What are the fiduciary duties that real estate agents owe their clients, and how are they commonly remembered?

Laws of Agency on the Real Estate Exam

Fiduciary duties are the core of real estate agency law. Understanding what agents must do and what happens when they breach these duties is essential for the exam. Violations of fiduciary duty can result in disciplinary action, lawsuits, and damages. The exam tests whether you can identify when a duty has been breached and what the consequences are.

Understanding Laws of Agency: Key Concepts

Overview

An agent's fiduciary duties form the legal foundation of the agency relationship. These duties apply when an agent represents a principal (buyer or seller). The OLDCAR acronym helps remember the six core duties.

Obedience means the agent must follow all lawful instructions from the principal. The agent cannot ignore client requests or do something contrary to what the client directs, provided the instruction is legal and ethical. If a client instructs the agent to present an offer at a certain price, the agent must do so, even if the agent thinks a higher offer would be better.

Requirements

Loyalty requires the agent to put the client's interests above all others, including the agent's own interests. The agent must avoid conflicts of interest and cannot take advantage of client information for personal gain. In a single agency relationship, the agent's loyalty is undivided; in a dual agency, loyalty is divided and creates ethical complications.

Additional Considerations

Disclosure means the agent must reveal all material facts and information that affect the property or transaction. The agent cannot hide defects, neighborhood problems, or information that would influence a reasonable person's decision. Disclosure also includes revealing the agent's own agency status and any conflicts of interest. If the agent represents both buyer and seller, this must be disclosed.

Requirements

Confidentiality requires the agent to keep the client's confidential information private. The agent cannot disclose the client's financial situation, their maximum offer price, the lowest price they will accept, or other sensitive information unless authorized or required by law. This duty continues even after the transaction closes and even after the agency relationship ends.

Accountability means the agent must properly handle client funds, records, and other assets. If the agent receives earnest money, security deposits, or other client money, it must be held in trust in a separate account, properly accounted for, and disbursed according to instructions or law. Mishandling client money is one of the most serious violations.

Requirements

Reasonable Care requires the agent to provide competent, professional service. The agent must use proper care, skill, and diligence in performing duties. The agent cannot be grossly negligent or incompetent. This includes properly explaining documents, identifying problems with transactions, and ensuring compliance with legal requirements.

These duties apply to agents in single agency relationships with full force. In dual agency, the agent still owes these duties to both parties but with important limitations, particularly regarding loyalty and confidentiality. In transaction broker relationships (where no fiduciary duty exists), agents owe fewer duties.

Laws of Agency Rules by State

Each state has its own rules when it comes to laws of agency. Here are a few examples of how requirements differ: