Oregon 30-Hour Real Estate Law Practice Test

What type of relationship is formed when property manager Keith signs a management contract with property owner Tanya?

1. An employee-employer relationship

2. An independent contractor relationship

3. An agency relationship

4. A partnership relationship

The correct answer is: An agency relationship

When property manager Keith signs a management contract with property owner Tanya, an agency relationship is established. In real estate, an agency relationship involves one party (the agent, in this case, Keith) acting on behalf of another party (the principal, Tanya) to engage in transactions related to property management. This relationship is essential in real estate as it delineates the responsibilities and accountability of each party. In this context, Keith, as the agent, is empowered to act in Tanya's best interests regarding the management of her property. He has the authority to make decisions, collect rents, and oversee the maintenance of the property while adhering to the terms outlined in the management contract. This relationship also means that Tanya, as the principal, must provide Keith with the necessary information and trust to perform these duties effectively. Agency relationships are characterized by a fiduciary duty, where the agent must act loyally and in good faith toward the principal. This contrasts with other relationships such as employment, independent contracting, or partnerships, where the dynamics and legal obligations differ significantly. Overall, recognizing that the nature of the relationship is one of agency clarifies the responsibilities Keith has to Tanya and the legal implications of the management agreement they have established.