Real Estate Sales Exam Agency Law and Fiduciary Duties 3 — Questions and Answers
Question 1: Subagency occurs when:
- A buyer hires a second agent
- A listing broker authorizes other brokers to represent the seller (Correct answer)
- An agent works part-time
- A broker hires a salesperson
Correct answer: A listing broker authorizes other brokers to represent the seller
Subagency is created when a listing broker extends agency authority to cooperating brokers, who then also represent the seller.
Question 2: An agent's duty of care requires them to:
- Always recommend the highest-priced listing
- Exercise reasonable skill and diligence on behalf of their client (Correct answer)
- Disclose all offers immediately
- Maintain client confidentiality permanently
Correct answer: Exercise reasonable skill and diligence on behalf of their client
The duty of care (competence) requires agents to use the skills and knowledge expected of a competent real estate professional.
Question 3: A seller's agent learns the home has a hidden foundation crack that was painted over. The agent must:
- Keep it confidential to protect the seller
- Disclose it to potential buyers as a material fact (Correct answer)
- Only disclose it if the buyer asks directly
- Wait until inspection to mention it
Correct answer: Disclose it to potential buyers as a material fact
Known material defects affecting property value or safety must be disclosed to buyers even if it harms the seller's position.
Question 4: Which of the following creates an express agency relationship?
- An implied agreement between parties
- A written or verbal agreement to represent a client (Correct answer)
- Operating as a transactional broker
- A verbal agreement that cannot be enforced
Correct answer: A written or verbal agreement to represent a client
Express agency is intentionally created through explicit written or verbal agreement between the agent and the principal.
Question 5: Designated agency allows a broker to:
- Represent both parties personally in the same transaction
- Assign different agents to represent each party in a dual agency situation (Correct answer)
- Avoid all disclosure requirements
- Work without a license in certain states
Correct answer: Assign different agents to represent each party in a dual agency situation
Designated agency permits the broker to assign one agent to represent the buyer and another to represent the seller within the same brokerage.
Question 6: An agent who continues to owe fiduciary duties to a client after a listing has expired is fulfilling the duty of:
- Obedience
- Loyalty
- Confidentiality (Correct answer)
- Accounting
Correct answer: Confidentiality
Confidential information obtained during the agency relationship must be protected even after the agency terminates.
Question 7: If a buyer asks their agent to help them purchase a home with a known methamphetamine contamination without disclosure, the agent should:
- Follow the client's instructions since they signed a buyer representation agreement
- Refuse to proceed because disclosure laws override client instructions (Correct answer)
- Disclose only to the listing agent
- Proceed if the buyer signs a waiver
Correct answer: Refuse to proceed because disclosure laws override client instructions
Agents cannot follow client instructions that require violating the law; legal duties to disclose material hazards supersede client directions.
Real Estate Sales Exam Agency Law and Fiduciary Duties 3
Subagency occurs when: