4.4 Agency Relationships, Fiduciary Duties, and Disclosure
Key Takeaways
- Agency can be created expressly, by implication, or by ratification; it is the relationship, not the compensation, that determines who the agent represents.
- Fiduciary duties to a principal are remembered as OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable care.
- Customers (non-clients) are owed honesty and disclosure of material facts, but not fiduciary duties.
- Dual agency requires informed written consent from both parties and strips the agent of full advocacy for either side.
How agency is created and what type exists
Agency is a fiduciary relationship in which an agent acts on behalf of a principal. It can be created three ways:
- Express agency: a written or oral agreement (a signed listing or buyer-representation agreement).
- Implied agency: conduct that leads a party to reasonably believe representation exists — a dangerous accidental relationship.
- Ratification: the principal later approves acts done on their behalf without prior authority.
Trap: Compensation does not determine agency. A buyer's agent may be paid from the seller's proceeds yet still represent the buyer. The exam often pays the agent from one side while representation lies with the other.
Special, general, and universal agents
A special agent has narrow authority for one transaction (most real-estate licensees). A general agent has broad authority over a range of activities (a property manager). A universal agent can act in all matters (rare; a broad power of attorney).
Fiduciary duties vs customer duties
To a principal (client), the agent owes full fiduciary duties, memorized as OLD CAR:
| Letter | Duty | Meaning |
|---|---|---|
| O | Obedience | Follow lawful instructions of the principal |
| L | Loyalty | Put the principal's interests first |
| D | Disclosure | Tell the principal all material facts you know |
| C | Confidentiality | Protect the principal's private information, even after closing |
| A | Accounting | Account for all money and documents |
| R | Reasonable care | Act with skill, diligence, and competence |
To a customer (the other side, a non-client), the agent owes only honesty, fair dealing, and disclosure of known material facts — never the fiduciary duties above.
Trap: Confidentiality survives the transaction. Disclosing that your former seller-client "would have taken less" after closing is still a breach.
Material facts and disclosure
A material fact is anything that could affect a reasonable party's decision or the property value — a leaking roof, prior flooding, a failed septic. These must be disclosed to all parties. Opinions and mere puffing ("best block in town") are not material facts. Stigmatizing facts (a death on the property) are treated differently by jurisdiction, but known physical defects always require disclosure.
Single vs dual vs designated agency
A single agent represents one side. Dual agency is one agent (or firm) representing both buyer and seller; it requires informed written consent from both and limits the agent to a neutral facilitator who cannot fully advocate for either. Designated agency assigns different licensees within the same brokerage to each side to preserve advocacy.
Trap: Undisclosed dual agency is a serious violation and can void the agent's right to a commission and trigger discipline.
How agency ends, and the duties that survive
An agency relationship terminates by completion (the sale closes), expiration of the listing term, mutual agreement, revocation or renunciation, or by operation of law (death, incapacity, bankruptcy, or destruction of the property). Two duties outlast the relationship: confidentiality (you may never reveal the former principal's negotiating position or motives) and accounting (you must still account for any funds or documents you held).
Trap: A principal can usually revoke an agency at will, but doing so wrongfully — firing a broker to dodge an earned commission — can expose the principal to damages. The power to revoke is not the same as the right to revoke without consequence.
Agency disclosure timing and the universal answer
Most jurisdictions require licensees to disclose who they represent at first substantive contact, before confidential information is exchanged. The recurring exam principle is transparency: when a fact pattern offers a choice between concealing a relationship and disclosing it, disclosure is almost always the correct answer.
| Scenario | Duty owed | Correct action |
|---|---|---|
| Seller's agent meets an unrepresented buyer | Honesty + material-fact disclosure | Disclose you represent the seller |
| Same firm has both buyer and seller clients | Both are principals | Obtain informed written consent (dual or designated agency) |
| Buyer asks the listing agent to "get them the best deal" | Loyalty runs to the seller | Clarify you represent the seller, not the buyer |
| Agent learns of a hidden roof leak | Material-fact disclosure to all | Disclose; loyalty never authorizes concealment |
Material facts vs. confidential facts — the dividing line
The two most-confused categories sit side by side. A material physical fact about the property (a leak, prior flooding, a failed septic) must be disclosed to everyone, including the customer on the other side. A confidential fact about your own client (their bottom-line price, their urgency, their divorce) must be protected from the other side. The skill the exam tests is sorting a given fact into the right bucket: defects flow outward; client secrets stay locked.
Worked trap: A buyer's agent learns their buyer-client is willing to go to $410,000 but offers $385,000. The agent must keep the $410,000 figure confidential from the seller (loyalty and confidentiality) while still disclosing any material defect the agent knows about the property to the buyer. Revealing the client's ceiling to the listing agent would breach loyalty and confidentiality at once.
After a sale closes, a listing agent tells the new owner's friend that the former seller "was desperate and would have accepted $20,000 less." Which fiduciary duty did the agent breach?
A licensee shows a buyer a home listed by the same brokerage and represents both the buyer and the seller. For this to be lawful, what is required?