4.4 Agency Relationships, Fiduciary Duties, and Disclosure
Key Takeaways
- Agency is created by express agreement, implied conduct, ratification, or estoppel; it is terminated by completion, expiration, mutual agreement, revocation, or death.
- A fiduciary owes the client the OLD CAR duties: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care.
- A subagent works for the listing broker and owes fiduciary duties to the seller, not the buyer—a frequent disclosure trap.
- Dual agency requires informed written consent of both parties; an undisclosed dual agency is illegal and grounds for license discipline.
- Agents owe customers (non-clients) honesty and fair dealing and must disclose known material defects, but not the limited fiduciary duties owed to clients.
Agency Relationships and Fiduciary Duties
Agency law governs the relationship between a real estate licensee (agent) and the person they represent (the principal or client). It is one of the most tested national topics.
Creating and Terminating Agency
Agency can be created four ways:
- Express - a written or oral agreement (a signed listing or buyer-representation agreement).
- Implied - conduct of the parties signals representation.
- Ratification - the principal accepts the benefit of unauthorized acts after the fact.
- Estoppel - a principal lets a third party reasonably believe an agency exists.
Agency terminates by completion of purpose, expiration of term, mutual agreement, revocation/renunciation, or by operation of law (death or incapacity of either party, destruction of the property, or bankruptcy). Note that the client's death ends the agency automatically.
Fiduciary Duties: OLD CAR
An agent owes the client six fiduciary duties, remembered as OLD CAR:
| Duty | Meaning | Common breach |
|---|---|---|
| Obedience | Follow lawful instructions | Ignoring the client's price floor |
| Loyalty | Put the client's interest first | Self-dealing or favoring the other side |
| Disclosure | Tell the client all material facts | Hiding a higher offer |
| Confidentiality | Protect the client's private info | Revealing the seller will accept less |
| Accounting | Account for all money and documents | Commingling earnest money |
| Reasonable care | Act competently and diligently | Negligent advice or paperwork |
Trap: Confidentiality survives the end of the agency. After a listing expires, the agent still may not reveal that the former seller-client would have taken a lower price.
These full duties are owed to the client (principal). A customer (the unrepresented party) is owed only honesty, fair dealing, and disclosure of known material defects—not loyalty or confidentiality.
Types of Agency and Disclosure
The four agency structures determine who is owed full fiduciary duties:
- Single agency - the agent represents only one party (seller or buyer) in a transaction.
- Subagency - a cooperating broker works for the listing broker and owes fiduciary duties to the seller, not the buyer they show homes to; a classic disclosure trap.
- Dual agency - one agent or firm represents both buyer and seller, legal only with informed written consent of both; undisclosed dual agency is illegal.
- Designated agency - within one firm, the broker assigns separate agents to the buyer and seller to manage the dual-agency conflict.
A facilitator or transaction broker (recognized in some states) represents neither party and merely assists the deal, owing honesty and competence but no fiduciary loyalty to either side. Knowing which model removes loyalty is a frequent exam point.
Mandatory Disclosures (Worked Scenario)
Most states require the agency relationship to be disclosed at first substantive contact, in writing, so consumers know who represents whom. Separately, the agent must disclose known material defects to all parties—e.g., a cracked foundation—regardless of who is the client.
Scenario: A buyer's agent learns the seller is divorcing and motivated to sell fast. As the buyer's fiduciary, the agent must disclose this to the buyer-client (duty of disclosure) and use it to negotiate—there is no duty to protect the seller's confidence. But if a listing agent learned a buyer would pay more, that agent owes confidentiality to the seller and disclosure of the buyer's flexibility to the seller. Same fact, opposite duty—depending on who the client is.
Customer vs. client duties, and a dual-agency walkthrough
The sharpest line on the agency questions is client vs. customer. A client (principal) is owed the full fiduciary set (OLD CAR). A customer — the unrepresented party on the other side — is owed only honesty, fair dealing, and disclosure of known material defects. A listing agent owes the seller loyalty and confidentiality but owes the buyer-customer honesty and defect disclosure. Confusing these is the single most common agency error.
Dual agency walkthrough: A firm lists a home and then a buyer it also represents wants to make an offer. To proceed lawfully the firm must obtain informed written consent from both the buyer and seller; only then may it act as a dual agent, but its duties shrink — it can no longer advise either side on price strategy or disclose one side's confidential bargaining position to the other. Many firms instead use designated agency, assigning one agent to the buyer and a different agent to the seller within the same brokerage, so each consumer keeps a full-fiduciary advocate while the broker manages the conflict.
Worked duty-flip scenario: Suppose an agent learns the seller is relocating and "must sell within 30 days." If the agent represents the buyer, the duty of disclosure requires telling the buyer — useful leverage. If the agent represents the seller, the duty of confidentiality forbids revealing that motivation to a buyer. Same fact, opposite obligation, decided entirely by who the client is. When an exam fact pattern hinges on a secret about price or motivation, first identify the principal, then apply loyalty and confidentiality to that side only.
A listing expires unsold. Months later the former agent tells a new prospect that the seller had privately said she would accept $20,000 below list. Which fiduciary duty did the agent violate?
An agent represents both the buyer and the seller in the same transaction. For this arrangement to be lawful, the agent must: