4.4 Agency Relationships, Fiduciary Duties, and Disclosure
Key Takeaways
- Agency can be created expressly, by implication, by ratification, or by estoppel.
- Fiduciary duties to a client are remembered by OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable care.
- Customers receive honesty and fair dealing, not fiduciary loyalty.
- Dual agency requires informed written consent and limits what the agent can disclose.
Agency Relationships, Fiduciary Duties, and Disclosure
Agency law governs the relationship between a broker (agent) and the person represented (principal/client). Understanding who is the client and what duties flow to them is the backbone of the agency questions.
How agency is created
| Method | How it forms | Example |
|---|---|---|
| Express agreement | Written or oral contract | Signed listing agreement |
| Implied agency | Conduct of the parties | Agent acts and buyer relies on it |
| Ratification | Principal approves acts after the fact | Seller accepts a deal the agent arranged |
| Estoppel | Principal lets a third party believe agency exists | Owner allows agent to appear authorized |
The most reliable agency is created by an express written agreement, which is also what listing and buyer-representation agreements provide.
Fiduciary duties — OLD CAR
An agent owes a client these fiduciary duties:
- Obedience — follow lawful instructions of the principal.
- Loyalty — put the client's interests above the agent's own.
- Disclosure — reveal all material facts affecting the client.
- Confidentiality — protect the client's private information, even after the deal closes.
- Accounting — account for all money and documents.
- Reasonable care and diligence — act with competence and skill.
Loyalty is the most tested. An agent who buys the listed property through a hidden entity, or who tells a buyer the seller will accept less than the list price without authorization, has breached loyalty and confidentiality.
Client vs. customer
A client (principal) is the person the agent represents and to whom fiduciary duties are owed. A customer is a third party the agent deals with but does not represent. To a customer, the agent owes honesty, fair dealing, and disclosure of known material defects — but not loyalty or confidentiality.
Worked example
A listing agent represents the seller. A buyer (the customer) asks the agent, "What's the lowest the seller will take?" The agent must not reveal the seller's bottom line — that would breach loyalty and confidentiality to the client. But if the buyer asks whether the basement floods, and the agent knows it does, the agent must disclose that material defect honestly.
Types of agents
| Agent type | Authority scope |
|---|---|
| Universal agent | Broad authority to act in all matters |
| General agent | Authority for a range of acts (e.g., property manager) |
| Special agent | Authority for a single transaction (typical listing agent) |
Most real estate licensees are special agents — authorized for one specific transaction.
Dual agency
Dual agency occurs when one brokerage represents both buyer and seller in the same transaction. It is legal only with informed written consent from both parties. A dual agent cannot disclose confidential information that favors one side — for example, the seller's lowest acceptable price or the buyer's highest offer. Undisclosed dual agency is a serious violation that can void the transaction and subject the agent to discipline.
Disclosure timing
Agency relationship disclosure should be made early — generally at first substantive contact or before confidential information is exchanged. Late disclosure defeats its purpose: the consumer needs to know who represents whom before revealing negotiating strategy.
Trap watch
Confidentiality survives the end of the agency relationship. And a subagent owes duties to the principal, not to the buyer they may be assisting — a classic source of accidental, undisclosed dual representation problems.
A buyer who is a customer (not represented) asks the seller's listing agent, "What is the least the seller will accept?" What must the agent do?
One brokerage wants to represent both the buyer and the seller in the same transaction. What is required for this to be lawful?
Termination of agency, single agency, and the puffing line
An agency relationship ends by completion of the purpose, expiration, mutual agreement, revocation or renunciation, or by operation of law (death, incapacity, bankruptcy, or destruction of the property). Even after termination, the duty of confidentiality survives — an agent can never later reveal a former client's bottom-line price or motivation.
Single agency vs. designated agency
| Arrangement | Who is represented |
|---|---|
| Single agency | Brokerage represents only one side (buyer or seller) |
| Dual agency | One brokerage represents both, with written consent |
| Designated agency | Broker assigns different licensees to each side within the firm |
Many states, including Kentucky, allow designated agency so two agents in the same firm can each give full representation while the broker remains a dual agent at the firm level.
Puffing vs. misrepresentation
Puffing is non-factual sales opinion ("the best view in town") and is permitted. A false statement of material fact ("the roof is two years old" when it is twenty) is misrepresentation, which can be negligent or fraudulent and creates liability. The exam draws the line at verifiable fact: opinions are puffing; checkable claims are representations the agent must get right.
Material facts, latent defects, and the agent's disclosure line
The duty most likely to create liability for a customer (not just a client) is the duty to disclose known material defects, especially latent defects — hidden problems a reasonable inspection would not reveal, such as a cracked foundation behind drywall or a recurring basement flood. An agent who knows of a latent defect must disclose it to all parties; silence can be actionable concealment.
What is and is not a material fact
| Generally material (disclose) | Generally not material (do not disclose) |
|---|---|
| Structural/foundation problems | Whether prior occupant had a disease |
| Roof/HVAC defects, flooding | A death by natural causes on the property |
| Boundary disputes, easements | Protected-class makeup of the neighborhood |
| Environmental hazards (mold, radon) | "Stigma" facts barred by state law |
Disclosing protected-class information about a neighborhood (race, religion, familial status) is not only unnecessary, it can be a fair-housing violation (steering). The agent answers questions about schools or crime by directing the buyer to objective public sources rather than characterizing the population.
Worked example
A listing agent learns the seller's furnace is failing. A buyer-customer asks about the heating system. The agent owes the buyer honesty and disclosure of the known material defect, even though the agent's loyalty runs to the seller. The seller cannot instruct the agent to conceal it; an instruction to hide a known defect is unlawful, and the agent must refuse it or withdraw.