4.4 Agency Relationships, Fiduciary Duties, and Disclosure

Agency Relationships, Fiduciary Duties, and Disclosure

Agency law governs the relationship between a principal (the client) and an agent (the broker). The agent owes fiduciary duties to the principal and lesser, honest-dealing duties to the customer (a non-represented party). The exam tests who owes what to whom, and when disclosure must occur.

How agency is created

• Express agency — a written or oral agreement (a listing or buyer-representation agreement).
• Implied agency — arises from conduct that leads a party to reasonably believe representation exists; a frequent trap when an agent gives a buyer advice as if representing them.
• Ratification — a principal accepts the benefit of acts performed on their behalf after the fact.
• Estoppel — a principal is barred from denying an agency they allowed others to rely on.

Agency is terminated by completion, expiration, mutual agreement, revocation, renunciation, death or incapacity of either party, or destruction of the property.

The six fiduciary duties (OLD CAR)

Duties to a customer are narrower: honesty, fair dealing, and disclosure of known material defects in the property. An agent must never reveal a principal's confidential information (such as the lowest price the seller will accept) to the other side.

Agency types and dual agency

• Seller's (listing) agent — represents the seller; the buyer is a customer.
• Buyer's agent — represents the buyer; the seller is a customer.
• Dual agent — represents both buyer and seller in one transaction. Permitted only with informed written consent from both, and the agent must remain neutral and cannot disclose either side's confidential information.
• Transaction broker / facilitator — assists both parties to complete the deal without owing full fiduciary loyalty to either; allowed in many states as a non-agency role.

Undisclosed dual agency is a serious violation because it breaches loyalty and confidentiality. The fix is always disclosure plus written consent from both principals.

Disclosure timing and worked scenario

Most jurisdictions require agency disclosure before any confidential information is exchanged, commonly at first substantive contact. Material-defect disclosure to a buyer-customer is also required: an agent who knows of a leaking roof must reveal it even when representing the seller, because honesty to the customer and disclosure of known material facts override loyalty here.

Scenario: A listing agent learns the seller will accept $290,000 on a $310,000 listing. A buyer asks the same agent to represent them. The agent may become a dual agent only with both parties' written consent, and even then must not reveal the $290,000 figure — that confidential information stays protected.

The fiduciary duties, ranked by how often they are tested

Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable care (OLD CAR) define what the agent owes the principal/client. The two most-tested:

• Loyalty forbids self-dealing — an agent may not buy the client's listing for personal gain without full written disclosure and consent.
• Confidentiality survives the relationship: an agent who learns the seller will accept far less than list price must not reveal that to a buyer.

Against these stand the duties owed to all parties (customers included): honesty, fair dealing, and disclosure of known material defects. You may keep a client's motivation confidential, but you can never lie about the condition of the property to anyone.

Agency relationships and a worked disclosure scenario

Worked scenario: a single agent is asked to represent both the buyer and the seller on the same property. The agent may proceed only after obtaining written, informed consent from both parties; without it, undisclosed dual agency is a license violation that can void the commission. Most states require the agency relationship to be disclosed at first substantive contact, well before any offer is written.

Termination of agency and post-termination duties

An agency relationship ends by completion of its purpose, expiration of the term, mutual agreement, revocation or renunciation, or operation of law (death, incapacity, or bankruptcy of either party, or destruction of the property). Revoking before the term may expose the revoking party to damages, but the relationship still ends.

One duty outlives the agency: confidentiality. After the listing expires, the former agent still may not disclose that the seller would have taken far less than asking price. By contrast, accounting for funds and disclosure of known material defects are owed during the relationship and at closing. Knowing which duties survive termination resolves a recurring exam trap that pairs an expired listing with a later loose-lipped agent.