Real Estate Sales Agency and Fiduciary Duties Questions and Answers — Questions and Answers
Question 1: A buyer's agent knows their client is in a hurry to move due to a job relocation. The seller's agent asks why the buyer is moving. Which fiduciary duty requires the buyer's agent to keep the client's motivation private?
- Disclosure
- Confidentiality (Correct answer)
- Accounting
- Obedience
Correct answer: Confidentiality
The duty of confidentiality requires an agent to protect their client's personal information and motivations. Disclosing that the buyer is in a hurry could weaken their negotiating position. This duty continues even after the transaction closes.
Question 2: A listing agent is holding an open house. A potential buyer, who is not represented by an agent, attends and tells the listing agent they are pre-approved for a loan amount well above the asking price. To whom does the listing agent owe the fiduciary duty of loyalty?
- To the buyer, because they shared confidential information.
- To both the buyer and seller, as a dual agent.
- To the seller. (Correct answer)
- To neither party, as they are just a facilitator.
Correct answer: To the seller.
The listing agent has an established agency relationship with the seller (their client or principal). Therefore, their duty of loyalty is exclusively to the seller. The unrepresented buyer is a customer, and the agent owes them honesty and fair dealing, but not fiduciary duties like loyalty.
Question 3: Which of the following events would automatically terminate an agency relationship by operation of law?
- The agent finds a ready, willing, and able buyer.
- The client expresses dissatisfaction with the agent's marketing efforts.
- The property is destroyed in a fire. (Correct answer)
- The listing agreement's expiration date passes without a sale.
Correct answer: The property is destroyed in a fire.
An agency relationship can be terminated by operation of law when certain events occur that make performance impossible. The destruction of the subject property (the house burning down) is one such event. While the other options can lead to termination, they represent fulfillment of purpose, a potential breach of contract, or expiration of the contract term, not termination by operation of law due to impossibility.
Question 4: An agent is representing a seller. The agent discovers a latent defect in the property's foundation that the seller did not mention. The seller instructs the agent not to disclose this to potential buyers. What is the agent's proper course of action?
- Obey the seller's instruction to maintain the duty of obedience.
- Disclose the defect to all potential buyers, as the duty to disclose material facts overrides the duty of obedience in this case. (Correct answer)
- Suggest the seller lower the price to compensate for the defect without disclosing it.
- Terminate the agency relationship without disclosing the defect to anyone.
Correct answer: Disclose the defect to all potential buyers, as the duty to disclose material facts overrides the duty of obedience in this case.
Real estate agents have a duty to disclose all known material facts about a property to all parties, even if their client instructs them otherwise. The duty to disclose latent material defects overrides the fiduciary duty of obedience to the client's unlawful instruction to conceal it. Concealing a known defect can lead to legal liability for both the agent and the seller.
Question 5: An agent represents a buyer who makes an offer on a property. The agent then learns that another agent in the same brokerage firm represents the seller. What type of agency is this?
- Single agency
- Universal agency
- Special agency
- Dual agency (Correct answer)
Correct answer: Dual agency
Dual agency occurs when the same brokerage represents both the buyer and the seller in a single transaction. Even if different agents within the firm are working with each party, the brokerage itself is the dual agent. This relationship must be disclosed to both parties, and consented to in writing.
Question 6: The fiduciary duty that requires an agent to safeguard and account for all money or property entrusted to them by a client is known as:
- Accounting (Correct answer)
- Loyalty
- Reasonable Care
- Confidentiality
Correct answer: Accounting
The duty of accounting requires the agent to keep track of and report on all funds and documents they handle on behalf of their client, such as earnest money deposits, contracts, and closing statements. This ensures that the client's assets are protected and handled appropriately.
Real Estate Sales Agency and Fiduciary Duties Questions and Answers
A buyer's agent knows their client is in a hurry to move due to a job relocation.
The seller's agent asks why the buyer is moving.
Which fiduciary duty requires the buyer's agent to keep the client's motivation private?