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47 Cards in this Set

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Most of the laws dealing with the formation of an agency relationship are found in the


(a) Business & Professions Code.


(b) California Civil Code.


(c) Commissioner’s Regulations.


(d) Real Estate Law.

(B) is correct. The California Civil Code provides most of the laws dealing with the formation of an agency relationship.

Define: Agent

One authorized to represent and to act on behalf of another person (called the principal). Unlike an employee, who merely works for a principal, an agent works in the place of a principal

Define: Principal

In a fiduciary relationship, the person who hires a real estate broker to represent him or her in the sale of property. The phrase, "principals only," often found in real estate ads, is meant to exclude real estate agents from contacting the owners of the property.

Define: Agency

A relationship created when one person, the principal, delegates to another, the agent, the right to act on his or her behalf in business transactions and to exercise some degree of discretion while so acting. A fiduciary relationship that imposes on the agent, certain duties, obligations, and high standards of good faith and loyalty.

Define: Special Agent

One authorized by a principal to perform a particular act or transaction without contemplation of continuity of service as with a general agent. The real estate broker is ordinarily a special agent appointed by the seller to find a ready, willing and able buyer for a particular property.

Define: General Agent

Someone authorized to transact every kind of business for the principal. (See agent)

Broker Bob is engaged by Ramon and Rosa Garcia to sell their home. When Broker Bob sells the Garcia home, his agency relationship with the Garcias will terminate. Is Bob a Special or General Agent?

Broker Bob is a special agent for that purpose.

The Garcias employ a business manager and give that person full authority to carry out their financial affairs. What kind of agent is that person?

That person is a general agent, because of the broad authority given to the agent by the Garcias.

Define: Cooperation Broker

A broker who assists another broker in the sale of real property. Usually the cooperating broker is the selling broker who found a buyer for the listing broker. (See listing broker)

Define: Subagent

An agent of a person who is already acting as an agent for a principal. The original agent can delegate authority to a subagent where such delegation is either expressly authorized or customary in the trade.

An agent who tries to sell a property that is currently listed for sale by the original (listing) agent is called a


(a) buyer's agent.


(b) general agent.


(c) delegated agent.


(d) subagent.

(D) is correct. The original agent can delegate authority to a "subagent" where such delegation is either expressly authorized or customary in the trade. For example, it is customary for listing brokers to delegate the responsibility of showing and selling the property.

Define: MLS

A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing and able buyers for their properties more quickly than they could on their own.

Define: Pocket Listing

Property listing that the listing agent markets privately before entering it in the multiple listing service (MLS); usually a violation of MLS rules. (See multiple-listing service)

Broker Bob is the exclusive agent for the O'Connors, who are selling a four-unit apartment building. The MLS has not been authorized and is not being used, although the property is being advertised for sale. If a cooperating broker brings in a buyer, what is the relationship of that broker to the O'Connors and Broker Bob?

In this case, a cooperating broker would be the subagent of Broker Bob and have no direct relationship with the O'Connors.

Define: Employer

An individual or company that pays people to work for them. Employers are obligated to withhold income taxes and social security taxes from the compensation of employees. The principal is the employer. (See employee)

Define: Employee

Person who is hired by someone else to perform work; for purposes of the Real Estate Law, a real estate salesperson is always considered an employee under the supervision of the employing broker. (See employer,independent contractor)

Define: Independent Contractor

One who is retained to perform a certain act, but who is subject to the control and direction of another only as to the end result and not as to how he or she performs the act.

True/False: A real estate salesperson can conduct business without a broker if they have a written agreement with the client that states this.

False: A real estate salesperson can conduct business only as the agent of a broker and they must have a written employment agreement.

True/False: The Real Estate License Law always considers a salesperson to be an independent contractor under the broker.

False: The Real Estate License Law always considers a salesperson to be an employee acting under the direct supervision and control of the broker. This is true even when the salesperson is treated by the broker as an independent contractor for compensation, work assignment, and tax purposes.

True/False: There can only be one broker in an agency.

False. Someone with a broker's license may choose to be employed by another broker.)

Define: Associate Licensee

A broker or salesperson who is employed by or in an independent contractor relationship with a real estate broker.

True/False: If an associate licensee changes brokers, the listings stay with the original brokerage.

True. If an associate licensee changes employing brokers, the listings stay with the broker under whose name they were taken, unless the broker allows the associate licensee to retain them.

In their dealings with clients and with each other, real estate agents generally act as


(a) employees.


(b) independent contractors.


(c) subcontractors.


(d) attorneys-in-fact.

(B) is correct. Real estate agents generally act as independent contractors in their dealings with clients as well as dealings with each other. An independent contractor is one who is retained to perform a certain act, but who is subject to the control and direction of another only as to the end result and not as to how he or she performs the act.

Define: Single Agency

The practice of representing either the buyer or the seller but never both in the same transaction. The single-agency broker may be compensated indirectly through an authorized commission split or directly by the principal who employed the agent to represent him or her. (See dual agency)

Define: Dual Agency

An agency relationship in which the agent acts concurrently for both principals (the buyer and the seller) in a real estate transaction. Mom calls this double-ending. (Seeagency, agent, fiduciary)

What consequences arise when a Broker doesn't ensure clients know of a dual agency relationship?

