Agency Principles and Classifications

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Questions and Answers

Who is considered your principal in an agency relationship?

Any individual who contacts you regarding real estate

A third party involved in the transaction

The client with whom you have an agency agreement (correct)

The broker representing you

Which type of agency allows an agent to perform a specific task on behalf of the principal?

Universal agency

Implied agency

Gratuitous agency

Special agency (correct)

What is the Pennsylvania Consumer Notice primarily used for?

To provide agency disclosure to consumers during initial contact (correct)

As a marketing tool for real estate agents

To outline real estate commission structures

To disclose agency relationships at the end of a transaction

Which is NOT a way in which agency can be created?

Unilateral agency Signup and view all the answers

What are the two main classifications for the causes of agency termination?

Acts of the parties and operation of law Signup and view all the answers

Which fiduciary duty remains even after the termination of an agency relationship?

Confidentiality Signup and view all the answers

What distinguishes a customer from a principal in a real estate transaction?

A customer has no agency relationship, but fairness is still owed to them. Signup and view all the answers

Which of the following terms refers to the individual acting on behalf of another in an agency relationship?

Agent Signup and view all the answers

What defines a graduated lease?

A lease in which rental rates increase incrementally at specified intervals Signup and view all the answers

In which type of lease does the tenant pay a base rent plus operating expenses?

Net Lease Signup and view all the answers

What does an estate at will allow a tenant to do?

Occupy property with a landlord's consent without a specified end date Signup and view all the answers

What is the primary consequence of constructive eviction?

The landlord fails to provide usable premises, leading to lease termination Signup and view all the answers

What does a percentage lease typically involve?

Payment of a base rent along with a share of business profits Signup and view all the answers

Which of the following best describes a ground lease?

A lease of undeveloped land, sometimes for a long term Signup and view all the answers

What is the purpose of a comparative market analysis (CMA)?

To assess property values based on local market trends Signup and view all the answers

What principle of value is defined by the acronym DUST?

Desirability, Utility, Scarcity, and Transferability Signup and view all the answers

What is the sales comparison approach primarily used for?

Estimating the market value by comparing similar properties Signup and view all the answers

Which of the following is NOT a reason for depreciation in property value?

Replacement costs Signup and view all the answers

Which approach is used to evaluate a property based on its income potential?

Income capitalization approach Signup and view all the answers

What does assessed value represent in property appraisal?

The value upon which property taxes are based Signup and view all the answers

What factors contribute to a property's highest and best use?

Legal, physical, financial viability, and potential yield Signup and view all the answers

How is effective gross income defined in real estate appraisal?

Annual income after deducting operating expenses Signup and view all the answers

Which method estimates property value by considering the cost to replace improvements minus depreciation?

Cost approach Signup and view all the answers

What is obsolescence in terms of property value?

Decrease in value caused by factors outside the property Signup and view all the answers

Which term describes the reduction in value due to wear and tear over time?

Physical deterioration Signup and view all the answers

What does the capitalization rate measure in real estate?

Percentage of expected annual income over a property’s value Signup and view all the answers

What does proration refer to in the context of closing costs?

The act of dividing expenses based on usage time. Signup and view all the answers

Which document is provided to the buyer three business days before the closing date?

Closing Disclosure Signup and view all the answers

What are debits in the context of closing costs?

Costs that are owed by a party. Signup and view all the answers

What is the purpose of the Dodd-Frank Act in relation to real estate?

To combine requirements of RESPA and TILA into TRID. Signup and view all the answers

What would be considered a non-prorated expense?

A one-time transfer tax payment. Signup and view all the answers

Which of the following accurately describes credits in a real estate transaction?

A sum of money that a party is owed. Signup and view all the answers

Which of the following best describes escrow?

A process where funds are held by a third party until conditions are met. Signup and view all the answers

What is the role of TRID in the real estate sector?

To combine previous loan-related laws into cohesive disclosure requirements. Signup and view all the answers

What is a key characteristic of an exclusive right-to-sell listing?

The listed broker earns a commission regardless of who sells the property. Signup and view all the answers

What is the primary purpose of a service contract in real estate?

To authorize a broker to act on behalf of a client. Signup and view all the answers

Which type of listing agreement allows sellers to work with multiple brokers but does not require exclusive representation?

Open listing Signup and view all the answers

In a buyer representation agreement, what does the term 'exclusive' imply?

The buyer is restricted to only one agent for a specified period. Signup and view all the answers

What does the term 'due diligence' refer to in real estate transactions?

The reasonable steps taken to meet legal requirements. Signup and view all the answers

What is a net listing in a real estate context?

An agreement specifying a minimum sales price set by the seller. Signup and view all the answers

What is the purpose of a protection period in agency agreements?

To outline a time frame for compensation claims after termination. Signup and view all the answers

What is the role of a licensee in a transaction coordinator agreement?

To manage paperwork without representing either party. Signup and view all the answers

Which clause in an agency agreement might specify the conditions under which compensation is owed to the agent after termination?

Protection period clause Signup and view all the answers

What does the term 'procuring cause' refer to in real estate sales?

The events leading to the buyer's purchase of a property. Signup and view all the answers

Study Notes

Agency Relationships

Parties to a transaction are called "principals"; the client is your principal through an agency agreement.
Agencies classified by scope: special agency, general agency, universal agency.
Pennsylvania Consumer Notice is a required disclosure form provided to consumers at initial contact.
Agency creation methods: express, implied, ratification, ostensible, agency by estoppel, and gratuitous agency.
Agency termination reasons include "operation of law" and "acts of the parties"; fiduciary duties survive termination.

Key Terms: Agency

Broker: Licensed individual/business representing a party in real estate transactions for a commission.
Agent: Authorized individual acting on behalf of another; must hold a state license in real estate.
Fiduciary: Individual with the highest level of trust and confidence when representing another.
Law of agency: Laws affecting agency derived from custom or case law rather than statutory law.
Mutual consent: Agreement among parties to create, amend, or end a contract.

Agency Contracts

Service contracts are written agreements between brokers and their clients.
Sellers can enter various types of listing agreements: open, net, exclusive agency, exclusive right-to-sell.
Buyers use buyer representation agreements that can be exclusive or non-exclusive.
Transaction coordinator agreements are for paperwork facilitation without representation.

Key Terms: Service Contracts

Agency agreement: Binding understanding authorizing another party to act on one’s behalf.
Performance: Fulfillment of an obligation, duty, or contract.
Service contract: Written form of agency agreement between client and broker.
Due diligence: Reasonable steps taken to satisfy legal requirements.

Property Condition and Disclosures

Property owners and license holders must disclose property conditions.
Material facts about property conditions must be disclosed, distinguishing from non-essential information.

Types of Leases

Graduated lease: Rental rate increases over time.
Net lease: Tenant pays base rent plus some or all operating expenses.
Ground lease: Lease of undeveloped land.
Percentage lease: Tenant pays base rent plus a percentage of business profits.

Rights, Responsibilities, and Termination

Eviction: Forced tenant removal due to lease default.
Actual eviction: Legal process expelling someone from a property.
Constructive eviction: Lease termination caused by the landlord's failure to maintain premises.

Property Valuation

DUST principles of value: demand, utility, scarcity, and transferability.
Comparative Market Analysis (CMA) helps establish property asking prices by adjusting comparable properties.
Market behavior: As price rises, demand usually falls.
Valuation methods: sales comparison, cost, and income capitalization approaches.
Assessed value is the taxable value of a property.

Transfer of Title

Deeds are essential for transferring property ownership from seller to buyer.
Closing costs are fees paid at closing, agreed upon by parties based on local customs or sales contracts.
Costs owed are debits; amounts owed to parties are credits.
The Closing Disclosure outlines final mortgage and transaction details, provided to buyers three business days before closing.

Government Oversight

RESPA and TILA protect homebuyers; the Dodd-Frank Act consolidated them into TRID post-2008 crisis.
TRID requires Loan Estimate and Closing Disclosure.
Predatory lending involves exploiting borrowers; mortgage fraud involves exploiting lenders; both can have red flags.
Subprime lending isn't inherently predatory but is often associated with it.

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Description

This quiz covers the fundamental concepts of agency in transactions, including the roles of principals and clients. It explores the three classifications of agency based on the scope of authority, as well as mandatory disclosure forms like the Pennsylvania Consumer Notice. Test your understanding of these important elements in agency relationships.