PSI Virginia Real Estate Practice Exam

What is the purpose of agency agreements in real estate?

1. To establish a sole relationship between a buyer and a broker

2. To create an agency relationship between the owner and the seller

3. To allow brokers to sell multiple properties simultaneously

4. To determine commission rates for all agents

The correct answer is: To create an agency relationship between the owner and the seller

Agency agreements in real estate serve to establish a formal relationship between the principal (the party hiring the agent) and the agent (the broker or salesperson acting on behalf of the principal). The purpose of these agreements is fundamentally to define and clarify the responsibilities and obligations of both parties within the transaction. When an agency relationship is created between the owner (the principal, typically the seller) and the agent (the broker), it outlines the agent's authority to act on behalf of the owner in matters related to the sale of their property. Through this agreement, the agent is empowered to negotiate terms, present offers, and perform other actions necessary to facilitate the transaction. It also clarifies the scope of the agent's duties and establishes expectations regarding communication, confidentiality, and loyalty. In essence, this relationship is critical for ensuring that the interests of both the owner and the agent are legally protected and clearly understood. The other choices do not accurately reflect the main role of agency agreements. For instance, while establishing a sole relationship between a buyer and a broker might happen, it is not the primary purpose of agency agreements as they primarily focus on the relationship between the owner and the agent. Allowing brokers to sell multiple properties simultaneously is more about the broker's operational capacity and less