Law of Agency Study Guide Exam 1
Questions With Correct Answers
Duties of an agent - page 30 - CORRECT ANSWER✔✔-OLDCAR:
| | | | | | | | |
• Obedience
| |
• Loyalty
| |
• Disclosure
| |
• Confidentiality
| |
• Accounting
| |
• Reasonable care
| |
OBEDIENCE: |
An agent is obligated to follow all of the lawful instructions of a client. A client
| | | | | | | | | | | | | | | |
may reasonably expect an agent to arrange for certain services to be performed.
| | | | | | | | | | | | |
(ex: a client may ask for a survey, an appraisal, or an inspection report.)
| | | | | | | | | | | | | |
LOYALTY:
Loyalty means putting the interests of a client first. The duty of loyalty is limited
| | | | | | | | | | | | | | |
by the duty of honesty to all parties. As part of the requirements of loyalty to a
| | | | | | | | | | | | | | | | |
seller, a broker/agent must work diligently to secure an acceptable offer on the
| | | | | | | | | | | | |
property. |
,DISCLOSURE:
An agent has a duty of full disclosure of all information relating to the property
| | | | | | | | | | | | | | |
and the other parties in the transaction. Full disclosure includes such things as
| | | | | | | | | | | | |
the broker's opinion of value, negotiation strategies, or techniques to assist the
| | | | | | | | | | | |
client in negotiating the transaction, motivation of the other parties, and the
| | | | | | | | | | | |
financial condition of the other party.
| | | | |
CONFIDENTIALITY:
An agent must keep any confidential information he/she learns about a client
| | | | | | | | | | | |
confidential forever. He/she may not disclose it without the client's written
| | | | | | | | | | |
consent. The only confidential information an agent may disclose is information
| | | | | | | | | | |
the law requires to be disclosed, such as information regarding the condition of
| | | | | | | | | | | | |
the property or the title.
| | | |
ACCOUNTING:
If a broker holds any funds for a client or a customer, the funds are held in trust,
| | | | | | | | | | | | | | | | | |
and the broker must place them in a separate account set up for this purpose.
| | | | | | | | | | | | | | |
Commingling is mixing clients' funds with a broker's business, operating, or
| | | | | | | | | | |
personal funds, and TRELA prohibits it. A more serious offense would be
| | | | | | | | | | | |
conversion. When a broker spends his or her client's funds without authorization,
| | | | | | | | | | | |
that broker is guilty of conversion.
| | | | |
REASONABLE CARE: | |
,Reasonable care |
Types of agent - general vs. special - page 28 - CORRECT ANSWER✔✔-UNIVERSAL
| | | | | | | | | | | | |
AGENCY: |
an individual that has the power to act for the principal in all transactions.
| | | | | | | | | | | | |
(ex: an adult child who is given the authority to act for elderly parents and carry
| | | | | | | | | | | | | | | |
out all of their financial and business matters.)
| | | | | | |
GENERAL AGENCY: |
an individual that has the right to represent his or her principal in a particular
| | | | | | | | | | | | | | |
type of transaction or business.
| | | |
(ex: Property manager. The property manager is primarily responsible for
| | | | | | | | | |
preserving the value of an investment property while generating income as an
| | | | | | | | | | | |
agent for the owners.)
| | |
SPECIAL AGENCY: |
In a special agency relationship, the agent may perform only limited duties for the
| | | | | | | | | | | | |
|principal. The special agent is not able to bind (obligate) the principal because he
| | | | | | | | | | | | |
|or she is not allowed to sign or accept any terms or conditions on behalf of the
| | | | | | | | | | | | | | | | |
principal. The special agent must only follow the instructions of the principal.
| | | | | | | | | | |
, 3. IRS Independent Contractor Status rules - page 155 - CORRECT ANSWER✔✔-In
| | | | | | | | | | | |
the real estate brokerage business, most license holders are not employees of the
| | | | | | | | | | | |
broker. They are independent contractors engaged in a principal-agent
| | | | | | | | | |
relationship, which is the general agency relationship that exists between the
| | | | | | | | | | |
broker and sponsored license holders.
| | | |
The principal will have agreed to pay the agent, but will not control the exact
| | | | | | | | | | | | | | |
manner in which the agent performs. | | | | |
There is no salary, and the sponsoring broker will not deduct withholding from
| | | | | | | | | | | | |
commission income. Agent Bill will receive a gross check, and, rather than
| | | | | | | | | | | |
receiving a W-2, he will receive a 1099-MISC form that will show the sum of the
| | | | | | | | | | | | | | | |
payments received from the sponsoring broker during the tax year
| | | | | | | | |
The division of commissions is at the discretion of the broker. Some brokers have
| | | | | | | | | | | | | |
one compensation plan for all agents, while others may vary. The broker is under
| | | | | | | | | | | | | |
no obligation to offer the same compensation plan to all agents.
