4.4 Agency Relationships, Fiduciary Duties, and Disclosure
Key Takeaways
- Licensees are special agents owing full fiduciary duties (OLD CAR) to clients.
- Customers receive honesty, disclosure of known material defects, and accounting, but not loyalty or confidentiality.
- Dual agency is legal only with informed written consent and bars disclosing confidential price or motivation.
- Disclose physical material defects to all parties; never disclose protected-class neighborhood information.
- Agency can arise by implied conduct, so giving advice can unintentionally create fiduciary duties.
Agency law defines who the licensee works for and what duties flow from that relationship. The national exam tests the duties owed to clients versus customers and the line between disclosing defects and disclosing protected-class information.
Client vs. Customer
- A client (principal) is the party the agent represents and owes full fiduciary duties.
- A customer is the other party — owed honesty and fair dealing, but not loyalty or confidentiality.
Exam trap: A buyer working with the seller's agent is usually a customer, not a client. The agent must be honest with that buyer but works for the seller.
Fiduciary Duties to the Client: OLD CAR
A licensee owes the client six fiduciary duties, remembered as OLD CAR:
| Letter | Duty | Meaning |
|---|---|---|
| O | Obedience | Follow the client's lawful instructions |
| L | Loyalty | Put the client's interests above the agent's own |
| D | Disclosure | Tell the client all material facts the agent knows |
| C | Confidentiality | Protect the client's private information, even after closing |
| A | Accounting | Account for all money and documents handled |
| R | Reasonable care and diligence | Use the skill expected of a competent licensee |
Duties to a customer are narrower: honesty, fair dealing, disclosure of known material defects, and accounting. A customer never receives loyalty or confidentiality.
How Agency Is Created, Disclosed, and Terminated
Created by:
- Express agreement — a written listing or buyer-representation agreement (the normal route).
- Implied conduct — actions that lead a party to reasonably believe representation exists. Giving advice and steering decisions can accidentally create agency.
- Ratification — approving acts after the fact.
Disclosed: Most states require timely written agency disclosure, typically at first substantive contact, so each party knows whom the licensee represents.
Terminated by: completion of the purpose, expiration, mutual agreement, revocation, renunciation, death or incapacity of either party, or destruction of the property.
Types of Agents
- Special agent — limited to one transaction (a real-estate licensee is almost always a special agent).
- General agent — handles a range of matters (a property manager).
- Universal agent — broad authority under a power of attorney.
Dual Agency and Disclosure Limits
Dual agency occurs when one licensee (or firm) represents both buyer and seller in the same deal. It is legal only with the informed, written consent of both parties, and the dual agent cannot disclose confidential information — not the seller's lowest acceptable price nor the buyer's highest offer or motivation.
What to Disclose vs. What Never to Disclose
- Always disclose known material physical defects (a leaking roof, a failed septic system) to all parties — this overrides loyalty and confidentiality.
- Never disclose protected-class information about the buyers or the neighborhood's racial, religious, or familial makeup. Answering "what kind of people live here?" by racial composition is illegal steering under fair-housing law.
Worked example: A seller's agent knows the basement floods. Even though loyalty runs to the seller, the agent must disclose this material defect to the buyer-customer. But if that buyer asks the religious makeup of the block, the agent must decline to characterize it and redirect the buyer to objective resources. The throughline: disclose facts about the property; never disclose facts about the people.
A licensee represents the seller. A prospective buyer, working with that same licensee as a customer, asks whether the agent knows of any problems with the home. The agent knows the foundation is cracked. What must the agent do?
One brokerage agent wishes to represent both the buyer and the seller in the same transaction. Under common agency law, when is this permitted?
A buyer asks a licensee, 'What is the racial and religious makeup of this neighborhood?' How should the licensee respond?
Subagency, Designated Agency, and Termination Details
Agency arrangements come in several modern forms the exam tests:
| Arrangement | Who the licensee represents |
|---|---|
| Single agency | One side only (buyer or seller) |
| Subagency | A cooperating agent who also represents the seller, owing the seller fiduciary duties |
| Dual agency | Both parties, with informed written consent |
| Designated (appointed) agency | The broker appoints one agent to the buyer and another to the seller within the same firm |
| Transactional/facilitator | A non-agent who assists both without representing either |
Termination and Surviving Duties
Agency ends by performance, expiration, mutual agreement, revocation, renunciation, death/incapacity, or destruction of the property. Crucially, the duty of confidentiality survives termination, an agent may never reveal a former client's confidential information.
Exam trap: Confidentiality outlives the agency relationship; an agent who learns the seller's bottom line cannot reveal it even after closing.
Customer-Level Duties Recap
Every licensee owes even a non-client customer a baseline of fair treatment: honesty, the disclosure of known material defects, accounting for money, and no active fraud. What the customer does not get is loyalty, obedience, confidentiality, or advocacy.
| Owed to a client | Owed to a customer |
|---|---|
| All six OLD CAR duties | Honesty and fair dealing |
| Loyalty and confidentiality | Disclosure of known material defects |
| Advocacy for best terms | Accounting for funds |
Exam trap: The duty to disclose a known material defect is owed to everyone, client and customer alike, but loyalty is owed only to the client.
Single Agent vs. Transactional Broker
A single agent fully represents one party with all fiduciary duties. A transactional broker (facilitator or non-agent) helps both parties complete the deal without representing either, owing honesty and competent handling but not loyalty or advocacy. States differ on which arrangements are allowed, so a question may turn on which duties survive in each model.
Exam trap: A transactional broker/facilitator is not an agent, no loyalty or confidentiality is owed to either side, only honest, competent service.