Real Estate Salesperson Exam (National Portion) Agency Relationships and Duties Summary

The principal (client) hires the agent and is owed fiduciary duties. A customer is a party the agent works with but does not represent, such as a buyer working with the seller's agent.

Wrong choices

• Customer: A customer is a third party the agent works with but does not represent.
• Subagent: A subagent is an agent of the agent.
• Fiduciary: The agent, not the person hiring, is the fiduciary.

The common fiduciary duties are Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care (OLD CAR). The agent must keep the client's confidential information, such as the lowest acceptable price, private.

Wrong choices

• Guaranteeing the sale price: No agent can guarantee a price.
• Disclosing the client's lowest acceptable price to buyers: That would break the duties of loyalty and confidentiality.
• Giving legal advice about the deed: Giving legal advice is the unauthorized practice of law.

Agents owe customers honesty and fair dealing. A known material defect, such as a flooding basement, must be disclosed to buyers, even when the agent represents the seller. Hiding it can be misrepresentation or fraud.

Wrong choices

• Broke the duty of loyalty to the seller: Agents must disclose known material defects to buyers even when representing the seller.
• Should have told the buyer only after closing: The disclosure must be made before the buyer is committed.
• Needed the buyer's written permission first: No permission is needed to disclose a material defect.

A listing agreement creates an express agency. The broker is the agent and the seller is the principal. Salespersons work on the broker's behalf.

Wrong choices

• The seller: The seller is the principal.
• The buyer: The buyer is a customer unless represented by another agent.
• The multiple listing service: The MLS is a sharing service, not the agent.

The duty of accounting requires the agent to safeguard and report all money and documents belonging to others, such as earnest money, and never mix them with the agent's own funds (commingling).

Wrong choices

• Obedience: Obedience means following lawful instructions.
• Disclosure: Disclosure means sharing relevant information with the client.
• Loyalty: Loyalty means putting the client's interest first.

An agency ends by completion of its purpose, expiration of its term, mutual agreement, death or incapacity of either party, destruction of the property, bankruptcy, or by revocation or renunciation (which may lead to damages).

Wrong choices

• The agent finding a buyer who later backs out: A failed sale alone does not end the listing.
• A drop in market prices: Market changes do not end the agency.
• The seller painting the house: Repairs do not end the agency.

Dual agency exists when one broker represents both buyer and seller. It is allowed only where state law permits and with the informed written consent of both parties. Undisclosed dual agency is illegal. Some states use designated agency or transaction brokerage instead.

Wrong choices

• Single agency: In single agency the broker represents only one party.
• Subagency: Subagency is when another broker's agent works for the client through the listing broker.
• Undisclosed agency: Dual agency must be disclosed and agreed to, so it is not undisclosed.

An agent must put the client's interest first (loyalty) and keep the client's private information, such as motivation and lowest price, confidential. Telling the buyer harms the seller's bargaining position.

Wrong choices

• Accounting: Accounting is about handling and reporting money.
• Obedience: Obedience is about following the client's lawful instructions.
• Reasonable care: Reasonable care is about competence; this is a breach of loyalty and confidentiality.

Agency may be express (a written or oral agreement) or implied from the parties' conduct. Licensees should make relationships clear in writing to avoid an accidental (implied) agency.

Wrong choices

• Recording a deed: Recording a deed does not create agency.
• Escheat: Escheat concerns property passing to the state.
• Ratification by the seller: The seller cannot create the buyer's agency.

Loyalty requires the agent to put the client's interest ahead of the agent's own. Any conflict of interest or self-interest that could affect the client must be disclosed.

Wrong choices

• Push the home that pays more: This would put the agent's interest ahead of the client's.
• Hide the commission difference from the buyer: Conflicts of interest must be disclosed.
• Stop working with the buyer without notice: Abandoning the client is not a proper solution.