CSLB General Building (B) — All Questions

In an agency relationship, the client who hires and authorizes a broker to act on their behalf is the:

• a.Agent
• b.Principal✓
• c.Customer
• d.Subagent

The principal (client) is the party who employs and delegates authority to the agent. The agent owes fiduciary duties to the principal, while a customer is a party the agent deals with but does not represent.

A broker who represents the seller in a transaction owes the seller fiduciary duties. The customer (buyer) in that same transaction is owed:

• a.The same fiduciary duties as the seller
• b.No duties whatsoever
• c.Honesty, fair dealing, and disclosure of material defects✓
• d.A duty of undivided loyalty

Even when a broker does not represent the buyer, the law still requires honesty, fair dealing, and disclosure of known material defects to the customer. Full fiduciary duties such as loyalty and confidentiality are owed only to the client.

Which of the following is NOT one of the traditional fiduciary duties an agent owes to a principal?

• a.Loyalty
• b.Obedience to lawful instructions
• c.Confidentiality
• d.Guaranteeing the property will appraise at the sales price✓

Fiduciary duties commonly include loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care and diligence. An agent cannot guarantee an appraisal outcome, which depends on an independent appraiser and market data.

In Texas, before a license holder may substantively discuss a real estate transaction, TREC rules generally require providing the consumer with the:

• a.Information About Brokerage Services (IABS) form✓
• b.Seller's Disclosure Notice
• c.Closing Disclosure
• d.Appraisal report

The IABS notice explains the types of representation and the duties license holders owe, and it must generally be provided at first substantive communication. The seller's disclosure and closing documents are provided later and serve different purposes. Exact form and timing requirements can change.

An 'intermediary' relationship in Texas arises when:

• a.A broker refuses to represent either party
• b.One broker's firm represents both the buyer and the seller in the same transaction✓
• c.A buyer works with two competing brokers
• d.The seller lists with an out-of-state broker

In Texas, intermediary status occurs when the same broker (firm) represents both the buyer and the seller in one transaction, with the parties' written consent. The broker may appoint different associated license holders to each party, subject to strict rules.

For a Texas broker to act as an intermediary between a buyer and seller, the broker must obtain:

• a.Approval from TREC for each transaction
• b.An appraisal of the property
• c.Written consent from both parties, typically in the listing and buyer agreements✓
• d.A court order

Intermediary status requires the written consent of both the buyer and seller, usually obtained in advance through the representation agreements. The intermediary must act fairly and may not disclose certain confidential information such as one party's willingness to accept a different price.

When a broker acts as an intermediary and appoints one associated agent to the buyer and another to the seller, this is commonly called:

• a.Appointment (making appointments)✓
• b.Dual agency with no disclosure
• c.Subagency
• d.Designated brokerage by TREC

Under intermediary rules, the broker may, with the parties' written permission, appoint separate associated license holders to communicate with and advise each party. This allows each party to receive more individualized advice while the broker remains the intermediary.

A seller instructs the listing agent to conceal a known foundation problem from prospective buyers. The agent should:

• a.Follow the instruction because of the duty of obedience
• b.Disclose the problem only to buyers who ask directly
• c.Cancel the listing and tell no one
• d.Refuse, because the duty of obedience does not extend to unlawful acts✓

The duty of obedience applies only to lawful instructions; an agent may not follow directions to commit fraud or conceal material defects. Knowingly hiding a known material defect can expose both the agent and seller to liability.

Confidential information the agent learns about the principal, such as the seller's willingness to accept less than list price, must generally be:

• a.Kept confidential even after the agency relationship ends✓
• b.Disclosed to all prospective buyers
• c.Reported to TREC
• d.Shared with the buyer's lender

The duty of confidentiality protects the principal's private information, including motivation and bottom-line price, and it typically survives the end of the relationship. Disclosing such information would harm the principal's negotiating position.

The duty of 'accounting' in an agency relationship requires the agent to:

• a.Prepare the client's income tax returns
• b.Properly handle and report on money and property entrusted to them, such as earnest money✓
• c.Personally guarantee the loan
• d.Set the listing price

Accounting means the agent must safeguard and accurately report all funds and documents belonging to the client or third parties, such as earnest money. Commingling client funds with the broker's own operating account is prohibited.

Placing client or earnest money funds into a broker's personal or general business account instead of a proper trust or escrow account is called:

• a.Novation
• b.Subrogation
• c.Commingling (or conversion if used)✓
• d.Estoppel

Commingling is improperly mixing client funds with the broker's own funds, and using those funds is conversion. Both are serious violations that can lead to license discipline.

A listing agreement that gives one broker the right to sell but allows the seller to sell on their own without owing a commission is a(n):

• a.Open listing
• b.Net listing
• c.Exclusive right to sell listing
• d.Exclusive agency listing✓

Under an exclusive agency listing, one broker is the sole agent, but the seller reserves the right to sell independently without paying a commission. By contrast, an exclusive right to sell earns the broker a commission regardless of who finds the buyer.

Under an 'exclusive right to sell' listing, the broker earns a commission:

• a.Regardless of who procures the buyer during the listing period✓
• b.Only if the broker personally finds the buyer
• c.Only if the seller finds the buyer
• d.Only after the property is rented

An exclusive right to sell listing entitles the broker to a commission if the property sells during the term, no matter who brings the buyer, including the seller. This provides the strongest commission protection for the broker.

A 'net listing,' where the broker keeps any amount above a price set by the seller, is:

• a.Always the best option for sellers
• b.Discouraged and heavily restricted because of conflict-of-interest concerns✓
• c.Required for all commercial listings
• d.The standard listing type in Texas

Net listings create a conflict of interest and potential for the broker to take advantage of the seller, so they are restricted and must be handled carefully where allowed. Most agents avoid them to prevent claims of overreaching.

The concept of 'procuring cause' is most relevant when determining:

• a.Whether a deed is valid
• b.The market value of a home
• c.Which broker is entitled to a commission in a disputed sale✓
• d.The amount of property tax owed

Procuring cause analysis identifies the agent whose efforts actually led to the ready, willing, and able buyer, and it is used to resolve commission disputes. It focuses on an unbroken chain of events leading to the sale.

Which of the following actions by an agent would MOST likely breach the fiduciary duty of loyalty?

• a.Secretly buying the client's property through a relative at a low price✓
• b.Recommending a licensed home inspector
• c.Presenting all written offers to the seller
• d.Advising the client to obtain legal counsel

The duty of loyalty requires the agent to put the client's interests first and avoid undisclosed self-dealing. Secretly acquiring the client's property for personal gain is a classic breach of loyalty.

An agent must present to the seller:

• a.Only offers at or above the list price
• b.All written offers received, even low ones, unless the seller instructs otherwise in writing✓
• c.Only offers from pre-approved buyers
• d.Only the highest offer received

The duty of disclosure and diligence generally requires presenting all written offers to the seller promptly so the seller can decide. A seller may waive this in writing, but the agent cannot unilaterally screen out offers.

'Puffing' differs from misrepresentation because puffing:

• a.Is a written guarantee of value
• b.Always constitutes fraud
• c.Is an opinion or exaggeration, not a statement of material fact✓
• d.Must be disclosed on the seller's disclosure notice

Puffing is a subjective opinion or sales exaggeration, such as calling a home 'the best deal in town,' and is not actionable. Misrepresentation involves a false statement of a material fact that the other party reasonably relies on.

A single agent who represents the buyer in a transaction owes the buyer the duty to:

• a.Disclose the buyer's maximum price to the seller
• b.Always recommend the highest-priced property
• c.Represent the seller equally
• d.Keep the buyer's confidential information private and negotiate in the buyer's best interest✓

A buyer's agent owes the buyer fiduciary duties, including confidentiality and loyalty, and must advocate for the buyer's interests. Revealing the buyer's top price to the seller would breach confidentiality.

An agency relationship between a broker and client is typically created by:

• a.A written representation agreement authorizing the broker to act✓
• b.The buyer simply attending an open house
• c.A verbal comment from a neighbor
• d.Recording a deed

Agency is generally established through an express agreement, such as a written listing or buyer representation agreement, that authorizes the broker to act. Merely showing a property to a customer does not by itself create a client relationship.

If a listing broker fails to disclose to their seller-client a material fact that harms the seller, the broker may be liable for:

• a.Nothing, since disclosure is optional
• b.Breach of fiduciary duty✓
• c.A federal antitrust violation only
• d.Only a small administrative fee

Failing to disclose material facts to a client can constitute a breach of the fiduciary duty of disclosure and may expose the broker to liability and license discipline. Agents must communicate information relevant to the client's decision.

A broker holds earnest money as escrow agent. If a dispute arises between buyer and seller over who is entitled to the funds, the broker should generally:

• a.Release the funds to whichever party asks first
• b.Keep the funds as a fee for the trouble
• c.Automatically give the funds to the seller
• d.Hold the funds until the parties agree in writing or a court directs disbursement✓

An escrow agent holding disputed funds must not favor either side and should retain the money until the parties provide written agreement or a court orders disbursement. Improperly releasing disputed earnest money can create liability for the broker.