Leasing License Practice Exam

How is agency created in real estate?

1. Through a government mandate

2. Through an agreement between the owner and the brokerage company

3. Through verbal communication only

4. By default with no agreement necessary

The correct answer is: Through an agreement between the owner and the brokerage company

Agency in real estate is developed through an agreement between the owner and the brokerage company, which establishes a fiduciary relationship. This agreement is typically formalized in writing, such as in a listing agreement for a seller or a buyer representation agreement for a buyer. By entering into this agreement, the owner appoints the brokerage to act on their behalf in real estate transactions, allowing the agent to represent the interests of the owner. The authority granted through this agreement outlines the responsibilities, duties, and scope of representation. It ensures that the agent acts in the best interest of the owner, adhering to legal standards and ethical obligations. This mutual consent is fundamental in creating agency and is recognized as the primary means by which agency relationships are formed in real estate transactions. Other potential methods of creating agency, such as government mandates or default situations without any agreement, do not provide the structure and protections that a formal agreement does. Verbal communication can play a role in establishing informal relationships but is often insufficient without written documentation to clarify the terms of the agency.