4.4 Agency Relationships, Fiduciary Duties, and Disclosure
Key Takeaways
- Agency can be created by express agreement, ratification, or estoppel; it is the principal who is owed fiduciary duties.
- The six fiduciary duties are remembered by OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable care.
- A subagent works for the listing broker and owes duties to the seller, not the buyer.
- Dual agency requires informed written consent from both parties and limits the agent's ability to advocate.
- Agents must disclose material facts to all parties but keep the principal's confidential information private even after the relationship ends.
Agency Relationships, Fiduciary Duties, and Disclosure
Agency is the relationship in which one party (the agent) acts on behalf of and represents another (the principal, or client) in dealings with third parties (customers). The agent owes fiduciary duties to the principal; a customer receives honesty and fair dealing but not fiduciary representation.
How agency is created
- Express agency. A written or oral agreement, such as a signed listing or buyer-agency agreement.
- Implied agency. Created by the conduct of the parties even without a written agreement — a common, dangerous trap when a licensee acts like a buyer's agent without a contract.
- Ratification. The principal accepts the benefit of unauthorized acts after the fact.
- Estoppel. A principal allows a third party to reasonably believe agency exists and is barred from denying it.
Note that agency is not created by the payment of compensation. The source of the commission does not determine who the agent represents — a buyer's agent may still be paid from the seller's proceeds.
The six fiduciary duties — OLD CAR
| Letter | Duty | Meaning |
|---|---|---|
| O | Obedience | Follow the principal's lawful instructions |
| L | Loyalty | Put the principal's interests above the agent's own |
| D | Disclosure | Tell the principal all material facts the agent knows |
| C | Confidentiality | Protect the principal's private information |
| A | Accounting | Account for all money and documents handled |
| R | Reasonable care | Act with competence and diligence |
Confidentiality survives the termination of the agency relationship; an agent may never reveal that a former seller-client would have accepted a lower price. Disclosure runs to the principal — the agent must reveal a higher backup offer to the seller-client, even if inconvenient.
Material facts to third parties
While fiduciary duties run to the principal, the agent owes honesty and disclosure of material defects to customers. A buyer's-agent-free customer must still be told about a leaking roof the agent knows of. The agent may not misrepresent or conceal a known material defect to anyone.
A listing agent learns that the seller is going through a divorce and is desperate to sell quickly. A buyer asks the listing agent why the home is for sale. What should the agent do?
Types of agency relationships
- Seller (listing) agency. The agent represents the seller and owes fiduciary duties to the seller.
- Buyer agency. The agent represents the buyer and owes fiduciary duties to the buyer.
- Subagency. A cooperating broker works through the listing broker and owes fiduciary duties to the seller, not the buyer — a frequent trap.
- Dual agency. One agent (or firm) represents both buyer and seller in the same transaction. It is legal only with the informed written consent of both parties and limits the agent to a neutral facilitator role; the agent cannot advocate price or terms for one side.
- Designated (appointed) agency. The broker appoints one licensee to represent the buyer and a different licensee to represent the seller within the same firm.
Terminating agency
Agency ends by completion of the purpose, expiration of the term, mutual agreement, revocation, renunciation, or operation of law (death, incapacity, bankruptcy, or destruction of the property). A principal may revoke but could be liable for breach if the revocation violates the contract.
General, special, and universal agents
The scope of authority matters. A special agent is hired for one specific task — a real estate licensee under a listing is a special agent, authorized to find a buyer but not to sign the deed for the seller. A general agent may handle a range of matters in an ongoing relationship, such as a property manager. A universal agent can act in all matters via broad power of attorney. Exam trap: a listing agent who signs the sales contract on behalf of the seller usually exceeds a special agent's authority unless specifically authorized in writing.
Disclosure of agency relationships
Most jurisdictions require licensees to disclose whom they represent in writing, early in the relationship — typically at first substantive contact. Failure to disclose the agency relationship can create an undisclosed dual agency, which is generally illegal because neither party gave informed consent. When a fact pattern shows one agent quietly negotiating for both sides without written consent, the correct answer is that the agent has committed an unlawful undisclosed dual agency, exposing the agent to license discipline and the contract to rescission.
Single agency, transactional brokerage, and stigmatized-property limits
Beyond the classic relationships, the National exam tests several modern structures. A single agent represents only one party (buyer or seller) in a transaction and owes that party full fiduciary duties. A transaction broker (also called a facilitator or non-agent in some states) assists both parties with the paperwork and process but represents neither and owes no fiduciary loyalty — only honesty, accounting, and disclosure of known material defects. Recognizing that a "transaction broker" owes no advocacy to either side is a common test point.
Agency disclosure timing and content matter. Most states require written disclosure of agency status at first substantive contact about a specific property, and require informed written consent before any dual or designated agency arises. The danger pattern is undisclosed dual agency — one licensee quietly negotiating both sides without consent — which is illegal, exposes the licensee to discipline, and can let a party rescind.
The duty of disclosure to the principal has limits set by other laws. A licensee must reveal material physical defects (a leaking roof) to all parties, but may not disclose certain facts even if asked: under most state statutes and federal Fair Housing principles, an agent must not reveal a person's status as having HIV/AIDS, a death or suicide on the property, or a former occupant's protected characteristics.
Worked trap: a buyer asks the listing agent whether the prior owner died of AIDS in the home. The correct answer is that the agent must not answer that question, because disclosing it would violate fair-housing and privacy protections — the duty to the seller-client and the public policy both forbid it, unlike a hidden physical defect, which must be disclosed.
A cooperating broker shows a listed home to a buyer and is operating as a subagent of the listing broker. To whom does this cooperating broker owe fiduciary duties?