Agency Relationships and Duties

Agency is a legal relationship where one party (the agent) represents another (the principal). Real estate agency creates fiduciary duties and disclosure obligations.

Agency Basics

Principal - The client who authorizes an agent to act on their behalf.

Agent - The person who represents the principal.

Fiduciary - A person who must act in the best interest of another.

Real estate agents are usually special agents because they are authorized to perform specific acts for a limited purpose, not to bind the client in all matters.

Types of Agency Relationships

Table: Agency Relationships

Agency rules vary by state. Some states allow transaction brokerage, others do not. Always follow state disclosure rules in practice.

Creation of Agency

Agency can be created by:

• Written agreement (most common)
• Oral agreement (allowed in some states but risky)
• Implied actions (less common and risky)

In practice, agency is usually created through a written listing agreement or buyer representation agreement.

Termination of Agency

Agency relationships end by:

• Expiration of the agreement
• Performance (closing)
• Mutual agreement
• Revocation by the principal
• Renunciation by the agent
• Death or incapacity of either party
• Destruction of the property

Duties to Clients (Fiduciary Duties)

A common acronym is OLD CAR:

• Obedience - Follow lawful instructions.
• Loyalty - Put the client first.
• Disclosure - Share material facts.
• Confidentiality - Protect client information.
• Accounting - Safeguard funds and property.
• Reasonable care - Use skill and diligence.

These duties apply to clients, not to customers.

Duties to Customers

Customers are non-clients. Duties typically include:

• Honesty and fair dealing
• Disclosure of known material facts
• Accounting for funds

Agents must be careful not to create an implied agency relationship by giving advice or acting like a representative.

Exam Traps

• Confusing client duties with customer duties.
• Forgetting that dual agency requires informed consent.
• Assuming every relationship is a fiduciary relationship.

Summary

Understand who is represented, how agency is created and terminated, and the difference between fiduciary duties to clients and general duties to customers.

Agency Disclosure and Informed Consent

Most states require written disclosure of agency relationships early in the transaction. This protects consumers and clarifies who represents whom.

Dual agency is especially sensitive. Because an agent cannot fully advocate for both sides, dual agency requires informed consent from both parties and limits the agent's ability to advise on price or negotiation strategy.

Mini-Case: Implied Agency Risk

An agent hosting an open house answers detailed pricing questions and suggests a buyer offer strategy, even though the agent represents the seller. If the buyer reasonably believes the agent represents them, an implied agency relationship could be formed, creating a conflict. The safe practice is clear disclosures and avoiding advice to non-clients.

Licensee Obligations to All Parties

Even when a client relationship exists, agents owe basic obligations to all parties:

• Treat all parties honestly
• Disclose material defects
• Avoid misrepresentation
• Account for funds

Exam Application Check

If a question asks which duty applies only to clients, choose loyalty or confidentiality. If it asks which duties apply to all parties, choose honesty and disclosure of material facts.

Client vs. Customer Duties

Agency by Estoppel and Ratification

Agency by estoppel occurs when a principal allows others to believe an agent has authority, and a third party relies on that belief. The principal can be bound even without a written agreement.

Ratification occurs when a principal accepts the benefits of an unauthorized act, thereby approving it. For example, if a seller accepts an offer negotiated by an unapproved agent, the seller may have ratified the agency.

Vicarious Liability and Supervision

Brokers are responsible for supervising agents and can be held liable for their actions. This is why brokerages review advertising, disclosures, and escrow handling. Understanding this relationship helps explain why agency rules are strict.

Exam Application Check

If a question asks whether a brokerage can be responsible for an agent's actions, the answer is yes under vicarious liability.

Confidentiality and After-Agency Duties

Confidentiality is a fiduciary duty that often survives the end of the agency relationship. Even after a listing expires or a buyer agreement ends, an agent should not disclose a former client's motivation, financial position, or willingness to accept different terms.

Presenting Offers and Obedience

Agents must present offers promptly unless the client gives written instructions to the contrary. Obedience means following lawful instructions, such as negotiating only through a specific channel or rejecting certain terms.

Practical Example: Multiple Offers

A seller instructs the listing agent to disclose only the highest and best deadline, not the terms of competing offers. The agent must follow those instructions and avoid sharing confidential details with buyers.

Exam Application Check

If a question asks which duty continues after agency ends, choose confidentiality.