Home › Blog › Agency and fiduciary duties, explained
Agency and fiduciary duties, explained
Agency is the single most reliably tested topic on the real-estate exam, and the one where careless reading costs the most marks. Almost every agency question reduces to one thing: who is your client, and what do you therefore owe them?
Client versus customer — the distinction everything hangs on
A client is the party you represent. You owe them the full set of fiduciary duties.
A customer is a party you work with but do not represent. You owe them honesty, fair dealing
and disclosure of material facts — but not loyalty or confidentiality.
Exam questions love to describe a friendly, helpful interaction with a buyer and then ask what you owe them.
Helpfulness does not create representation. A representation agreement does.
The fiduciary duties
Different states teach different mnemonics, but the substance is consistent:
Loyalty — your client's interests come before your own
Obedience — follow lawful instructions
Disclosure — tell your client everything material you know
Confidentiality — do not reveal what would weaken their position, and this survives the
end of the relationship
Accounting — handle money and documents properly and account for them
Reasonable care and diligence — competence, not perfection
Note the tension the exam exploits: you owe your client confidentiality and your
customer disclosure of material facts. Knowing the seller will accept less is confidential.
Knowing the roof leaks is a material fact you must disclose to anyone.
Types of agency
Seller agency — you represent the seller; the buyer is a customer
Buyer agency — the reverse
Dual agency — representing both sides in one transaction. Permitted in some states,
prohibited in others, and always requiring informed written consent where allowed
Designated agency — the brokerage names different agents for each side
Transaction brokerage — a non-agency role facilitating without representing either party
Which of these your state permits, and what disclosure it requires, is state-portion material. Check your
own state's rules rather than assuming.
When agency ends — and what survives
An agency relationship terminates by completion, expiration, mutual agreement, revocation or renunciation,
or by death or incapacity. One duty outlives it: confidentiality. Information your client gave
you in confidence stays confidential after the relationship ends.
How agency questions are usually written
The typical question is a short scenario ending in "what should the licensee do?". Work it in this order:
Identify who the licensee represents
Decide whether the other party is a client or a customer
Ask which duty the scenario is testing — usually confidentiality, disclosure or loyalty
Check whether the answer requires written consent or disclosure, which is a common trap