Agency and Client Representation
What this domain tests
Agency questions test whether you can identify who represents whom, when duties arise, and how those duties change when a brokerage acts for both sides. The exam probes fiduciary duties, disclosure timing, the difference between clients and customers, and the handling of confidential information.
Core rules and concepts
- Agency is created by agreement. A written buyer or seller representation agreement establishes the relationship and defines the scope, term, and compensation. Agency can also arise from conduct, but the written agreement is the exam's default reference point.
- Fiduciary duties owed to a client typically include loyalty, obedience to lawful instructions, disclosure of material information, confidentiality, accounting for money, and reasonable care and skill. These are owed to the client, not to the customer.
- Customers are parties the brokerage deals with but does not represent. They are entitled to honesty and fair dealing, but not to the fiduciary duties of loyalty and full confidentiality.
- Multiple representation (dual agency) arises when the same brokerage represents both buyer and seller in one trade. It requires informed written consent from both, and the brokerage must not favour one side. In many jurisdictions it is restricted or requires enhanced disclosure of what will and will not be provided.
- Confidential information includes the client's motivation, financial position, and willingness to accept a different price. It survives the end of the relationship in many regimes.
- Designated representation allows two different registrants within one brokerage to represent each side, with information walls between them.
- Termination occurs by expiry, completion, mutual agreement, or breach. Commission may still be owed under a holdover clause if the buyer introduced during the term later buys.
Worked example
A buyer's agent learns the seller is transferring jobs in 60 days and will accept $30,000 below list. The agent's brokerage also represents the seller under a separate agreement. Can the agent tell the buyer?
Reasoning: first identify the agency structure. If the brokerage represents both sides, this is multiple representation and requires written informed consent. Even with consent, the seller's motivation and bottom price are confidential; the agent cannot use them against the seller. The correct handling is to disclose to both clients the nature of the conflict, obtain consent, and refrain from revealing the seller's confidential motivation. If consent is not obtained, the brokerage must decline one side.
Traps that cost marks
- Assuming a customer gets the same loyalty as a client.
- Believing dual agency means the brokerage can advocate for whichever side pays more.
- Forgetting that consent to multiple representation must be informed and in writing.
- Overlooking holdover clauses when a buyer returns after the agreement expires.
- Treating confidential information as ending the moment the deal closes.