authorizes the agent to act on behalf of the principal, but only for the specific actions listed.
Irene is the owner of a warehouse and has decided to sell it on the open market. Brokers X, Y, and Z have been contacted to sell it on her behalf. Who gets the commission if Broker Y closes the deal?
Correct answer: broker Y
Broker Y gets the commission.
Susan David is putting her two-bedroom, one-bathroom condo on the market. With a local real estate licensee, she signed exclusive right-to-sell listing agreement. Which of the following statements accurately describes the agency relationship that this sort of listing agreement creates?
Correct answer: Express agency.
The correct relationship in this type of listing agreement is express agency.
When there is a delegation of authority to perform a single act, a ________ agency is formed.
Correct answer: special agent
A special agent is a person who has been allowed by his principal to execute a specific deed, sign a specific contract, or find a buyer for specific real estate. Special agents are listing agents. If an agent has many listings with the same seller, that agent is classified as a special agent multiple times. A general agency does not consist of many listings for a single client.
In an open listing, who takes the biggest risk?
Correct answer: the agent
The agent is the one who takes the biggest risk in an open listing.
Except for _____________, all of the following are agency relationships.
Correct answer: the real estate salesperson-buyer relationship
A salesperson may refer to oneself or herself as an agent, but he or she is not an agent. The agent is the broker. A salesperson owes the client (principal) all of the fiduciary duties that an agent owes, but the majority of the agent's real estate-related operations must be overseen by a broker.
Which of the following is a personal property?
Correct answer: A deed
Even if it is proof of ownership of real property, a deed is personal property. Personal property is anything that can be moved. A deed is considered personal property because it is movable.
A "company dollar" in the context of a real estate brokerage firm is:
Correct answer: After paying licensee commissions, the brokerage firm's profit.
After licensee commissions have been paid, the brokerage firm has a company dollar.
B is incorrect answer. After paying licensee commissions (but not before), the brokerage business has a company dollar. C is incorrect answer. The phrase "desk fee" is defined in this answer option. D is incorrect answer. The IRS 1031 tax-deferred exchange does not use the word "company dollar." Capital gains taxes on real estate used for business or investment purposes can be delayed if the parcel is exchanged for another "like-kind" lot under Section 1031 of the US Internal Revenue Code. This enables property owners to postpone paying federal capital gains taxes until the new lot is sold. Note that ""like-kind"" does not equal "identical" in a 1031 exchange. A like-kind real estate property is one that is used for business or investment purposes, such as an office building for an apartment complex.
A wealthy investor who is legally competent is selling a major commercial property. One of the state's busiest and most profitable brokerage businesses represents the 35-year-old investor. The transaction's closing date falls on an important overseas business trip that the investor cannot postpone or cancel. The investor signs a paper permitting a trusted friend to sign all documents pertaining to the sale of the commercial property before leaving on the business trip. The investor's friend owes fiduciary duties to the investor after accepting the appointment. Which of the following is the name of the document signed by the investor?
Correct answer: Power of Attorney
A Power of Attorney (POA) was the document that the investor signed. A properly executed POA allows an agent (known as an attorney-in-fact) to operate in the principal's place. Fiduciary duties (e.g., duty of disclosure, duty of obedience, duty of secrecy, duty of care, etc.) are owed by an attorney-in-fact to the principal. The principle in this case is a wealthy investor, and the attorney-in-fact is a trusted acquaintance. Note that an attorney-in-fact is not required to be a lawyer.
When a listing agreement is signed, a broker collects a non-refundable fee from the seller to cover the cost of advertising the property for sale. An "advance fee" is a type of fee that is considered trust funds.
Correct answer: TRUE
Trust funds are an advance charge paid by the seller to cover advertising expenditures. The handling of trust funds is governed by relatively rigorous restrictions in most states. In general, the funds must be utilized only for the purpose intended, and the principal must be given with a detailed accounting of all expenses. The money must be returned to the principal if it is not used for its intended purpose.
Patrick's house was foreclosed upon. Patrick was understandably unhappy, and shortly before being asked to depart the house, he removed all of the plumbing fixtures, lighting fixtures, and built-in appliances. The listing agent saw that the fixtures had been removed when Patrick's lender offered the house for sale. What is the name of the procedure for removing the fixtures from the house?
Correct answer: severance
Severance refers to the act of separating or cutting off a piece of real estate from the land. The lender is allowed to acquire the home with all of the fixtures intact because the lender is foreclosing on the real property, and the fixtures are considered real property. The removal of the fixtures from the home in the manner described in the scenario is a tort violation against the lender that can result in civil action, though it is usually not financially prudent for the lender to pursue such action because the litigation costs can be greater than the lender's financial loss from the damages.
A listing agreement is formed between a seller and a real estate licensee for a valued property in a desirable neighborhood. The listing agreement is a bilateral arrangement with a defined termination date. The licensee acknowledges that if the seller finds a buyer, the licensee will not be paid a commission. What does the listing agreement's name stand for?
Correct answer: Exclusive agency
Unless the seller finds the buyer, the licensee will earn a commission if a buyer is found in an exclusive agency listing agreement. There is just one brokerage firm with the exclusive agency listing agreement. In addition, the licensee is given a specific amount of time to find a buyer. Finally, the exclusive agency listing contract is a two-way arrangement. A bilateral contract is a promise for promise exchange. If the licensee finds a buyer, the seller pledges to pay the commission. The licensee undertakes to find a buyer using due diligence.
Many similarities exist between the lessee of an apartment and the owner of a condominium. Which of the following statements applies to both?
Correct answer: They each own a piece of real estate.
Although the living arrangements and layout of the buildings may appear to be comparable, the only thing that an apartment lessee and a condominium owner have in common is that they both own real estate. A fee interest is owned by a condo owner (which is a freehold estate). The lessee owns a leasehold interest in the property. Depending on how the condo owner maintains title, his estate could be an inheritance estate as well.
JCS Realty, MPS Realty, and CDO Realty are among the agencies that have listed Anne's home. Anne has committed to pay a commission to the listing firm only if the firm finds a ready, willing, and able buyer and the sale is completed in each listing agreement. This is a ____________ type of listing.
Correct answer: an open listing
An open listing allows any real estate licensee with a listing agreement with the seller to earn a commission if he finds the home's buyer. An open listing allows the seller to enter into multiple listing agreements with different brokerage firms and only pay a commission to the firm that finds the buyer. Sellers may mistakenly believe that having this type of listing provides them an edge. In most circumstances, however, listing agents in an open listing are less likely to market the property aggressively if another firm may be able to locate a buyer. Furthermore, most Multiple Listing Services (MLS) expressly ban the publication of open listings in MLS listings, requiring any marketing of the property to be done through less effective ways.
Troy and Ruth were obligated to accept ownership to a home in the Hillyborugh subdivision under specific covenants, conditions, and restrictions (CC&Rs) when they opted to buy it. Their real estate agent indicated to them that they must adhere to the CC&Rs during the time of their ownership or risk losing it. Their property was a __________.
Correct answer: Fee simple defeasible
Fee simple defeasible estates are those that can be "defeated." CC&Rs are referred to as "conditions subsequent," which means that they must be met after the property has been acquired. When Troy and Ruth's representative cautioned them about the penalties of non-compliance before they signed the contract, she did so correctly.
The property manager's responsibilities do not include ________.
Correct answer: Informing the building's owner of its market value
A property manager is required to keep up with market rentals in the area and to keep track of vacancies in the building under management. The property manager, on the other hand, has no obligation to keep the principle up to date on the building's market worth. As a party to the duty of agency, a property manager's responsibilities always include fairness and honesty.