Agency, Brokerage Relationships, and Fiduciary Duties
What this domain tests
This domain tests who represents whom, how agency is created and terminated, and how fiduciary duties apply in real transactions. Expect scenario questions about dual agency, confidentiality, and compensation.
Creating agency
Agency may be express, implied by conduct, or created by ratification. A listing agreement creates agency between broker and seller. A buyer-broker agreement creates agency with a buyer. Compensation alone does not create agency. Some states allow transaction-broker or facilitator roles with limited duties.
Fiduciary duties
Common-law duties include care, obedience, loyalty, disclosure, accounting, and confidentiality. Loyalty prohibits secret profit and self-dealing. Disclosure requires revealing material facts, not a client's confidential weaknesses. Confidentiality may continue after termination. Funds must be accounted for and not commingled.
Dual and designated agency
Dual agency occurs when one brokerage represents both parties. It requires informed written consent and impartial treatment. Designated agency assigns different agents within one firm. Some states prohibit dual agency. A broker is generally responsible for supervising licensees.
Worked example
A buyer tells her agent, I will pay up to $500,000, but offer $460,000. The agent must not reveal the $500,000 ceiling to the seller. The agent presents the $460,000 offer and advises the buyer. If the same agent also represents the seller with proper dual-agency consent, the agent cannot disclose either side's confidential information and must not advocate one side over the other.
Traps
Do not assume a commission split creates dual agency. Do not reveal confidential information after the relationship ends. Do not treat a customer as a client with fiduciary rights.