Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What occurs when a principal's actions or words convince a third party that the agent has authority?

1. Implied Authority

2. Actual Authority

3. Apparent Authority

4. Limited Authority

The correct answer is: Apparent Authority

When a principal's actions or words lead a third party to believe that the agent has the authority to act on their behalf, this situation is referred to as apparent authority. This type of authority does not necessarily depend on a formal agreement or explicit grant of authority; instead, it is created through the principal's representations or conduct that suggest to the third party that the agent is authorized to act. For example, if a principal allows an agent to conduct business in a particular manner and the agent engages with third parties under that impression, those third parties are led to believe the agent has the power to make decisions or commitments. If the agent then engages in actions that the principal has not directly authorized, but the third party believes they have authority based on the principal's behavior, the principal may be held accountable for those actions. In contrast, implied authority arises from the necessary actions required to fulfill a specific purpose that is not explicitly outlined. Actual authority is the specific authority granted to the agent by the principal, and limited authority restricts the agent's actions to only certain tasks or decisions. Understanding these distinctions is crucial in the context of agency relationships and the responsibilities of agents and principals.