Real Estate Salesperson Licensing Exam Real Estate Contracts and Agency Relationships Syllabus

In an installment land contract, who holds legal title and who holds equitable title before payoff?

The seller (vendor) retains legal title; the buyer (vendee) holds equitable title and possession until the contract is fully paid, at which point legal title transfers.

What is a lease agreement?

A contract conveying the right to possess and use real property for a stated term in exchange for rent, creating a landlord-tenant (lessor-lessee) relationship. The landlord retains a reversionary interest.

In a lease, who is the lessor and who is the lessee?

The lessor is the landlord/property owner who grants the lease; the lessee is the tenant who receives the right to possess and use the property in exchange for paying rent.

Distinguish a gross lease from a net lease.

In a gross lease the tenant pays a fixed rent and the landlord pays the property expenses (taxes, insurance, maintenance). In a net lease the tenant pays base rent plus some or all of those operating expenses.

What is a percentage lease?

A lease, common in retail, in which rent is based on a minimum base rent plus a percentage of the tenant's gross sales over a stated breakpoint.

What is agency?

A legal relationship in which a principal authorizes an agent to act on the principal's behalf in dealings with third parties, creating fiduciary duties owed by the agent to the principal.

Define principal, agent, and third party (customer) in a real estate agency.

The principal (client) hires and is represented by the agent and is owed fiduciary duties; the agent acts on the principal's behalf; the third party/customer is the other party to the transaction, not represented but owed honesty and fairness.

What are the ways an agency relationship can be created?

By express agreement (written or oral contract such as a listing), by implication/conduct (implied agency), by ratification (approving acts after the fact), or by estoppel (a party is prevented from denying agency due to their conduct).

What is the difference between a universal, general, and special agent?

A universal agent can do anything legally delegable for the principal; a general agent handles a range of tasks in ongoing business (e.g., a property manager); a special agent is authorized for a single, specific transaction (e.g., a broker under a listing).

Why is a real estate broker typically classified as a special agent?

Because a listing or buyer-representation agreement authorizes the broker to perform one specific task—finding a buyer or property for a single transaction—rather than to bind the principal in a broad range of dealings.

What does the acronym OLD CAR stand for in fiduciary duties?

Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care and diligence—the six fiduciary duties an agent owes to the principal.

What is the fiduciary duty of loyalty?

The agent must place the principal's interests above all others, including the agent's own, and avoid conflicts of interest or self-dealing without disclosure and consent.

What is the fiduciary duty of obedience?

The agent must follow all lawful instructions of the principal; the agent need not (and must not) obey instructions that are illegal or unethical.

What is the fiduciary duty of disclosure?

The agent must reveal to the principal all material facts and relevant information that could affect the principal's decisions in the transaction.

What is the fiduciary duty of confidentiality?

The agent must keep the principal's confidential information (such as the lowest price a seller will accept or the buyer's top price) private, and this duty survives termination of the agency.

What is the fiduciary duty of accounting?

The agent must account for and safeguard all money, documents, and property entrusted by the principal, keeping client funds separate (in trust/escrow) and never commingling them with the agent's own funds.

What is the fiduciary duty of reasonable care and diligence?

The agent must act with the skill, competence, and diligence a reasonable real estate professional would use, working to protect the principal from harm and avoid negligent errors.

What duties does an agent owe to third parties/customers (non-clients)?

Honesty, fairness, and good faith, including disclosure of known material defects (latent defects) and accurate representations; the agent must not engage in fraud or misrepresentation even though no fiduciary duty is owed.

What is the difference between a latent defect and a patent defect, and which must be disclosed?

A latent defect is a hidden problem not discoverable by ordinary inspection; a patent defect is obvious/visible. Agents must disclose known material latent defects to buyers; patent defects are observable by the buyer.

What is the difference between misrepresentation and puffing?

Misrepresentation is an inaccurate statement of material fact that misleads a party (actionable). Puffing is a salesperson's exaggerated opinion ('best view in town') that is not a statement of fact and is generally not actionable.

What are the ways an agency relationship can be terminated?

By completion/performance of the purpose, expiration of the term, mutual agreement, revocation by the principal, renunciation by the agent, or by operation of law (death, incapacity, bankruptcy, or destruction of the property).

What is the difference between termination by acts of the parties and termination by operation of law?

Acts of the parties include performance, expiration, mutual agreement, revocation, or renunciation. Operation of law includes death or incapacity of either party, bankruptcy, or destruction of the property—events that end agency automatically.

What is a listing agreement?

An employment contract between a seller (principal) and a broker authorizing the broker to find a ready, willing, and able buyer, establishing the broker as the seller's agent and setting the commission terms.

What is an exclusive-right-to-sell listing?

A listing in which the broker earns the commission if the property sells during the listing period no matter who finds the buyer—even the seller. It gives the broker the greatest protection.

What is an exclusive-agency listing?

A listing in which one broker is the seller's sole agent, but the seller reserves the right to sell the property themselves without owing a commission. The broker earns a commission only if the broker (or another agent) procures the buyer.

What is an open listing?

A non-exclusive listing in which the seller may engage multiple brokers and only the broker who procures the buyer earns a commission; if the seller finds the buyer, no commission is owed.

What is a net listing and why is it discouraged or illegal in many states?

A net listing lets the broker keep any sale proceeds above a net amount the seller specifies. It is discouraged or prohibited because it creates a conflict of interest and potential for the broker to exploit the seller.

What is a buyer representation (buyer agency) agreement?

A contract in which a buyer hires a broker to represent the buyer in locating and purchasing property, making the broker the buyer's agent who owes the buyer fiduciary duties.

How do you calculate a real estate commission?

Commission = Sale Price × Commission Rate. Example: a $300,000 sale at a 6% rate yields $300,000 × 0.06 = $18,000 commission.

What is the procuring cause of a sale?

The broker whose actions set in motion an uninterrupted chain of events that directly resulted in the sale—i.e., the agent who actually caused the ready, willing, and able buyer to purchase, and is therefore entitled to the commission.

When does a broker generally earn the commission under a listing agreement?

Typically when the broker produces a buyer who is ready, willing, and able to purchase on the seller's terms (or the seller accepts an offer), regardless of whether closing occurs—though most agreements tie actual payment to closing.