RES Agency Law & Ethics 2 — Questions and Answers
Question 1: What is blockbusting in real estate?
- The illegal practice of inducing homeowners to sell by implying that people of a protected class are moving into the neighborhood (Correct answer)
- Building new blocks of condominiums
- Demolishing buildings to clear a lot
- A marketing strategy for new developments
Correct answer: The illegal practice of inducing homeowners to sell by implying that people of a protected class are moving into the neighborhood
Blockbusting (panic selling) is a Fair Housing Act violation where agents exploit racial or ethnic fears to induce homeowners to sell quickly at below-market prices, then resell to minority buyers at inflated prices.
Question 2: What is redlining?
- The discriminatory practice of denying or limiting financial services to certain neighborhoods based on racial or ethnic composition (Correct answer)
- Drawing red lines on a property survey
- Marking defects on a home inspection report
- Highlighting important clauses in a contract
Correct answer: The discriminatory practice of denying or limiting financial services to certain neighborhoods based on racial or ethnic composition
Redlining is the illegal practice of refusing to lend, insure, or provide other financial services to residents of certain areas based on the racial or ethnic composition of those neighborhoods.
Question 3: What is the agency disclosure requirement?
- The legal obligation to inform all parties about whom the agent represents before substantive discussions begin (Correct answer)
- A requirement to disclose the agent's commission to the public
- A disclosure of the agent's personal financial situation
- A notification that the property is being sold by an agent
Correct answer: The legal obligation to inform all parties about whom the agent represents before substantive discussions begin
Agency disclosure laws require agents to clearly explain their role (buyer's agent, seller's agent, or dual agent) early in the relationship so all parties understand who the agent is legally representing.
Question 4: What are the consequences of violating the Fair Housing Act?
- Civil penalties, lawsuits, damages, and potential criminal prosecution for willful violations (Correct answer)
- A verbal warning with no further action
- Only a small fine for the first violation
- Loss of property ownership rights
Correct answer: Civil penalties, lawsuits, damages, and potential criminal prosecution for willful violations
Fair Housing violations can result in civil penalties up to $100,000+, compensatory and punitive damages in lawsuits, injunctive relief, and criminal penalties including fines and imprisonment for willful violations.
Question 5: What is the principle of 'caveat emptor' and how has it changed in real estate?
- 'Buyer beware' — historically buyers bore all risk, but modern disclosure laws now require sellers and agents to reveal known defects (Correct answer)
- A Latin phrase meaning 'seller beware'
- A requirement for buyers to conduct inspections
- A marketing term for luxury properties
Correct answer: 'Buyer beware' — historically buyers bore all risk, but modern disclosure laws now require sellers and agents to reveal known defects
Caveat emptor traditionally placed the burden on buyers to discover defects. Modern real estate law has shifted significantly, requiring sellers and agents to disclose known material defects and conditions.
Question 6: What is an agent's duty regarding trust funds (client money)?
- Client funds must be deposited in a separate trust account, never commingled with the agent's personal or business funds (Correct answer)
- Client funds can be deposited in the agent's personal account temporarily
- Trust account requirements apply only to commercial transactions
- Agents are not responsible for client funds
Correct answer: Client funds must be deposited in a separate trust account, never commingled with the agent's personal or business funds
Real estate agents must deposit client funds (earnest money, security deposits) in a designated trust/escrow account, keeping them completely separate from personal or business funds. Commingling is a serious violation.
RES Agency Law & Ethics 2
What is blockbusting in real estate?