Broker Contract Law: Questions & Answers
While previewing a house, the salesperson notices water stains behind the draperies. the owner, when
asked, denied there were any water problems. If the salesperson shows the property and fails to
mention the water stains, the salesman is guilty of:
a. fraud
b. misrepresentation
c. nothing, because his fiduciary responsibility is to the owner
d. puffery - ANSWER:A
(material facts) As evidence of leakage or flooding, water stains are material facts that must be disclosed,
if known by the salesperson. Because the salesperson knew of the stains and failed to disclose them, his
conduct is fraudulent
Broker A shows a house with a faulty roof. when he finds out about the roof, he should tell the
buyer/customer?
a. yes, it is an agency responsibility
b. yes, it is a material fact
c. only if he is a dual agent
d. only if he has the seller's permission - ANSWER:B
(material fact) The broker must disclose all material adverse facts about the physical condition of the
property that are known to the broker
If the property owner tells the broker that his property is structurally sound but later the broker
discovers that there are termites on the property, the broker must:
a. inform the seller and all prospective buyers
b. contact a pest control company
c. encourage the seller to remedy the situation
d. all of the above - ANSWER:A
all material facts known by a licensee must be disclosed to all parties in a transaction. Termite damage is
a material fact however the licensee has no obligation to contact a pest control company or encourage
the seller to fix problems (but the can do this
Upon listing a property a broker discovers water problems in the basement. The broker should inform:
a. the seller only if the broker is a seller's agent
,b. the buyer only if he is a buyer's agent
c. both the buyer and the seller regardless of who the broker represents
d. no one - ANSWER:C
A salesperson took a listing on a property which had a crack in the foundation caused by water seepage.
It was obvious the owner had filled in and painted over the crack although the owner advised the sales
agent that the seepage problem had been corrected. If the salesperson shows the property without
advising potential buyers of the seepage problem, the salesperson would be guilty of:
a. fraud
b. misrepresentation
c. puffery
d. nothing - ANSWER:A
This is fraud because it is intentional concealment. The licensee is obligated to disclose known material
facts about property
An owner lists a house with a broker for $72,000. Two days later the broker brings an offer for $70,000.
At this time, which of the following statements is true?
a. the broker has found a buyer and earned his commission
b. a ready, willing, and able buyer has been found and a commission is due
c. a ready willing and able buyer has been found but no commission is due
d. none of the above - ANSWER:D
In order to earn a commission, the broker must find a ready, willing, and able buyer, on the terms of the
seller. The offer was lower than the listed price. while the buyer is ready and willing, there is no evidence
that the buyer is financially able, therefore no commission is due.
A property owner, after death of his wife, lists his property with a broker. Two days later he sells the
property himself but is not obligated to pay the broker a commission. What type of listing agreement did
he most likely sign?
a. multiple
b. exclusive authorization to sell
c. exclusive right to sell
d. general - ANSWER:D
The widower probably signed a general (also called an open) listing which specifies that the listing agent
must sell the property for the owner to pay a commission. Exclusive authorization to sell and exclusive
right to sell are the same and the broker gets paid regardless of who sells the property. An exclusive
agency would also allow the owner to sell and not pay a commission but that is not one of the choices
,A broker lists a property. A buyer submits a written offer and the seller accepts it. On the day of
scheduled for closing, the seller refuses to sign any of the papers. The broker is entitled to:
a. a full commission because the fully performed
b. one-half of the agreed upon commission
c. out of pocket expenses only
d. nothing until or unless the sale closes - ANSWER:A
A listing agreement will automatically terminate:
a. if the selling agent changes brokers
b. on the date specified on the listing agreement
c. if the owner abandons the property
d. all of the above - ANSWER:B
The only true statement is that a listing agreement will terminate on the date specified in the
agreement. There are other reasons why a listing would terminate but they are not offered as answers.
That the owner abandoned the building is not a reason to terminate a listing, he may still enlist a broker
to attempt to sell his abandoned property. However if the BROKER abandoned the listing, the seller
would be justified in terminating the listing
Dan and Daisy enter into a buyer/broker agreement. Dan believes that Daisy is in breach. May Dan
terminate the contract?
a. yes, but Dan waives his right to specific performance
b. no unless there is a mutual agreement between Dan and Daisy
c. yes, but Dan risks causing a breach himself
d. no, so long as Daisy is willing and able to perform - ANSWER:C
Dan has no right to specific performance because this is a personal service contract. One may terminate
a contract without mutual consent regardless of whether the other party is willing and able to perform.
However, any time you terminate a contract, you risk a breach- it could turn out that Daisy was not in
breach in which case Dan's termination would cause a breach
A property management contract could exist between the property manger and:
a. his or her employees
b. the property owner
c. the tenants
d. both a and b - ANSWER:B
, There is no contract between the property manager and the tenants. Any contract between the property
manage and his employees would be an employment contract, not a property management contract
Susan and Sally enter into a buyer/broker agreement. However Sally subsequently falls on hard times.
Susan gets nervous and terminates the contract. Is Susan in breach?
a. yes, if Sally is the Broker
b. no, so long as Sally takes no action
c. no if Sally filed for bankruptcy
d. yes, if both parties agreed - ANSWER:C
It makes no difference if Sally was the client or the broker, or whether Susan takes action (a breach is a
breach even if it is not penalized). However, where a party dies, suffers from insanity, or enters
bankruptcy, the contract may be terminated without penalty
The legal relationship between a broker and seller is generally:
a. special agency
b. general agency
c. universal agency
d. none of the above - ANSWER:A
As a general rule a listing agreement between the seller and agent is a special or specific agency. The
agent is authorized to do one act and one act only (sell property). A listing agreement could, depending
on the wording, create something other than a special agency
A seller hires a broker to sell her property for $75,000. The broker knows the property is worth
considerably more as zoning has changed to commercial. the broker buys the property and resells it
himself two weeks later for $125,000. which of the following is true?
a. the broker cannot work for someone out of state unless he has a license in that state
b. this may be unethical, but the agent got the asking price and therefore the seller suffered no loss
c. the broker can buy the property only after informing the seller of the zoning change
d. the broker cannot buy the property under any circumstances - ANSWER:C
As an agent of the principal, the broker has a fiduciary relationship to protect his principal's interest.
Failure to inform is a breach of that relationship
Which of the following will not terminate an agency by operation of law?
a. destruction of the property
b. discharge of the broker by the principal
c. death of the principal
While previewing a house, the salesperson notices water stains behind the draperies. the owner, when
asked, denied there were any water problems. If the salesperson shows the property and fails to
mention the water stains, the salesman is guilty of:
a. fraud
b. misrepresentation
c. nothing, because his fiduciary responsibility is to the owner
d. puffery - ANSWER:A
(material facts) As evidence of leakage or flooding, water stains are material facts that must be disclosed,
if known by the salesperson. Because the salesperson knew of the stains and failed to disclose them, his
conduct is fraudulent
Broker A shows a house with a faulty roof. when he finds out about the roof, he should tell the
buyer/customer?
a. yes, it is an agency responsibility
b. yes, it is a material fact
c. only if he is a dual agent
d. only if he has the seller's permission - ANSWER:B
(material fact) The broker must disclose all material adverse facts about the physical condition of the
property that are known to the broker
If the property owner tells the broker that his property is structurally sound but later the broker
discovers that there are termites on the property, the broker must:
a. inform the seller and all prospective buyers
b. contact a pest control company
c. encourage the seller to remedy the situation
d. all of the above - ANSWER:A
all material facts known by a licensee must be disclosed to all parties in a transaction. Termite damage is
a material fact however the licensee has no obligation to contact a pest control company or encourage
the seller to fix problems (but the can do this
Upon listing a property a broker discovers water problems in the basement. The broker should inform:
a. the seller only if the broker is a seller's agent
,b. the buyer only if he is a buyer's agent
c. both the buyer and the seller regardless of who the broker represents
d. no one - ANSWER:C
A salesperson took a listing on a property which had a crack in the foundation caused by water seepage.
It was obvious the owner had filled in and painted over the crack although the owner advised the sales
agent that the seepage problem had been corrected. If the salesperson shows the property without
advising potential buyers of the seepage problem, the salesperson would be guilty of:
a. fraud
b. misrepresentation
c. puffery
d. nothing - ANSWER:A
This is fraud because it is intentional concealment. The licensee is obligated to disclose known material
facts about property
An owner lists a house with a broker for $72,000. Two days later the broker brings an offer for $70,000.
At this time, which of the following statements is true?
a. the broker has found a buyer and earned his commission
b. a ready, willing, and able buyer has been found and a commission is due
c. a ready willing and able buyer has been found but no commission is due
d. none of the above - ANSWER:D
In order to earn a commission, the broker must find a ready, willing, and able buyer, on the terms of the
seller. The offer was lower than the listed price. while the buyer is ready and willing, there is no evidence
that the buyer is financially able, therefore no commission is due.
A property owner, after death of his wife, lists his property with a broker. Two days later he sells the
property himself but is not obligated to pay the broker a commission. What type of listing agreement did
he most likely sign?
a. multiple
b. exclusive authorization to sell
c. exclusive right to sell
d. general - ANSWER:D
The widower probably signed a general (also called an open) listing which specifies that the listing agent
must sell the property for the owner to pay a commission. Exclusive authorization to sell and exclusive
right to sell are the same and the broker gets paid regardless of who sells the property. An exclusive
agency would also allow the owner to sell and not pay a commission but that is not one of the choices
,A broker lists a property. A buyer submits a written offer and the seller accepts it. On the day of
scheduled for closing, the seller refuses to sign any of the papers. The broker is entitled to:
a. a full commission because the fully performed
b. one-half of the agreed upon commission
c. out of pocket expenses only
d. nothing until or unless the sale closes - ANSWER:A
A listing agreement will automatically terminate:
a. if the selling agent changes brokers
b. on the date specified on the listing agreement
c. if the owner abandons the property
d. all of the above - ANSWER:B
The only true statement is that a listing agreement will terminate on the date specified in the
agreement. There are other reasons why a listing would terminate but they are not offered as answers.
That the owner abandoned the building is not a reason to terminate a listing, he may still enlist a broker
to attempt to sell his abandoned property. However if the BROKER abandoned the listing, the seller
would be justified in terminating the listing
Dan and Daisy enter into a buyer/broker agreement. Dan believes that Daisy is in breach. May Dan
terminate the contract?
a. yes, but Dan waives his right to specific performance
b. no unless there is a mutual agreement between Dan and Daisy
c. yes, but Dan risks causing a breach himself
d. no, so long as Daisy is willing and able to perform - ANSWER:C
Dan has no right to specific performance because this is a personal service contract. One may terminate
a contract without mutual consent regardless of whether the other party is willing and able to perform.
However, any time you terminate a contract, you risk a breach- it could turn out that Daisy was not in
breach in which case Dan's termination would cause a breach
A property management contract could exist between the property manger and:
a. his or her employees
b. the property owner
c. the tenants
d. both a and b - ANSWER:B
, There is no contract between the property manager and the tenants. Any contract between the property
manage and his employees would be an employment contract, not a property management contract
Susan and Sally enter into a buyer/broker agreement. However Sally subsequently falls on hard times.
Susan gets nervous and terminates the contract. Is Susan in breach?
a. yes, if Sally is the Broker
b. no, so long as Sally takes no action
c. no if Sally filed for bankruptcy
d. yes, if both parties agreed - ANSWER:C
It makes no difference if Sally was the client or the broker, or whether Susan takes action (a breach is a
breach even if it is not penalized). However, where a party dies, suffers from insanity, or enters
bankruptcy, the contract may be terminated without penalty
The legal relationship between a broker and seller is generally:
a. special agency
b. general agency
c. universal agency
d. none of the above - ANSWER:A
As a general rule a listing agreement between the seller and agent is a special or specific agency. The
agent is authorized to do one act and one act only (sell property). A listing agreement could, depending
on the wording, create something other than a special agency
A seller hires a broker to sell her property for $75,000. The broker knows the property is worth
considerably more as zoning has changed to commercial. the broker buys the property and resells it
himself two weeks later for $125,000. which of the following is true?
a. the broker cannot work for someone out of state unless he has a license in that state
b. this may be unethical, but the agent got the asking price and therefore the seller suffered no loss
c. the broker can buy the property only after informing the seller of the zoning change
d. the broker cannot buy the property under any circumstances - ANSWER:C
As an agent of the principal, the broker has a fiduciary relationship to protect his principal's interest.
Failure to inform is a breach of that relationship
Which of the following will not terminate an agency by operation of law?
a. destruction of the property
b. discharge of the broker by the principal
c. death of the principal
