4.4 Agency Relationships, Fiduciary Duties, and Disclosure
Key Takeaways
- Agency can be created expressly (written agreement), by implication, or by ratification; it is the relationship that triggers fiduciary duties.
- Fiduciary duties owed to the principal spell OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accountability, Reasonable care.
- A subagent owes fiduciary duties to the seller; a buyer's agent owes them to the buyer; a dual agent owes limited duties to both with written consent.
- Even to non-clients (customers), a licensee owes honesty, fair dealing, and disclosure of known material facts and latent defects.
- A transaction broker (facilitator) helps both parties without representing either as a fiduciary, where state law allows it.
What agency is
Agency is the legal relationship in which a principal (client) authorizes an agent to act on the principal's behalf in dealings with third parties. In real estate the broker is the agent; affiliated salespersons act on the broker's authority. Agency is what creates fiduciary duties — the highest duties the law recognizes.
Agency is created three ways:
- Express — a written or oral agreement (a signed listing or buyer-agency agreement).
- Implied — conduct that reasonably leads a party to believe representation exists.
- Ratification — the principal later approves acts done on their behalf.
Unintended implied agency is a frequent exam trap: a licensee who advises a buyer like a client can accidentally create buyer agency, even without a signed agreement.
Fiduciary duties: OLD CAR
An agent owes the principal these duties. The mnemonic OLD CAR captures them.
| Duty | Meaning | Example violation |
|---|---|---|
| Obedience | Follow lawful instructions | Ignoring a seller's instruction not to disclose terms |
| Loyalty | Put the principal's interests first | Steering the client to maximize the agent's own commission |
| Disclosure | Tell the principal all material facts | Hiding a higher offer from the seller |
| Confidentiality | Protect the principal's private information | Telling a buyer the seller will accept less |
| Accountability | Account for all money and documents | Commingling earnest money with personal funds |
| Reasonable care | Use skill and diligence | Missing a deadline that costs the client the deal |
Confidentiality and disclosure survive in tension: the agent discloses everything to the principal but keeps the principal's confidences from the other side — even after the agency ends.
A seller's agent learns the seller is desperate and will accept far below list price. A buyer asks the agent, "Will they take less?" What does the duty of confidentiality require?
Types of agency relationships
| Relationship | Represents | Owes fiduciary duties to |
|---|---|---|
| Seller's agent (listing) | The seller | The seller |
| Buyer's agent | The buyer | The buyer |
| Subagent | The seller (via the listing broker) | The seller, not the buyer |
| Dual agent | Both parties | Both, but limited; requires written informed consent |
| Transaction broker / facilitator | Neither as a fiduciary | Honesty and fair dealing to both |
| Designated agent | One party each, within one brokerage | Their respective assigned clients |
Dual agency is the high-risk category: one agent (or brokerage) represents both buyer and seller. Because full loyalty to both is impossible, dual agency is legal only with informed written consent from both parties, and the agent's duties shrink — typically no disclosing one side's confidences to the other. Undisclosed dual agency is illegal in every jurisdiction.
Duties owed to customers (non-clients)
A customer is the party the licensee does not represent. The licensee still owes the customer:
- Honesty and fair dealing.
- Disclosure of known material facts about the property's condition.
- Disclosure of latent (hidden) defects the licensee knows about.
- No active misrepresentation or fraud.
What the licensee does not owe a customer: loyalty, confidentiality, or advice that advances the customer's interest over the client's.
Worked example
A listing agent (seller's agent) knows the basement floods every spring — a latent defect. A buyer-customer asks about water. The agent must disclose the known flooding (material fact / honesty), but must not reveal that the seller will accept $20,000 less (the seller's confidential negotiating position). Both duties operate at once.
How agency ends
An agency relationship terminates by:
- Completion / performance of the purpose (the sale closes).
- Expiration of the term.
- Mutual agreement to cancel.
- Revocation or renunciation (either party ends it; wrongful termination may create liability).
- Operation of law — death or incapacity of either party, bankruptcy, or destruction of the property.
Note the durable trap: even after agency ends, the duty of confidentiality continues indefinitely. An agent cannot reveal a former client's confidential information later.
Agency disclosure timing and the customer-to-client trap
Most states require licensees to disclose their agency relationship in writing, typically at the first substantive contact about a specific property or before any confidential information is shared. The exam point is timing: disclosure must come early enough that the consumer knows who the licensee works for before revealing their negotiating position.
The most dangerous trap is the accidental conversion of a customer into a client. A listing agent who counsels a buyer-customer on how much to offer, what the seller will accept, or negotiation strategy may create implied buyer agency — producing undisclosed dual agency. The licensee must stay in the customer lane: provide facts and honesty, but not client-level advice, unless a buyer-agency relationship is properly established and disclosed.
Material facts, latent defects, and stigmatized property
The disclosure duty owed even to customers centers on material facts — anything that could affect a reasonable buyer's decision or the property's value. A latent defect is a hidden physical problem (a cracked foundation behind drywall) the licensee knows about; it must be disclosed. A patent defect is visible and discoverable on ordinary inspection.
Stigmatized property (a site of a death, crime, or rumored haunting) is treated differently by state: many states do not require disclosure of psychological stigma, and some specifically protect against having to disclose a prior occupant's illness. The exam expects you to separate physical material facts (always disclosable when known) from psychological stigma (state-dependent). When unsure, the safe practitioner answer is honesty paired with deference to specific state disclosure law.
A brokerage wants one agent to represent both the buyer and the seller in the same transaction. Under general agency law, when is this permissible?