4.4 Agency Relationships, Fiduciary Duties, and Disclosure

How agency is created and ended

Agency is a fiduciary relationship in which an agent represents a principal. It can be created four ways:

Agency terminates by completion of purpose, expiration, mutual agreement, revocation, renunciation, death/incapacity of either party, or destruction of the property. Express written agreements are preferred because they prove the scope of authority and avoid implied-agency surprises.

Fiduciary duties — OLD CAR

An agent owes the principal (client) the following fiduciary duties, commonly memorized as OLD CAR:

• Obedience — follow the principal's lawful instructions.
• Loyalty — put the principal's interests above the agent's own.
• Disclosure — reveal all material facts and information relevant to the principal.
• Confidentiality — protect the principal's private information (e.g., the lowest price the seller will take), even after the relationship ends.
• Accountability — account for all money and documents (no commingling).
• Reasonable care and diligence — act competently and skillfully.

The most-tested traps: an agent may not disclose the principal's confidential motivation (e.g., "the seller is desperate") to the other side, and an agent must still disclose material defects to a customer — confidentiality protects the principal's secrets, not facts about the property.

Clients vs. customers, and the forms of agency

A client (principal) is the party the agent represents and owes full fiduciary duties. A customer is the party the agent does not represent and is owed only honesty, fair dealing, and disclosure of known material facts — not loyalty or confidentiality.

A subagent works through the listing broker and owes fiduciary loyalty to the seller, not the buyer — a classic exam trap where a cooperating agent mistakenly believes they represent the buyer.

Dual agency and disclosure

Dual agency occurs when one agent (or brokerage) represents both buyer and seller in the same transaction. It is legal only with the informed written consent of both parties, and the dual agent's duties of full loyalty and disclosure are necessarily limited — the agent cannot advocate price for either side or reveal one party's confidential information to the other.

Designated (appointed) agency lets a broker assign different licensees in the firm to each side, preserving fuller representation. Undisclosed dual agency — representing both sides secretly — breaches loyalty and is a serious license-law violation that can void the commission.

Agency disclosure must generally be made early, at first substantive contact about a specific property, so consumers know whom the agent represents before sharing confidential information.

Scope of authority and the levels of agent

Agents are classified by how broad their authority is, and the exam expects the labels:

Most real estate agents are special agents with limited authority — a listing broker is hired to find a buyer, not to sign the deed or accept an offer on the seller's behalf without express authority. A broker who exceeds the granted authority can lose the commission and face liability.

Misrepresentation, puffing, and material facts

The duty of honesty to a customer turns on the difference between opinion and fact. Puffing is non-actionable opinion ("this is a wonderful neighborhood"). Misrepresentation is a false statement of material fact, and it can be innocent, negligent, or fraudulent. Concealing a known latent (hidden) material defect — a cracked foundation behind drywall — is actionable even toward a customer the agent does not represent.

The exam reliably rewards disclosure. If an agent knows the basement floods, the duty to disclose that material fact to the buyer overrides any instinct to protect the seller's price. Confidentiality protects the seller's negotiating position, never a property defect. An agent who passes along the seller's false statement, even unknowingly, can still be liable for negligent misrepresentation, so verify material claims rather than simply repeating them.

Single agency, designated agency, and transaction brokerage

Beyond dual agency, the exam tests the named forms brokerages use to manage representation.

Trap: In dual agency the agent cannot fully advocate for either side and must keep each party's confidential price information private; that is why it requires informed written consent. A transaction broker owes honesty and competent service but no fiduciary loyalty to either party.

Worked disclosure-timing scenario

At an open house, a buyer begins telling the seller's agent, "We could go up to $450,000 if we had to." The agent must disclose, before that conversation continues, that the agent represents the seller, so the buyer understands the information can be used for the seller's benefit. Disclosing representation at first substantive contact is mandatory; failing to do so is one of the most common and serious agency violations.

Stigmatized facts vs. fiduciary duty

An agent's fiduciary duty does not require — and fair-housing/privacy law often forbids — disclosing a prior occupant's HIV status, a death by natural causes, or a former owner's protected characteristics; these are generally not material facts. By contrast, a physical latent defect the agent knows about (a cracked foundation) must be disclosed even to a customer, because the duty of honesty and the duty to disclose material facts override silence. Separating protected/non-material information from material defects is the precise line the exam draws.