4.4 Agency Relationships, Fiduciary Duties, and Disclosure

Agency is the legal relationship in which one person, the agent, acts for and on behalf of another, the principal or client, creating fiduciary duties. The exam tests who is represented, how the relationship forms and ends, and which duties attach.

Special, General, and Universal Agents

Most licensees are special agents: authorized to do a narrow set of acts for one transaction - market the property, present offers - but not to sign contracts that bind the client in unrelated matters. A property manager handling all affairs of a building is closer to a general agent. A universal agent with full power of attorney is rare in brokerage.

Relationship Types

Table: Agency Relationships

State law decides what is permitted; some states ban undisclosed dual agency and some replace agency with a transaction-broker default. Always follow state disclosure rules in practice.

Creating and Terminating Agency

Agency is normally created by an express written agreement - a listing or buyer-representation contract. It can also arise by oral agreement (risky), by ratification (the principal later approves an unauthorized act and keeps its benefits), or by estoppel (the principal lets a third party reasonably believe an agent had authority, and the third party relies on it).

An agency relationship ends by:

• Expiration of the agreed term
• Completion of the purpose (closing)
• Mutual rescission by both parties
• Revocation by the principal or renunciation by the agent (each may owe damages for breach)
• Death, incapacity, or bankruptcy of either party
• Destruction of the property

Note a key limit: a principal can usually revoke an agent's authority, but doing so before the listing term ends may be a breach exposing the principal to damages.

OLD CAR: Fiduciary Duties to Clients

The duties an agent owes a client are captured by OLD CAR:

• Obedience - follow the client's lawful instructions.
• Loyalty - put the client's interests above the agent's and everyone else's.
• Disclosure - tell the client all material facts the agent knows.
• Confidentiality - protect the client's private information, even after the relationship ends.
• Accounting - handle and report all money and documents accurately.
• Reasonable care - act with the skill and diligence of a competent professional.

Duties to Customers and to All Parties

A customer is a non-client the agent deals with but does not represent. Even so, the licensee owes everyone honesty, fair dealing, accounting for funds, and disclosure of known material facts about the property. What the customer does not get is loyalty or confidentiality.

Table: Client Versus Customer Duties

Dual Agency and Informed Consent

When one agent or one firm represents both buyer and seller, that is dual agency. Because an agent cannot fully advocate for two opposing sides, dual agency is lawful only with the informed written consent of both parties, and it strips away the ability to advise on price or negotiation strategy. Designated agency sidesteps the conflict by assigning separate agents within one brokerage, each owing full duties to a different party.

Implied Agency Risk

A listing agent who coaches a buyer at an open house on what to offer can accidentally create implied agency if the buyer reasonably believes the agent now represents them. The fix is clear early disclosure and refusing to give strategic advice to non-clients.

Vicarious Liability and Supervision

A broker is responsible for supervising affiliated licensees and bears vicarious liability for their acts within the scope of the agency. This is why brokerages police advertising, disclosures, and trust-account handling - the firm answers for an agent's mistakes.

Confidentiality Survives the Deal

Confidentiality continues after the listing expires. An agent may not later reveal a former client's bottom-line price, motivation, or financial position.

Common Exam Traps

• Granting loyalty or confidentiality to a customer.
• Forgetting dual agency needs informed written consent from both sides.
• Assuming a broker is not liable for an agent's authorized acts.

Single Agency, Express vs. Implied Authority, and Estoppel

A single agency firm represents only one side per transaction, avoiding dual-agency conflicts entirely. Within any agency, an agent's authority comes in two forms: express authority (specifically granted in the listing or buyer agreement) and implied authority (whatever is reasonably necessary to carry out the express duties, such as placing a yard sign for a listed home).

Agency by estoppel arises when a principal's words or conduct lead a third party to reasonably believe someone is the principal's agent, and the third party relies on it. The principal is then estopped (barred) from denying the agency. The defense against accidental estoppel and implied agency is the same: disclose your representation status early and in writing.

A Tested Dual-Agency Scenario and the Anti-Steering Overlap

Scenario. A listing agent at Firm X is showing the seller's home when an unrepresented buyer asks the same agent to write their offer. If the agent agrees without disclosure, the agent becomes an undisclosed dual agent — illegal in most states. The lawful paths are: (1) obtain informed written consent from both seller and buyer to act as a disclosed dual agent with limited duties, or (2) use designated agency, assigning a second Firm X agent to the buyer so each client keeps full fiduciary representation.

Even as a dual agent, the licensee may not disclose the seller's lowest acceptable price to the buyer or the buyer's maximum to the seller — those are confidential. Note the fair-housing overlap: an agent must never let "loyalty" to a seller slide into steering buyers by protected class. Fiduciary duty to a client never overrides fair housing law.