National Real Estate Exam (PSI)General Principles of AgencyHard
A broker's assistant, who is unlicensed and has no actual authority to negotiate contracts, has repeatedly been allowed by the broker to discuss contract terms directly with buyers in the broker's presence without correction. A buyer relies on the assistant's representations about acceptable contract terms during negotiations. If a dispute later arises, what is the most likely basis for holding the broker responsible for the assistant's statements?
- AApparent authority created by the broker's conduct
- BAgency coupled with an interest
- CRatification after the fact
- DExpress authority granted in the employment contract
Show answer & explanationAnswer & explanation
Correct answer: A. Apparent authority created by the broker's conduct
Apparent authority arises when a principal's actions or inactions lead a third party to reasonably believe the agent has authority, even without express authorization. The broker's repeated silence while the assistant negotiated created a reasonable appearance of authority that binds the broker.
Why the other options are wrong
- B. Agency coupled with an interest involves the agent having a financial stake in the subject matter, not applicable here.
- C. Ratification applies to a specific past unauthorized act, not an ongoing pattern of implied authorization.
- D. There is no actual authority given in the employment contract for this unlicensed activity.
Apparent Authority
Authority that a third party reasonably believes an agent possesses because of the principal's words or conduct, even if no actual authority was granted.
- Based on principal's conduct, not agent's claims
- Can bind the principal to third parties who reasonably relied
- Different from actual express or implied authority
Memory trick: Apparent authority: it looks real because the principal let it look that way.