Oregon 30-Hour Real Estate Law Practice Test

Which factor is critical for establishing a legal agency relationship?

1. A handshake agreement

2. An explicit written agreement

3. A verbal commitment

4. A mutual understanding of duties

The correct answer is: An explicit written agreement

Establishing a legal agency relationship is fundamentally rooted in the concept of a mutual agreement that is clearly delineated. An explicit written agreement serves to formalize this relationship and outlines the specific duties, obligations, and rights of both the principal and the agent. Such a document not only helps prevent misunderstandings by providing clarity around the terms of the agency but also serves as a critical piece of evidence should disputes arise. While a handshake agreement or a verbal commitment may suggest an intention to create an agency relationship, they lack the legal enforceability and detail provided by a written agreement. Similarly, mutual understanding of duties, while important, is often insufficient on its own without being documented clearly. A written agreement ensures that both parties have acknowledged their roles and responsibilities in a manner that is legally recognized, providing greater security and accountability in the agency relationship.