Real Estate Sales Exam Real Estate Sales Agency Law and Fiduciary Duties 1 — Questions and Answers
Question 1: A seller's agent receives two offers on the same day. The seller instructs the agent to present only the higher offer and discard the lower one without informing the lower bidder. What should the agent do?
- Follow the seller's instructions, as obedience to the principal is paramount
- Present both offers to the seller but explain the legal risk of not responding to the lower offer (Correct answer)
- Discard the lower offer but notify the lower buyer that their offer was not considered
- Refuse to present either offer until the seller agrees to consider all offers fairly
Correct answer: Present both offers to the seller but explain the legal risk of not responding to the lower offer
While agents owe obedience to their principal, that duty does not extend to illegal acts. The agent must present all written offers (required by law in most states) and can advise the seller of legal obligations, but the final decision on how to respond belongs to the seller.
Question 2: Under a general agency relationship in real estate, which of the following best describes the agent's authority?
- The agent may only perform a single specific transaction on behalf of the principal
- The agent has broad authority to act on behalf of the principal in an ongoing series of transactions (Correct answer)
- The agent is authorized to bind the principal to any contract without restriction
- The agent may represent both buyer and seller simultaneously without disclosure
Correct answer: The agent has broad authority to act on behalf of the principal in an ongoing series of transactions
A general agency grants the agent broad, ongoing authority to act for the principal across a range of related activities, such as a property manager handling all matters for a landlord's portfolio, unlike a special agency that covers only one transaction.
Question 3: A buyer's agent discovers through personal research that the neighborhood where her client wants to buy is slated for a major commercial development that will likely reduce residential property values. The agent should:
- Keep the information confidential to avoid alarming the buyer unnecessarily
- Disclose the information to the buyer immediately as part of the duty of disclosure (Correct answer)
- Share the information only if the buyer specifically asks about future development plans
- Disclose only after the buyer has made an offer to avoid losing the commission
Correct answer: Disclose the information to the buyer immediately as part of the duty of disclosure
The fiduciary duty of disclosure requires agents to proactively share all material information that could affect the client's decision. A planned development that may reduce property values is clearly material and must be disclosed without the buyer needing to ask.
Question 4: Which of the following actions by a listing agent would constitute a breach of the fiduciary duty of loyalty?
- Presenting a low offer to the seller along with market data supporting its reasonableness
- Purchasing the listed property through a third party without disclosing the agent's interest (Correct answer)
- Advising the seller to reduce the asking price based on recent comparable sales
- Disclosing a known material defect to a prospective buyer
Correct answer: Purchasing the listed property through a third party without disclosing the agent's interest
Loyalty requires the agent to act solely in the principal's best interest. Secretly purchasing the property through a third party places the agent's personal interest above the seller's, constituting a serious breach of loyalty and typically requiring license revocation.
Question 5: A real estate licensee working as a transaction broker (non-agent) in a state that permits this relationship owes the parties:
- Full fiduciary duties identical to those owed in a traditional agency
- Limited duties including honesty, accounting, and reasonable care, but not loyalty or obedience (Correct answer)
- No duties whatsoever, as no agency relationship exists
- Fiduciary duties only to the party who pays the commission
Correct answer: Limited duties including honesty, accounting, and reasonable care, but not loyalty or obedience
A transaction broker facilitates a transaction without representing either party as a fiduciary. The licensee owes statutory limited duties — typically honesty, skill, accounting, and disclosure of material facts — but does not owe the higher fiduciary duties of loyalty, confidentiality, or obedience.
Question 6: An agent representing a seller is approached by a buyer who is also the agent's close friend. The buyer confides that they are willing to pay the full asking price. What is the agent's obligation under agency law?
- Keep the buyer's willingness confidential to protect the personal friendship
- Disclose to the seller that the buyer has indicated willingness to pay the full asking price (Correct answer)
- Withdraw from the transaction to avoid a conflict of interest
- Inform both parties simultaneously to remain neutral
Correct answer: Disclose to the seller that the buyer has indicated willingness to pay the full asking price
The agent represents the seller and owes that client a duty of disclosure and loyalty. The buyer's willingness to pay full price is material information that must be disclosed to the seller, regardless of the personal relationship with the buyer.
Real Estate Sales Exam Real Estate Sales Agency Law and Fiduciary Duties 1
A seller's agent receives two offers on the same day.
The seller instructs the agent to present only the higher offer and discard the lower one without informing the lower bidder.
What should the agent do?