4.4 Agency Relationships, Fiduciary Duties, and Disclosure

Whom you work for, and what you owe them

Agency law defines the relationship between a licensee (agent), the client they represent (principal), and the customer (a non-represented party). The agency questions are among the most-missed on the national exam because candidates confuse the client (owed fiduciary duties) with the customer (owed honesty and fairness only).

How agency is created

Agency can be created by express agreement (a signed listing or buyer-rep contract), by implied agreement (conduct that leads a party to reasonably believe representation exists), by ratification (approving an act after the fact), or by estoppel (a party is prevented from denying an agency they allowed others to rely on). It is not created by paying a fee — who pays the commission does not determine whom the agent represents. A seller can pay a buyer's agent.

Fiduciary duties owed to the client

The classic mnemonic is OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care. Memorize what each means and the limits.

Duties owed to the customer

To a non-client customer, the agent owes honesty, fair dealing, and disclosure of known material defects — but not loyalty or confidentiality. An agent must never misrepresent a property's condition to anyone, but only the client receives the full fiduciary package.

Types of agency relationships

A seller's agent represents the seller; a buyer's agent represents the buyer; a dual agent represents both in the same transaction, which is allowed only with informed written consent of both parties because loyalty and confidentiality are necessarily limited. A subagent represents the listing broker's client through a cooperating relationship. A designated agent is appointed by a broker to represent one party while another in-house licensee represents the other. A transactional/facilitator relationship provides services without representing either party as a client.

Disclosure worked scenario

An agent represents a seller and learns from the buyer, in casual conversation, that the buyer is willing to pay $10,000 above the list price. Because the agent's client is the seller, the duty of loyalty and disclosure requires telling the seller this material information, and the agent owes the buyer no confidentiality. Now reverse it: if that same agent were the buyer's agent, revealing the buyer's top number to the seller would breach confidentiality and loyalty to the buyer. Same fact, opposite duty — driven entirely by who the client is.

Disclosure of agency and termination

Most jurisdictions require agents to disclose whom they represent early, typically at first substantive contact, and to obtain written consent for dual agency before it occurs. Agency terminates by completion of the purpose, expiration of the term, mutual agreement, revocation, renunciation, death or incapacity of either party, destruction of the property, or operation of law (such as bankruptcy). The duty of confidentiality survives termination — an agent cannot later reveal a former client's confidential information.

Misrepresentation and material facts

A material fact is any fact that could affect a reasonable party's decision. Agents must disclose known material defects but generally need not volunteer non-material or legally protected information (and must follow fair-housing limits). Failing to disclose a known material defect, or actively concealing one, exposes the agent and broker to liability and discipline.

Single agency, dual agency, and the conflict line

Single agency — representing only one party in a transaction — is the cleanest relationship because the agent owes undivided loyalty. Dual agency is legal in many states but only with informed written consent of both parties, and even then the agent cannot advocate price or terms for one side against the other. The classic dual-agency trap question describes an agent who, while representing both buyer and seller, tells the seller "the buyer will go higher." That breaches the limited duties owed in dual agency and is the wrong action.

Designated (or appointed) agency is the common workaround: the broker appoints one licensee to the buyer and a different licensee to the seller, so each client gets an advocate while the brokerage itself sits in a dual role. The broker must still protect each client's confidential information from the other.

General vs. special agent, and the level of authority

A special agent is hired for one specific task — a listing broker is a special agent authorized to find a buyer, not to sign a deed for the seller. A general agent has ongoing authority across a range of acts, like a property manager. A universal agent can act in virtually all matters, typically under a broad power of attorney. The exam reward is matching the scope of authority to the relationship: a real-estate licensee is almost always a special agent, and exceeding that authority — for instance, accepting an offer without the seller's approval — is itself a breach.

Finally, remember the agency-coupled-with-an-interest exception: when the agent has a financial stake in the property itself, the principal generally cannot revoke the agency at will. This is uncommon in ordinary listings but appears as a distractor on termination questions.