Chapter 8 · National foundations
Agency and Fiduciary Duties
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Representation is a legal relationship
Agency An authorized relationship in which an agent acts on behalf of a principal. See Chapter 8. Glossary is a relationship in which an agent is authorized to act on behalf of a Principal In agency, the represented client; in finance, the loan balance apart from interest. See Chapter 8, Chapter 15. Glossary. In brokerage, the principal is the Client A represented principal in a brokerage relationship. See Chapter 8. Glossary: commonly a seller, buyer, landlord, or tenant. A Customer A person receiving services without necessarily being represented. See Chapter 8. Glossary receives services but is not necessarily represented. A buyer who calls a listing agent is not automatically that agent's client. Nor does the person who pays a commission necessarily determine whom the agent represents.
An agent can be a Special agent An agent authorized for a particular transaction or limited activity. See Chapter 8. Glossary, authorized for a particular transaction; a General agent An agent authorized for an ongoing range of activities within a defined scope. See Chapter 8. Glossary, authorized for a continuing range of activities such as managing a property; or a universal agent, possessing unusually broad authority. Most ordinary brokerage representation is limited rather than universal. A real estate License In property use, permission distinct from an estate; in professional regulation, authorization to practice. See Chapter 5, Chapter 19. Glossary alone does not authorize an agent to sign a purchase contract or Deed An instrument used to convey an interest in real estate. See Chapter 7. Glossary for a client. A valid power of attorney may authorize particular acts, but its scope and applicable law control. S11 S12
Agency may arise through an express agreement or, where recognized, through conduct implying agreement. Ratification Legally effective approval of an earlier act. See Chapter 8. Glossary means affirming an act after it occurred. Estoppel A principle preventing a person from denying a position when legally sufficient reliance makes denial improper. See Chapter 8. Glossary can prevent someone from denying a relationship when their conduct reasonably induced detrimental reliance. Do not use these concepts to evade a statute that requires a written representation agreement. Apply Colorado’s current written-agreement requirement and the relationship analysis in Chapter 23.
Actual authority is granted expressly or implied by the principal's authorization. Apparent authority generally depends on the principal's manifestations to a third party, not merely on an agent announcing, “I have authority.” An agent's undisclosed private limitation and an outsider's reasonable perception can create difficult liability questions. Report them to the supervising broker rather than improvising. S11 S12
The fiduciary duties
A common memory aid is OLD CAR: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care. The mnemonic is a study device, not a substitute for a state's statutory duties.
Obedience means following lawful instructions within the Agency An authorized relationship in which an agent acts on behalf of a principal. See Chapter 8. Glossary relationship. A seller's instruction to exclude buyers because of national origin is not an instruction to obey.
Loyalty means placing the Client A represented principal in a brokerage relationship. See Chapter 8. Glossary's interests ahead of the agent's conflicting personal interests within the law. Secret profits, undisclosed self-dealing, and recommending a transaction merely because it pays more threaten this duty.
Disclosure means giving the client material information the agent is obligated to communicate, including relevant conflicts and transaction facts. It does not authorize disclosure of another person's protected confidential information.
Confidentiality protects information such as negotiating limits and personal motivations, subject to legal exceptions. It may survive termination of the agency. A hidden dangerous property condition is not automatically protected simply because the seller says, “Keep it confidential.”
Accounting requires safeguarding and properly documenting money, property, and records entrusted to the agent.
Reasonable care and diligence require competent performance within the agent's role. They do not require pretending to be an engineer, attorney, tax adviser, or environmental consultant. Recognizing a problem and recommending a qualified specialist is often the competent response. S12
Worked scenario: the seller's bottom line
A seller lists at $420,000 and privately tells the listing agent that $395,000 would be acceptable. A buyer asks, “What is the least your seller will take?” Unless the seller authorizes that disclosure or law requires it, the agent should not reveal the confidential negotiating limit. The agent can invite an offer and communicate it to the seller.
Now change the fact: the seller privately reports recurring basement flooding and instructs the agent to deny any water problems. That is not simply a negotiating confidence. The agent must follow applicable disclosure law and cannot knowingly make a false statement.
Common representation arrangements
Single Agency An authorized relationship in which an agent acts on behalf of a principal. See Chapter 8. Glossary means representing one side in a transaction. A seller's agent advocates for the seller; a buyer's agent advocates for the buyer. Duties to nonclients still exist.
Dual agency Representation of opposing parties in the same transaction where legally permitted. See Chapter 8. Glossary means representing opposing parties in the same transaction, where permitted. It creates inherent conflicts and can require informed written consent. Some states prohibit it. Even with consent, an agent cannot provide both parties unrestricted advice about how to defeat the other's negotiating position.
Designated agency A state-recognized arrangement assigning different affiliated agents to different clients. See Chapter 8. Glossary assigns different affiliated licensees to represent different Client A represented principal in a brokerage relationship. See Chapter 8. Glossary, where the state recognizes that arrangement. Its legal treatment is not identical everywhere; the supervising broker's role matters.
A Transaction broker A nonagency or limited-service role whose name and duties depend on state law. See Chapter 8. Glossary, facilitator, or similar nonagency role may assist without representing either side as a Fiduciary A person owing legally recognized duties of trust and loyalty within a defined relationship. See Chapter 8. Glossary. Names, permissible duties, and disclosure requirements are state-specific. Calling oneself “neutral” does not automatically establish the legally correct role.
Subagency involves an agent acting under another agent's authority for the same Principal In agency, the represented client; in finance, the loan balance apart from interest. See Chapter 8, Chapter 15. Glossary. Cooperation between firms does not, by itself, establish subagency. Compensation sharing and representation are separate questions. S12 S01
Duties to everyone
Nonclients are generally entitled to honesty, fair dealing, and legally required disclosures. Do not conceal a material defect, misstate property characteristics, fabricate competing offers, or present an opinion as a verified fact.
Fraud involves legally significant deception with the required elements. Negligent misrepresentation can arise from carelessly supplying false information without reasonable grounds. Puffing Promotional opinion rather than a specific verified factual statement, depending on context. See Chapter 8. Glossary is promotional opinion, such as “a beautiful view,” but a measurable statement such as “the roof was replaced last year” is not made harmless by a sales tone. Whether a particular statement is actionable depends on law and context. S12
An agent should promptly communicate offers and other material transaction information as required by law and the representation agreement. The agent does not choose which price the Client A represented principal in a brokerage relationship. See Chapter 8. Glossary must accept, secretly discard an offer because another pays more compensation, or invent a competing offer to create urgency. Multiple-offer procedures, disclosure permissions, and written instructions must be handled under the actual governing rules. S12
Ending agency
Agency An authorized relationship in which an agent acts on behalf of a principal. See Chapter 8. Glossary may end through completion, expiration, mutual agreement, lawful revocation or renunciation, destruction of the subject matter, or other events recognized by law. Death or incapacity can have different effects depending on who is affected, the form of agency, and governing law. Confidentiality and accounting obligations may continue.
The power to terminate a relationship is not necessarily the right to terminate without financial consequences. A Client A represented principal in a brokerage relationship. See Chapter 8. Glossary may end the agent's authority yet still face contractual obligations. Earned compensation, protection clauses, pending transactions, and record retention require separate analysis. S11 S12
A seller pays compensation to a buyer's brokerage under an authorized arrangement. Who is the buyer's brokerage's client?