California Real Estate Practice Exam

Which of the following is NOT essential to the creation of an "agency" relationship?

1. Agreement between principal and agent

2. Agreement to pay consideration

3. Fiduciary relationship

4. Parties are competent

The correct answer is: Agreement between principal and agent

In the context of creating an agency relationship, the presence of an agreement between the principal and the agent is crucial. An agency relationship is established when one party, the principal, delegates authority to another, the agent, to act on their behalf. This relationship does not necessarily require a formal written contract; it can also arise from verbal agreements or implied actions. What is essential, however, includes other elements such as competency of the parties involved and the establishment of a fiduciary relationship, where the agent must act in the best interest of the principal. The need for an agreement to pay consideration, while common in many agency situations, is not fundamental to the establishment of the agency relationship itself. An agent can act without being compensated, and the agency can still exist as long as the other foundational elements are met. Therefore, the requirement for an agreement to pay consideration is the aspect that is not strictly essential for an agency relationship to exist.