The agent faces temporary suspension or even permanent revocation of the real estate license, in addition to having to return any commission received on the transaction.

Define: Agency Confirmation Form

Written statement required for a residential transaction involving property of one to four residential units, in the wording required by the California Civil Code, and signed by the property seller, the listing agent and selling agent, that indicates the seller's understanding of the relationship of the seller to the listing and selling agents. (See agency)

Define: Attorney-In-Fact

A competent and disinterested person who is authorized by another person to act in his or her place. In real estate conveyance transactions, an attorney-in-fact, who has a fiduciary relationship with his or her principal, is authorized by way of a written, notarized and recordable instrument called a power of attorney. (See power-of-attorney)

Define: Power of Attorney

Authority to act on behalf of someone else for financial purposes. (Seepower of attorney

Glenda Golden is an unemancipated minor. Her grandparents, who have moved to Retirement City, transferred title to their ranch to a trust established for Glenda, their only heir. Glenda (who is not sentimental) immediately approaches Helen Silver, leading salesperson for XYZ Realty, about selling the ranch. Helen knows the property will sell quickly. Should Helen take the listing?

No. There is no listing to take. Glenda has no control over the ranch, since title is held in trust for her. Even if Glenda did have title, because she is mentally incompetent she does not have the legal capacity to enter into a contract for the sale of real estate.

All of the salespeople at ABC Real Estate work strictly on commission. No deductions are made from their commissions, which they share with ABC. They have no office duties and are billed for any use of secretarial staff, phones, conference rooms, and so on. They do receive referrals from ABC, which they can accept or reject. Describe the relationship between ABC Real Estate and its salespeople.

The salespeople of ABC Real Estate are independent contractors.

An attorney-in-fact can best be described as a(n)


(a) duly authorized person who has been granted both actual and implied powers to act as a principal for another.


(b) properly authorized party who is acting as a dual agent.


(c) attorney appointed by the court to administer an estate of a deceased person.


(d) legally competent person who has been given the power of attorney by another competent person.

(D) is correct. An attorney-in-fact is a competent and disinterested person who is authorized by another person to act in his or her place.

Define: Express Agreement/Contract

An oral or written contract in which the parties state the contract's terms and express their intentions in words.

Define: Statute of Frauds

State law that requires certain contracts to be in writing and signed by the party to be charged (or held) to the agreement in order to be legally enforceable.

Define: Equal Dignities Rule

A rule of agency law that stipulates that when a contract is required by law to be in writing, the authority of an agent to enter into such a contract on behalf of the principal must also be in writing.

Define: Ratification

Method of creating an agency relationship in which the principal accepts the conduct of someone who acted without prior authorization as the principal's agent.

Broker Al Teller knows that his neighbor Woody is trying to sell a small lot in the downtown area that is zoned for commercial use. Al offers to find a buyer if he is given a 10% commission. Woody does not make a commitment but says he will think it over. Later that day Al brings Joe to see the lot, and Joe states that he is willing to offer $4,500 for it. If Woody accepts Joe's offer, will he have to pay Al a commission?

If Woody accepts the offer he will ratify an agency agreement with Al, on the terms discussed earlier.

An agency relationship may be created by


(a) agreement.


(b) ratification.


(c) accepting an offer of subagency.


(d) All of the above.

(D) is correct. Most agency relationships are created by written agreement. An agency relationship can also be created by ratification (consenting to acts of the agent) and estoppel (principal stopped from denying an inconsistent position in the representation).

Define: Estoppel

Method of enforcing an agency relationship in which someone stated incorrectly that another person is his or her agent, and a third person relied on that representation.

Define: Estoppel

A form of implied agency relationship created by the actions of the parties involved rather than by written agreement or document. (Seeimplied agency)

Define: Ostensible

A form of implied agency relationship created by the actions of the parties involved rather than by written agreement or document. (Seeimplied agency)

Define: Implied Agency

An agency agreement created by the actions of the parties, and not a stated (written or verbal) agreement. (See express agency)

Seller A let buyer B assume that Broker C was his agent. This type of agency relationship is an example of:


(a) ratification.


(b) estoppel.


(c) ostensible authority.


(d) None of the above.

(C) is correct. Ostensible authority is that authority which a third person reasonably believes an agent possesses because of the acts or omissions of the principal. Ratification is the adoption or approval of an act performed on behalf of a person without previous authorization, such as the approval by a principal of an agent, after the acts have been performed. Estoppel is a legal doctrine which prevents a person from alleging something to be true or a fact which is contrary to a previous affirmation or allegation made by that same person.

Define: Bilateral Contract/Agreement

A contract in which each party promises to perform an act in exchange for the other party's promise to perform. The usual real estate contract is an example of a bilateral contract in which the buyer and seller exchange reciprocal promises respectively to buy and sell the property.

Define: Unilateral Contract

A one-sided contract wherein one party makes a promise so as to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.

Define: Due Dilligence

Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

A listing agreement is


(a) a promise for a promise.


(b) a bilateral contract.


(c) an employment contract.


(d) All of the above

x(D) is correct. A listing agreement is an employment agreement between an owner of property and the real estate broker authorizing the broker to find a buyer for the property. They are also bilateral contracts in that the seller promises to pay the broker a commission when the property sells and the broker promises to make reasonable efforts to obtain a purchaser.