California Real Estate Broker ExaminationReal Estate PracticeMedium
A real estate broker is managing a commercial property. The property's HVAC system requires a major repair costing $15,000. The management agreement specifies that the broker can authorize repairs up to $5,000 without prior owner approval. What is the broker's appropriate course of action?
- AContact the owner to obtain explicit authorization before proceeding with the repair.
- BObtain three bids for the repair and select the lowest one, then inform the owner.
- CUse funds from the property's reserve account to cover the repair, as it's an essential system.
- DProceed with the repair immediately to prevent further damage, then inform the owner.
Show answer & explanationAnswer & explanation
Correct answer: A. Contact the owner to obtain explicit authorization before proceeding with the repair.
The management agreement sets the scope of the broker's authority regarding repairs. Since the repair cost exceeds the pre-authorized limit, the broker must obtain specific approval from the owner before proceeding.
Why the other options are wrong
- B. While obtaining bids is good practice, it doesn't circumvent the need for owner approval for costs above the limit.
- C. Using reserve funds without explicit owner authorization for amounts exceeding the limit is still a violation of the agreement.
- D. This exceeds the broker's authorized spending limit without prior approval.
Property Management Agreement (Authority)
A property management agreement defines the scope of authority granted to the property manager by the owner, including financial limits for expenditures and repairs.
- Details the manager's responsibilities and limitations.
- Specifies spending thresholds for repairs without owner approval.
- Manager acts as a general agent for the owner within the agreement's terms.
Memory trick: A property manager's repair authority is clearly spelled out in the agreement; exceeding it requires owner's consent.