Real Estate Sales Exam Agency and Fiduciary Duties 4 — Questions and Answers
Question 1: A subagent in a real estate transaction owes fiduciary duties to:
- The buyer they are working with
- The listing broker's principal (the seller) (Correct answer)
- Both buyer and seller equally
- The state real estate commission
Correct answer: The listing broker's principal (the seller)
A subagent is appointed by the listing broker and therefore owes fiduciary duties to the seller (the listing broker's principal), not to the buyer they may be assisting.
Question 2: Which of the following represents an agent's duty of 'accounting'?
- Filing annual tax returns for clients
- Safeguarding and properly handling all client funds and property (Correct answer)
- Providing clients with investment advice on property values
- Tracking commission splits between co-brokers
Correct answer: Safeguarding and properly handling all client funds and property
The duty of accounting requires agents to properly account for and protect all money, documents, and property entrusted to them by clients.
Question 3: An agent signs a listing agreement that automatically renews indefinitely unless cancelled. This arrangement is considered:
- Standard industry practice in most states
- An illegal or unethical 'evergreen clause' that most states prohibit (Correct answer)
- Required by law to protect sellers
- Acceptable only for commercial properties
Correct answer: An illegal or unethical 'evergreen clause' that most states prohibit
Most states prohibit or discourage automatic renewal (evergreen) clauses in listing agreements because they can trap sellers in agency relationships they no longer want.
Question 4: If a buyer's agent discovers the seller has already received a higher offer, the agent should:
- Advise the buyer to withdraw and find another property
- Disclose this material fact to the buyer client so they can make an informed decision (Correct answer)
- Keep it confidential to maintain a good relationship with the seller's agent
- Increase the buyer's offer without consulting the buyer
Correct answer: Disclose this material fact to the buyer client so they can make an informed decision
A buyer's agent must disclose material facts affecting the buyer's decision, including the existence of competing offers, fulfilling the duty of disclosure.
Question 5: In most states, a real estate agent's fiduciary duties to their client survive:
- Only for 30 days after closing
- The closing of the transaction with respect to confidentiality (Correct answer)
- Only while the listing agreement is active
- Until the agent's license renewal date
Correct answer: The closing of the transaction with respect to confidentiality
While most fiduciary duties end at closing, the duty of confidentiality typically survives indefinitely — agents cannot later disclose a former client's confidential information.
Question 6: A seller instructs their agent to tell potential buyers the home has a newer roof, but the agent knows the roof is 20 years old. The agent should:
- Follow the seller's instructions since the seller is the principal
- Refuse to make the misrepresentation and potentially withdraw from the listing (Correct answer)
- Tell buyers the roof is newer since the seller authorized it
- Disclose the roof age only if a buyer's inspector asks
Correct answer: Refuse to make the misrepresentation and potentially withdraw from the listing
Agents must refuse unlawful instructions; making a knowingly false statement about the roof would be misrepresentation, which is illegal regardless of the seller's direction.
Question 7: Which type of agency is created when a principal's behavior leads a third party to reasonably believe an agency relationship exists, even without a formal agreement?
- Express agency
- Implied agency
- Ostensible or apparent agency (Correct answer)
- Ratified agency
Correct answer: Ostensible or apparent agency
Ostensible or apparent agency arises when a principal's conduct causes a third party to reasonably believe that an agency relationship exists, even without explicit authorization.
Real Estate Sales Exam Agency and Fiduciary Duties 4
A subagent in a real estate transaction owes fiduciary duties to: