CHAPTER 10: Legal and Ethical Guidelines for the Real Estate Professional

Note: these questions are intended to broadly test principles of real estate legislation, not any one province'slegislation specifically. However, where local legislation may be contradictory, the legislation stated in thecourse manual will be reli ed upon as the basis for answers.

1. Consider the following statements regarding the discipline of real estate professionals:

A. Both the AIC and CREA may reprimand, suspend, fine, or expel members. B. Members can be ordered to attend and complete courses as a form of discipline. C. The AIC has the power to reprimand, censure, suspend, expel, require further education, and publish the case, all as forms of discipline. D. CREA has the power to do all of the actions in C above, as well as ordering a fine and paying the costs of a disciplinary hearing.

Which of these statements are TRUE?

(1) A and B only (2) B and C only (3) C and D only (4) All of the above statements are true.

2. AIC's Ethics Standard, CREA's Code & Standards, and provincial legislation all contain provisionsdesigned to protect the public from improper advertising methods. Which of the following actionswould breach the regulations governing advertising?

A. The rental market is very active. Toby went to see an owner who was interested in renting out her house. When Toby was leaving she set out a sign saying "for rent" and her name and the telephone number of her office. Although the owner had not signed any agreement, Toby knew that if she could call the owner with possible renters of the house the owner would probably sign with her. B. Damon just listed a house and has started to advertise the property. He has erected a large sign reading "FOR SALE please call Damon at Big Deal Realty". C. Lon is a licensee with Top Ten Realty who is selling his own house. He has placed an advertisement in the local paper that reads "fantastic character house for sale, totally renovated with VIEW! Call 233-4556 to view". D. Patrice is a new licensee eager to increase her business. She has placed an ad in the local real estate magazine with a photograph of her own house and the words "Sold in one day! List your house with Patrice for a fast sale". In fact, Patrice did purchase her house within one day of listing, but she was not the listing salesperson.

(1) B, C, and D only (2) A and C only (3) A and D only (4) All of the above would breach the regulations governing advertising.

3. Which of the following statements is FALSE under the federal Competition Act?

(1) A person can be found guilty of a criminal offence. (2) The Crown does not need to prove that the persons charged intended to reduce competition unduly. (3) A valid defence to price fixing is that the price set was fair and did not result in unreasonable profits. (4) Agreements regarding price-fixing, market sharing, and entry-barring are prohibited if they prevent or lessen competition.

4. All real estate professionals are required to disclose their personal interests in real estate transactions in certain circumstances. In which of the following examples would the practitioner be required to make the disclosure?

(1) Reeney is a licensee about to present an offer to purchase a house on behalf of Lori. Lori is a widow who inherited her husband's half interest in a very successful, licensed real estate corporation. Lori herself has never had anything to do with the real estate business. (2) Jason has been asked to give an appraisal on a vacant lot next door to his own recreational property. He and his brother tried to purchase this same vacant lot several years ago. (3) Homer is a licensee. His wife owns the majority interest in a corporation in which he owns 15%. The corporation is in need of new premises and Homer has been looking for a suitable building. He sees a building listed with Andrea and tells her that the corporation would like to make an offer. (4) In all of the above circumstances the practitioner would have to make the disclosure.

5. Consider the following situations:

A. Your uncle, a retired real estate appraiser, volunteers to help you find the "best buy" in real estate in your local neighbourhood. B. You list your home with "Fast Frank", who sells the property in less than 3 hours, and takes an 8% commission. You later find out that Frank himself bought the property, but he was not licensed at the time. C. Your real estate agent tells you the property you are buying would have an appraised value of at least $25,000 more than the previous tax assessment. D. Able Accountants, a firm of Chartered Accountants and Certified General Accountants, has valued a townhouse complex at below current market value.Which of these may be the subject of a disciplinary hearing for breach of the standards required of a real estate professional?

(1) A only (2) B and C only (3) A and D only (4) None of the above

6. Consider the following statements regarding the AIC's Ethics Standard and the CREA's Code of Ethics:

A. Both CREA and AIC's standards require members to make full disclosure in writing of conflicting personal or financial interests. B. Both CREA and AIC's standards require a member to obtain a written statement from the client approving of an acquisition where the member is acquiring property for him or herself. C. Both the AIC and CREA Code of Ethics specify that arbitration shall be used as a method of resolving disputes between members. D. Both AIC's Ethics Standards and CREA's Code and Standards control advertising by members.Which of these statements is/are TRUE?

(1) A and C only (2) A and D only (3) C only (4) B and C only

7. Which of the following actions is NOT a breach of most provincial real estate legislation?

(1) Debbie is a recently licensed salesperson (representative). She has just received an offer for the sale of her first house. The offeror gave Debbie a cheque as a deposit. Debbie staples the cheque to the contract of purchase and sale in order to deliver it to the vendor. (2) Donald is a very sloppy broker. He hates all kinds of paperwork, especially when it concerns financial matters. For this reason, he only updates the books and records of the brokerage firm every two months. (3) Real estate salesperson (representative) Dianne has received a number of offers on Gladys' house, all of which included the payment of a deposit. Dianne is certain that Gladys will accept the highest offer and so only starts a transaction record sheet with respect to that offer. (4) Dave, a real estate broker, just received an offer from John for one of the houses Dave has listed. To prove the seriousness of his offer, John gave Dave a cheque for $50,000 as a deposit. Two days later, John changes his mind about the amount of the deposit and demands the cheque back in exchange for one in the amount of $10,000. Dave refuses.

8. Sylvia, a recent real estate licensee, has just accepted her first exclusive listing agreement. When she gets back to the office after delivering a copy to the homeowner, Sylvia discovers that she has forgotten to fill in the amount of commission payable. The homeowner refuses to change the agreement. Which of the following statements is TRUE?

(1) Sylvia's only remedy is to refuse to market the house; because it is an exclusive listing, Sylvia is the only licensee who can show the house. (2) The fact that the listing agreement does not specify the amount of commission payable is a breach and the agreement is void. (3) Sylvia will receive commission if she sells the house according to the provisions of the listing agreement; the rate of commission will be that generally prevailing in the community where the house is located. (4) Even if Sylvia doesn't sell the house, she will at least be able to recover her expenses in marketing the house on the basis of quantum meruit.

9. Douglas has just become licensed as a real estate broker, as he found being only an appraiser meantbusiness was a bit slow at times. He has formed his own business, offering both appraisal andbrokerage services. However, things are slow and Douglas has a great deal of competition from theestablished brokerage firms in the area. His friends and family all want to support Douglas in his career choice and have offered to help him in any way possible. Douglas is hesitant to use their helpwithout compensating them. In which of the following situations would there be a breach ofprevailing real estate ethics if Douglas was to compensate his unlicensed friends or family for theirhelp?

A. Grace has offered to work evenings and weekends typing up Douglas' listing agreements, contracts of purchase and sale, advertisements and books, records, and accounts. B. Roxanne has offered to act as Douglas' receptionist so long as she can bring her child into the office. C. Victor has offered to help Douglas by phoning people on evenings and weekends in an attempt to solicit new listings. D. Tommy has many business connections in the area. He has promised to mention Douglas' firm to all his contacts and to pass out Douglas's business cards to any potential clients. Tommy will only receive compensation if the clients that he brings in use Douglas as their agent or appraiser in a transaction.

(1) A, B, and C only (2) B, C, and D only (3) C and D only (4) There would be a breach in all of the above situations.

10. Which of the following is a FALSE statement regarding a real estate board's discipline committee?

(1) The function of the discipline committee is to provide restitution to members of the public who have suffered a loss due to a member's breach of the ethics of the real estate industry. (2) The decision of the committee must be in writing and specify any discipline imposed. (3) It must be proven that a board member has broken a rule of professional conduct before disciplinary action is taken by the committee against the member. (4) The purpose of the committee is to protect the interests of the public and to safeguard the integrity of the board's members.

11. Which of the following statements is NOT true with respect to deciding whether a broker will be found vicariously liable for the acts of his or her salespeople (representatives)?

(1) The determination of whether a broker is vicariously liable for the acts of his or her salespeople (representatives) is a question of fact in each instance. (2) If the third party relied upon the salesperson, then it must be determined in what capacity the salesperson (representative) was acting when the statements and/or conduct relied upon occurred. (3) One must determine the size of the salesperson's (representative's) commission on the transaction which is the subject of the litigation. (4) One must determine if the offended third party relied upon the salesperson (representative) to his or her detriment.

12. Suspension or cancellation of a real estate salesperson's (representative's) membership in a Real Estate Board due to a breach of the Code of Ethics:

A. means that the person can no longer participate in MLS listings. B. means that the licensee will no longer be permitted to work as a salesperson/ representative. C. means that the licensee may also be subject to disciplinary proceedings by the provincial licensing body. D. means that the licensee has violated the provincial licensing legislation.

Which of the above statements are FALSE?

(1) A, and B only (2) A, and D only (3) B, C, and D only (4) B and D only

13. Janice, who lives in a municipality in British Columbia, is in desperate financial circumstances and must sell her house immediately. Leonard is aware of Janice's problem and offers to act as her sales representative in exchange for $1,000. Janice accepts Leonard's offer because this price is significantly less than the commission she would have to pay any other brokerage firm in town. However, two weeks after Janice paid Leonard, he has done nothing to sell her house. When Janice complains, Leonard tells her that she has been duped; he is not licensed under the provincial Real Estate Act so there is nothing she can do. Which of the following statements is FALSE?

(1) Leonard's actions may be subject to criminal prosecution in the provincial court where he may be fined to a maximum of $5,000. (2) Janice's only remedy is to report Leonard's actions to the Real Estate Council who will bring disciplinary actions against him on the basis of masquerading as a licensee. (3) Janice can sue Leonard for return of her money on the basis of fraud. (4) The Real Estate Act provides a number of penalties which are designed to punish licensees who breach the Act and, where necessary, force them out of the real estate business.

14. Which of the following statements regarding the ethics of advertising is NOT embodied in the CREA Code of Ethics?

(1) the duty to never discredit a competitor (2) a prohibition against false or misleading advertising (3) a prohibition against advertising the rate of commission usually charged (4) a prohibition against placing a broker's sign upon a property without the consent of the owner

15. Mike, a real estate professional, thinks it is best to make money quickly, and then leave the real estate profession, so he engages in misleading advertising as a way to sell property quickly. His client is unhappy to have purchased a home far different than what was advertised. For example, the appliances are older than advertised and the house is smaller than advertised. Which of the following situations regarding this situation are TRUE?

A. Mike may face charges under the Competition Act for making a misleading misrepresentation to the public. B. Mike may face a civil trial by the purchaser for damages suffered. C. The purchaser viewed the home, so caveat emptor applies. D. Mike may face a disciplinary hearing as he has breached the standards required of a real estate professional.

(1) B and D only (2) C only (3) A, C, and D only (4) A, B, and D only

16. Which of the following is NOT a specified obligation under the CREA Code of Ethics?

(1) To avoid injuring directly or indirectly the reputation of any person (2) To keep informed regarding new real estate developments (3) To render opinions based only on training, qualifications, experience and knowledge (4) To protect the public from misrepresentations in transactions concerning real estate

17. A listing salesperson has been asked to present an offer to purchase property on the condition that the identity of the offeror not be disclosed to the seller. The prospective buyer wants his name to remain undisclosed because he fears that if the seller knew the buyer's name, the seller may request a higher price for the property. What must the listing salesperson do in this situation?

(1) In order to avoid being required to disclose the potential buyer's identity, the salesperson must tell the buyer to have their solicitor make the offer on their behalf. (2) Full disclosure must be made by the salesperson to a seller of all information known to him or her relevant to the client's affairs, and this includes the identity of the potential buyer. (3) Until an actual offer is presented, it is not relevant for the seller to know the identity of the purchaser, and no disclosure is required. (4) Ethically, the salesperson should disclose the identity of the potential buyer, but legally there is no requirement to do so.

18. Which of the following situations would become the subject of a disciplinary hearing?

A. John has advertised he will guarantee an appraisal in order to ensure that mortgage financing is available. B. Section 74.05 of the Competition Act prohibits the sale or rental of a product above the advertised price, yet you have advised your client to accept an "above listing price" offer. C. John prepares an appraisal for a shopping centre, his first ever, after years of valuing recreational waterfront property. His appraisal shows his lack of knowledge of the subject. D. John completed an appraisal on a property owned by his wife's sister and her husband, and did not disclose this to the client.

(1) A, C, and D only (2) A, B, and D only (3) B and D only (4) All of the above situations would become the subject of a disciplinary hearing.

19. Johanna is a real estate broker who owns Star Realty. There are currently five salespeople (representatives) employed with Johanna. Each salesperson that Johanna hires must sign an employment contract exempting Johanna from liability for any unauthorized actions that the salesperson may commit while working at Star Realty. Johanna's best performing salesperson is Bob. Last week, while displaying the home of the MacGregor's, which is listed with Star Realty, Bob told Jerry that the MacGregor's sewer system has never had any problems. In fact, the MacGregor's sewer system is in terrible condition and is the main reason the MacGregor's are selling their home. Based on Bob's false representation of the sewer system, Jerry immediately agreed to purchase the house and signed a contract for purchase and sale.

The next day the Johnson's, knowing full well of the MacGregor's sewer problems, offered to purchase the MacGregor's house for more than Jerry had agreed to. However, when the Johnson's learned that Jerry had purchased the property they purchased another house down the street. Last night Jerry visited his favourite pub and overheard Bob brag about misleading Jerry. After learning of Bob's outrageous conduct, Jerry immediately called the MacGregor's and refused to proceed with the purchase. This morning the MacGregor's stormed into Johanna's office threatening to sue both Johanna and Bob. Johanna defends herself, claiming that she never authorized Bob's misconduct and that her employment contract with Bob exempts her from liability.

Which of the following is TRUE (using British Columbia legislation)?

A. As an employer, Johanna has supervisory authority over Bob regardless of the terms of Bob's employment contract. B. Even though Johanna had no knowledge of Bob's false representations, she is prima facie considered party to Bob's offence both under the common law and legislation. C. Joanna may be disciplined, as a real estate professional, for any breaches committed by her employee, Bob. D. Johanna has the burden of proving that she was not responsible for Bob's wrongdoing.

(1) A and B only (2) A, C, and D only (3) B and D only (4) All of the above are true.

20. John owns a condominium in Burnaby, in an area in which many of the condominium developments are known to have suffered leaks. John has listed the property with Cathy Cramer Realty Ltd. You are a salesperson employed with Cathy's realty company. Soon after the property is listed, you show the townhouse to Jennifer, a prospective purchaser. Jennifer loves the townhouse and wants to buy it. Based on your understanding of your ethical obligations, what steps should you take before a contract of purchase and sale is drafted?

A. Inquire with John whether the condominium has been subject to leaks. B. If you have knowledge of unrepaired and undiscoverable leaking in the condominium, disclose this information to Jennifer. C. Inquire with Cathy whether the condominium leaks.

(1) A only (2) A and B only (3) A and C only (4) All of the above