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

Importance ★★★★★ · 44% (estimate)

Overview

This chapter explains who the agent works for and what the agent owes to clients and to everyone else in the transaction.

The principal, or client, hires the agent; a customer is a party the agent works with but does not represent. A listing agreement makes the broker the agent and the seller the principal. Agency can be created expressly or implied by conduct, and it ends by completion, expiration, mutual agreement, death or incapacity of either party, destruction of the property, or revocation or renunciation.

An agent owes the client fiduciary duties: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care. The agent must keep the client's motivation and lowest price private and disclose any conflict of interest. Customers are owed honesty and fair dealing, which includes disclosure of known material defects. Dual agency, where one broker represents both sides, is allowed only where state law permits and with informed written consent of both parties.

Key concepts

  • Principal

    The client who hires the agent and is owed fiduciary duties.

    Memory tipClient = principal

  • Customer

    A party the agent works with but does not represent, owed honesty and fair dealing.

    Memory tipCustomer gets honesty, not advocacy

  • Fiduciary duties

    Obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care.

    Memory tipOLD CAR

  • Dual agency

    One broker represents both buyer and seller, allowed only where state law permits and with informed written consent.

    Memory tipUndisclosed dual agency is illegal.

  • Implied agency

    An agency created by the parties' conduct rather than a written or spoken agreement.

    Memory tipPut relationships in writing

  • Termination of agency

    Agency ends by completion, expiration, mutual agreement, death or incapacity, destruction of the property, or revocation.

    Memory tipDeath of the principal ends it

Often tested

  • Telling a buyer the seller's lowest price breaks loyalty and confidentiality.
  • Known material defects must be disclosed even to customers.
  • Commingling client money breaks the duty of accounting.

3 sample questions

Verified practice questions from this unit.

Practice questionReviewedReal Estate Contracts and Agency › Agency Relationships and Duties★★★★★

Question 1. In an agency relationship, the person who hires the agent is the:

  1. ① Fiduciary
  2. ② Subagent
  3. ③ Principal (client)
  4. ④ Customer
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ③ Principal (client)

Key point: Principal = client; agent owes fiduciary duties

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.
Practice questionReviewedReal Estate Contracts and Agency › Agency Relationships and Duties★★★★★

Question 2. Which of the following is one of the fiduciary duties an agent owes to a client?

  1. ① Guaranteeing the sale price
  2. ② Disclosing the client's lowest acceptable price to buyers
  3. ③ Giving legal advice about the deed
  4. ④ Confidentiality
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ④ Confidentiality

Key point: Fiduciary duties: OLD CAR

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.
Practice questionReviewedReal Estate Contracts and Agency › Agency Relationships and Duties★★★★★

Question 3. A seller's agent tells a buyer customer that the basement floods after heavy rain. The agent:

  1. ① Did the right thing, because agents must disclose known material defects to all parties
  2. ② Needed the buyer's written permission first
  3. ③ Should have told the buyer only after closing
  4. ④ Broke the duty of loyalty to the seller
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ① Did the right thing, because agents must disclose known material defects to all parties

Key point: Material defects must be disclosed to customers too

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.
Practice 5 questions from this unit →

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