4.4 Agency Relationships, Fiduciary Duties, and Disclosure

Agency Relationships, Fiduciary Duties, and Disclosure

Agency is the relationship in which one person (the agent) acts on behalf of another (the principal or client) in dealings with third parties. The principal grants authority; the agent owes fiduciary duties in return. The person the agent does not represent is the customer. This distinction drives most agency questions.

How agency is created and ended

Agency can be created by:

• Express agreement — a signed listing or buyer-representation agreement (most common and clearest).
• Implied agreement — conduct that leads a party reasonably to believe representation exists.
• Ratification — the principal approves an act after the fact.
• Estoppel — a principal who lets others believe an agency exists is barred from denying it.

Agency terminates by: completion of the purpose, expiration of the term, mutual agreement, revocation or renunciation, death or incapacity of either party, destruction of the property, or bankruptcy. Note that a principal may have the power to revoke but not the right, exposing them to damages if the revocation breaches the contract.

Fiduciary duties — OLD CAR

An agent owes the principal the following fiduciary duties. Memorize the acronym OLD CAR:

Duties owed to the customer are narrower: honesty, fair dealing, and disclosure of known material facts about the property. The agent does not owe the customer loyalty or confidentiality. A listing agent must tell a buyer about a known leaking roof, but must not reveal that the seller will accept less than asking price — that is confidential to the principal.

Single agency, subagency, dual agency, and transaction brokerage

• Single agency — the broker represents only one party (seller or buyer) in the transaction. Cleanest fiduciary picture.
• Subagency — a cooperating broker works on behalf of the listing broker's principal (the seller). The subagent owes the seller fiduciary duties, which can surprise an unrepresented buyer.
• Dual agency — the broker (or two agents of the same broker) represents both buyer and seller. It is legal only with informed written consent of both parties and limits the agent to a neutral facilitator who cannot fully advocate for either side. Undisclosed dual agency is a serious violation.
• Designated agency — within one brokerage, different agents are assigned to represent buyer and seller separately, preserving advocacy.
• Transaction (facilitator) brokerage — a non-agency relationship; the broker assists both parties fairly and honestly but owes no fiduciary loyalty to either.

Worked example — split commission and duty

A seller lists at 6% on a $500,000 home: 0.06 × $500,000 = $30,000 total commission. The listing brokerage agrees to a 50/50 co-op split with the buyer's brokerage, so each side's brokerage receives $15,000. Even though the buyer's broker is paid from the seller's proceeds, the source of compensation does not determine agency — the buyer's broker still represents the buyer under their buyer-representation agreement. Tying loyalty to who pays is a classic trap.

Finally, distinguish the levels of agent authority. A universal agent can act for the principal in all matters; a general agent can act in a range of matters within a business (a property manager); and a special agent is hired for one specific task. A real estate salesperson under a listing is typically a special agent — authorized to find a buyer, not to sign the deed or bind the seller to terms without approval. An agent who exceeds their authority can expose both themselves and the principal to liability, which is why written agreements define the scope so carefully.

Disclosure timing also matters. Most jurisdictions require an agent to disclose the agency relationship to a consumer at or before the first substantive contact about a specific property, and to obtain consent for dual agency before it arises — not after the fact. An agent who waits until closing to reveal that they also represent the other side has breached the duty even if the consent form is eventually signed. When a fact pattern stresses when the disclosure happened, the timing is usually the point being tested, not the wording of the form.

Creation, Termination, and Worked Disclosure Failures

Agency can arise by express agreement (a signed listing or buyer-agency contract), by implied conduct, by ratification (the principal accepts a prior unauthorized act), or by estoppel (the principal lets a third party reasonably believe an agency exists). It terminates by completion, expiration, mutual agreement, revocation, renunciation, or by operation of law (death, incapacity, bankruptcy, or destruction of the property).

The duties owed to a customer (the non-represented party) are narrower but real: honesty, fair dealing, and disclosure of known material defects. Worked trap: a seller's agent learns the buyer customer plans to offer $310,000 but will go to $330,000. The agent owes the seller the duty of disclosure and must pass that along — confidentiality runs to the principal (seller), not the customer. Conversely, the agent may not lie to the buyer about a known cracked foundation; honesty and material-defect disclosure are owed even to a customer, and concealment is fraud that voids the sale and triggers license discipline.