4.4 Agency Relationships, Fiduciary Duties, and Disclosure

Agency Relationships, Fiduciary Duties, and Disclosure

Agency law defines whom a licensee represents and what duties are owed. This is one of the most heavily weighted national topics because it underlies every transaction and every consumer-protection rule. Master the parties, the duties, how agency is created and terminated, and the difference between a client and a customer.

The Parties and How Agency Is Created

In an agency relationship, the principal (client) hires the agent, who owes fiduciary duties. The broker is the agent of record; the salesperson is typically the broker's agent (a subagent of the client). A customer is the party the agent deals with but does not represent.

Agency can be created by:

• Express agreement (a signed listing or buyer-representation agreement) — the normal way.
• Implied agency (created by conduct, even unintentionally — a common trap).
• Ratification (the principal accepts a previously unauthorized act).
• Estoppel (the principal lets a third party reasonably believe agency exists).

Agency is not created by payment of a commission — who pays does not determine who is represented.

Fiduciary Duties — Memorize OLD CAR

An agent owes the client these fiduciary duties, commonly recalled as OLD CAR:

Trap: the duty of disclosure runs to the client, but a duty of honesty and fair dealing (no fraud, no concealment of material defects) is owed to everyone, including customers.

Single Agency, Dual Agency, and Duties After Closing

The exam tests which duties survive the end of the relationship. Of the OLD CAR duties, confidentiality and accounting outlive closing: an agent may never reveal a former client's bottom-line price or motivation, even years later, and must always account for funds handled. Obedience, loyalty, disclosure, and reasonable care apply during the active relationship.

Undisclosed dual agency is one of the most serious agency violations: representing both sides without each party's informed, written consent can void the agency, forfeit the commission, and expose the licensee to discipline and damages. The cure is always early written disclosure and consent.

Finally, remember that a commission does not create agency. A seller may pay a buyer's agent's fee through the listing-side cooperation, yet the buyer's agent still represents the buyer, not the seller who funded the check. When a fact pattern emphasizes "who paid," it is usually setting the trap that payment determines representation — it does not.

Types of Agency Representation

• Seller agency / buyer agency: representing one side exclusively (single agency).
• Dual agency: representing both buyer and seller in the same transaction. It is legal only with informed written consent of both parties and limits the agent to neutral facilitation — the agent cannot fully advocate for either side. Some states ban it.
• Designated agency: the broker assigns different salespeople to each side so each client keeps an advocate.
• Subagency: an agent of the listing broker who also represents the seller.
• Transaction broker / facilitator (non-agency): assists both parties without fiduciary representation.

Disclosure and Termination

Most states require agency disclosure at first substantive contact so the consumer knows who represents whom. Failing to disclose dual agency, or practicing undisclosed dual agency, is a serious violation that can void the agency and forfeit commission.

Agency terminates by: completion (sale closes), expiration of the term, mutual agreement, revocation or renunciation (possibly with damages), or by operation of law (death or incapacity of either party, destruction of the property, or bankruptcy). Trap: the death of either the broker or the principal terminates the agency automatically — but it does not terminate listing obligations to a salesperson under the broker, since the salesperson's contract is with the broker, not the seller.

Client vs. Customer — the Recurring Distinction

The single most tested agency idea is the line between a client and a customer. The client is the principal who receives full fiduciary duties (OLD CAR). The customer is the unrepresented party who receives only honesty, fair dealing, and disclosure of known material defects in the property.

A buyer who walks into an open house and talks to the listing agent is a customer of that agent, not a client — even though the agent is friendly and helpful. The agent still represents the seller. Many exam questions hinge on a candidate forgetting that helpfulness does not create representation.