4.4 Agency Relationships, Fiduciary Duties, and Disclosure

The Principal-Agent Framework

Agency is a fiduciary relationship in which one party, the agent, is authorized to act on behalf of and in the best interest of another, the principal (the client). A real estate licensee is a special agent: empowered for a limited purpose, such as marketing a listing and negotiating offers, but not to bind the principal in unrelated matters. Contrast this with a general agent (a property manager with ongoing authority) and a universal agent (broad power of attorney).

A related distinction is client versus customer. A client is the party the agent represents and to whom full fiduciary duties flow. A customer is a non-represented party the agent works with but not for.

Agency Types

State law decides which forms are permitted; some states disallow traditional dual agency, others rely on transaction brokerage as the default. National questions test the concepts; state portions test the local rule.

Creating Agency

Agency typically arises by express agreement, a written listing or buyer-representation contract. It can also arise by ratification, when a principal accepts the benefits of an unauthorized act, or by estoppel, when a principal lets a third party reasonably believe someone is the agent. Implied agency can form accidentally, which is exactly the risk in the open-house scenario below.

OLD CAR: Duties Owed to Clients

The fiduciary duties an agent owes a client are captured by OLD CAR:

• Obedience to lawful instructions.
• Loyalty, placing the client's interest above the agent's own.
• Disclosure of all material facts relevant to the client.
• Confidentiality of the client's private information.
• Accounting for all money and documents handled.
• Reasonable care and diligence in carrying out the work.

Two of these, loyalty and confidentiality, are owed only to clients. Confidentiality also typically survives the end of the relationship: after a listing expires, the agent still may not reveal the former seller's bottom-line price or motivation.

Duties Owed to Everyone

To customers and the public, a licensee still owes honesty, fair dealing, accounting for funds, and disclosure of known material facts (such as a structural defect). The agent simply does not advocate for the customer's bargaining position.

Dual Agency, Disclosure, and an Implied-Agency Trap

Dual agency arises when one agent (or brokerage) represents both buyer and seller. Because the agent cannot zealously advocate for both, it requires informed written consent from both parties, and the agent is barred from advising either side on price or negotiation strategy. Designated agency softens this by assigning a separate licensee to each side within the brokerage.

Consider a listing agent hosting an open house who coaches a walk-in buyer on how low to bid and what the sellers will accept. If the buyer reasonably believes the agent is now working for them, an implied agency may form, creating an undisclosed conflict and exposing the agent to discipline. Early, clear agency disclosure prevents this.

Termination and Vicarious Liability

Agency ends by expiration of term, completion (closing), mutual rescission, revocation by the principal, renunciation by the agent, death or incapacity of either party, or destruction of the property. Death of the principal terminates it automatically.

Under vicarious liability, a broker is responsible for the acts of affiliated licensees performed within the scope of the brokerage, which is why brokers must supervise advertising, disclosures, and escrow.

Traps

• Mixing client duties (loyalty, confidentiality) with the everyone-duties (honesty, material-fact disclosure).
• Forgetting confidentiality usually outlives the agency.
• Assuming dual agency is fine without written informed consent.

Fiduciary Duties and Types of Agency

An agent owes the principal six fiduciary duties summarized as OLD CAR: Obedience to lawful instructions, Loyalty (placing the principal's interests above the agent's own), Disclosure of all material facts, Confidentiality (which survives the end of the relationship), Accounting for all money and documents, and Reasonable care and diligence. Loyalty and disclosure conflict most often in dual-agency situations.

Agency arises in several forms. A special agent is hired for one transaction (the typical listing broker). A general agent has ongoing authority (a property manager). A universal agent can act in all matters (rare, via power of attorney).

Dual agency, representing both buyer and seller, is permitted only with the informed written consent of both parties and limits the agent to neutral facilitation. An agent who exceeds authority without disclosing the principal can create an ostensible or implied agency, exposing both to liability. The duty owed to third parties is honesty and fair dealing, including disclosure of known material defects, but never the loyalty owed to the principal.

Termination of Agency

An agency relationship ends by performance (the transaction closes), expiration of the term, mutual agreement, or revocation. Either party may have the power to end the relationship even without the right to do so, exposing the breaching party to damages. Death or incapacity of either principal or agent, destruction of the property, or bankruptcy also terminates the agency by operation of law. Note that the duty of confidentiality survives termination: an agent may never reveal a former principal's confidential information, such as the lowest price the seller would have accepted.