| | | | | | | | | |
-----------------------------
IRS guidelines to determine whether or not a sales agent would be classified as
| | | | | | | | | | | | | |
an independent contractor or an employee when sponsored by a real estate
| | | | | | | | | | | |
broker:
• Commissions must compensate the sales agents. There are to be no advances
| | | | | | | | | | | | |
against their commissions. | |
Questions With Correct Answers
Duties of an agent - page 30 - CORRECT ANSWER✔✔-OLDCAR:
| | | | | | | | |
• Obedience
| |
• Loyalty
| |
• Disclosure
| |
• Confidentiality
| |
• Accounting
| |
• Reasonable care
| |
OBEDIENCE: |
An agent is obligated to follow all of the lawful instructions of a client. A client
| | | | | | | | | | | | | | | |
may reasonably expect an agent to arrange for certain services to be performed.
| | | | | | | | | | | | |
(ex: a client may ask for a survey, an appraisal, or an inspection report.)
| | | | | | | | | | | | | |
LOYALTY:
Loyalty means putting the interests of a client first. The duty of loyalty is limited
| | | | | | | | | | | | | | |
by the duty of honesty to all parties. As part of the requirements of loyalty to a
| | | | | | | | | | | | | | | | |
seller, a broker/agent must work diligently to secure an acceptable offer on the
| | | | | | | | | | | | |
property. |
,DISCLOSURE:
An agent has a duty of full disclosure of all information relating to the property
| | | | | | | | | | | | | | |
and the other parties in the transaction. Full disclosure includes such things as
| | | | | | | | | | | | |
the broker's opinion of value, negotiation strategies, or techniques to assist the
| | | | | | | | | | | |
client in negotiating the transaction, motivation of the other parties, and the
| | | | | | | | | | | |
financial condition of the other party.
| | | | |
CONFIDENTIALITY:
An agent must keep any confidential information he/she learns about a client
| | | | | | | | | | | |
confidential forever. He/she may not disclose it without the client's written
| | | | | | | | | | |
consent. The only confidential information an agent may disclose is information
| | | | | | | | | | |
the law requires to be disclosed, such as information regarding the condition of
| | | | | | | | | | | | |
the property or the title.
| | | |
ACCOUNTING:
If a broker holds any funds for a client or a customer, the funds are held in trust,
| | | | | | | | | | | | | | | | | |
and the broker must place them in a separate account set up for this purpose.
| | | | | | | | | | | | | | |
Commingling is mixing clients' funds with a broker's business, operating, or
| | | | | | | | | | |
personal funds, and TRELA prohibits it. A more serious offense would be
| | | | | | | | | | | |
conversion. When a broker spends his or her client's funds without authorization,
| | | | | | | | | | | |
that broker is guilty of conversion.
| | | | |
REASONABLE CARE: | |
,Reasonable care |
Types of agent - general vs. special - page 28 - CORRECT ANSWER✔✔-UNIVERSAL
| | | | | | | | | | | | |
AGENCY: |
an individual that has the power to act for the principal in all transactions.
| | | | | | | | | | | | |
(ex: an adult child who is given the authority to act for elderly parents and carry
| | | | | | | | | | | | | | | |
out all of their financial and business matters.)
| | | | | | |
GENERAL AGENCY: |
an individual that has the right to represent his or her principal in a particular
| | | | | | | | | | | | | | |
type of transaction or business.
| | | |
(ex: Property manager. The property manager is primarily responsible for
| | | | | | | | | |
preserving the value of an investment property while generating income as an
| | | | | | | | | | | |
agent for the owners.)
| | |
SPECIAL AGENCY: |
In a special agency relationship, the agent may perform only limited duties for the
| | | | | | | | | | | | |
|principal. The special agent is not able to bind (obligate) the principal because he
| | | | | | | | | | | | |
|or she is not allowed to sign or accept any terms or conditions on behalf of the
| | | | | | | | | | | | | | | | |
principal. The special agent must only follow the instructions of the principal.
| | | | | | | | | | |
, 3. IRS Independent Contractor Status rules - page 155 - CORRECT ANSWER✔✔-In
| | | | | | | | | | | |
the real estate brokerage business, most license holders are not employees of the
| | | | | | | | | | | |
broker. They are independent contractors engaged in a principal-agent
| | | | | | | | | |
relationship, which is the general agency relationship that exists between the
| | | | | | | | | | |
broker and sponsored license holders.
| | | |
The principal will have agreed to pay the agent, but will not control the exact
| | | | | | | | | | | | | | |
manner in which the agent performs. | | | | |
There is no salary, and the sponsoring broker will not deduct withholding from
| | | | | | | | | | | | |
commission income. Agent Bill will receive a gross check, and, rather than
| | | | | | | | | | | |
receiving a W-2, he will receive a 1099-MISC form that will show the sum of the
| | | | | | | | | | | | | | | |
payments received from the sponsoring broker during the tax year
| | | | | | | | |
The division of commissions is at the discretion of the broker. Some brokers have
| | | | | | | | | | | | | |
one compensation plan for all agents, while others may vary. The broker is under
| | | | | | | | | | | | | |
no obligation to offer the same compensation plan to all agents.
| | | | | | | | | |
-----------------------------
IRS guidelines to determine whether or not a sales agent would be classified as
| | | | | | | | | | | | | |
an independent contractor or an employee when sponsored by a real estate
| | | | | | | | | | | |
broker:
• Commissions must compensate the sales agents. There are to be no advances
| | | | | | | | | | | | |
against their commissions. | |
