Real Estate Sales Agency and Fiduciary Duties Questions and Answers

Question 1

A buyer's agent knows their client is in a hurry to move due to a job relocation. The seller's agent asks why the buyer is moving. Which fiduciary duty requires the buyer's agent to keep the client's motivation private?

Accepted Answer

Confidentiality

Answer

The duty of confidentiality requires an agent to protect their client's personal information and motivations. Disclosing that the buyer is in a hurry could weaken their negotiating position. This duty continues even after the transaction closes.

Question 2

A listing agent is holding an open house. A potential buyer, who is not represented by an agent, attends and tells the listing agent they are pre-approved for a loan amount well above the asking price. To whom does the listing agent owe the fiduciary duty of loyalty?

Accepted Answer

To the seller.

Answer

The listing agent has an established agency relationship with the seller (their client or principal). Therefore, their duty of loyalty is exclusively to the seller. The unrepresented buyer is a customer, and the agent owes them honesty and fair dealing, but not fiduciary duties like loyalty.

Question 3

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

Accepted Answer

The property is destroyed in a fire.

Answer

An agency relationship can be terminated by operation of law when certain events occur that make performance impossible. The destruction of the subject property (the house burning down) is one such event. While the other options can lead to termination, they represent fulfillment of purpose, a potential breach of contract, or expiration of the contract term, not termination by operation of law due to impossibility.

Question 4

An agent is representing a seller. The agent discovers a latent defect in the property's foundation that the seller did not mention. The seller instructs the agent not to disclose this to potential buyers. What is the agent's proper course of action?

Accepted Answer

Disclose the defect to all potential buyers, as the duty to disclose material facts overrides the duty of obedience in this case.

Answer

Real estate agents have a duty to disclose all known material facts about a property to all parties, even if their client instructs them otherwise. The duty to disclose latent material defects overrides the fiduciary duty of obedience to the client's unlawful instruction to conceal it. Concealing a known defect can lead to legal liability for both the agent and the seller.

Question 5

An agent represents a buyer who makes an offer on a property. The agent then learns that another agent in the same brokerage firm represents the seller. What type of agency is this?

Accepted Answer

Dual agency

Answer

Dual agency occurs when the same brokerage represents both the buyer and the seller in a single transaction. Even if different agents within the firm are working with each party, the brokerage itself is the dual agent. This relationship must be disclosed to both parties, and consented to in writing.

Real Estate Sales Exam Practice Test

Real Estate Sales Exam Practice Test

Real Estate Sales Agency and Fiduciary Duties Questions and Answers