Fiduciary Duties in Agency Relationships

The Foundation of Agency Law in Real Estate Practice

Every real estate transaction is structured around an agency relationship — a legal arrangement in which one party (the agent) is authorized to act on behalf of another (the principal). The nature of that relationship determines the scope of the licensee's fiduciary duties, the permissibility of compensation structures, and the liability exposure for both the agent and the brokerage. Misidentifying or mismanaging these relationships has been the basis for disciplinary actions, civil liability, and criminal prosecution in cases involving fraud or conversion.

State real estate laws recognize four primary agency models: seller's agent, buyer's agent, dual agency, and transaction broker (or facilitator). Each model imposes distinct obligations. Understanding which duties apply — and when they are triggered — is foundational to lawful practice.

Seller's Agency: The Traditional Model

The seller's agent, also known as the listing agent, represents the seller's interests in a transaction. This relationship is typically established through a written listing agreement, which creates an express agency. Once the agency is formed, the licensee owes the seller six common law fiduciary duties: loyalty, obedience, disclosure, confidentiality, reasonable care, and accounting.

Loyalty requires the agent to place the seller's interests above all others, including the agent's own. In Batson v. Strehlow, 68 P.3d 662 (Wyo. 2003), the Wyoming Supreme Court held that an agent who purchased property from a client without full disclosure of material facts breached the duty of loyalty, even though the transaction closed at the listed price. The court emphasized that the duty of loyalty prohibits self-dealing and requires full transparency when the agent has any personal interest in the transaction.

Obedience requires the agent to follow all lawful instructions from the principal. An agent who disregards a seller's instruction not to show the property without advance notice, or who accepts an offer below the seller's stated minimum, breaches this duty.

Disclosure requires the agent to communicate all material facts to the principal. This includes not only information about offers and counteroffers, but also information about the buyer's financial condition, motivation, or intent. In Easton v. Strassburger, 152 Cal. App. 3d 90 (1984), the California Court of Appeal held that a listing agent's duty of disclosure extends to material facts about the condition of the property itself, even those not known to the seller. This case established the foundation for California's comprehensive disclosure laws and influenced similar statutes nationwide.

Confidentiality requires the agent to protect the principal's private information. A seller's agent may not disclose the seller's minimum acceptable price, motivation for selling, or financial distress to a buyer or buyer's agent without the seller's explicit consent. This duty survives the termination of the agency relationship.

Reasonable care (or competence) requires the agent to exercise the skill and diligence expected of a licensed professional. Negligent misrepresentation, failure to verify square footage, or errors in calculating prorations can constitute a breach of this duty.

Accounting requires the agent to handle the principal's funds properly and provide a full accounting of all funds received and disbursed. Commingling client funds with personal funds, or failing to deposit earnest money as instructed, breaches this duty and may also violate criminal statutes.

Buyer's Agency: The Shift Toward Client Representation

Buyer's agency was formally recognized by most state real estate commissions in the 1980s and 1990s as consumer protection advocates argued that buyers needed their own representation. A buyer's agent enters into a written or oral agreement with a buyer and owes the same six fiduciary duties to the buyer that a seller's agent owes to the seller.

The primary difference is the direction of loyalty. A buyer's agent must advocate for the buyer's interests, which includes advising the buyer on offer strategy, negotiating the lowest possible price and most favorable terms, and disclosing material facts about the property or the seller's circumstances that could affect the buyer's decision.

Conflicts arise when the buyer's agent is compensated through a commission split from the listing broker, as has been the traditional practice. In Stortroen v. Beneficial Finance Co., 736 P.2d 391 (Colo. 1987), the Colorado Supreme Court held that a broker could owe fiduciary duties to a buyer even when compensated by the seller, provided the broker had manifested an intent to represent the buyer and the buyer reasonably relied on that representation. This case underscored the principle that agency is determined by conduct and reasonable expectations, not solely by the source of compensation.

Following the 2024 National Association of Realtors settlement in Sitzer/Burnett v. NAR, many MLSs have eliminated mandatory offers of buyer agent compensation from listing agreements. This structural change will likely accelerate the adoption of direct buyer-broker agreements with compensation paid directly by buyers, further clarifying the agency relationship.

Dual Agency: Heightened Disclosure and Consent Requirements

Dual agency occurs when a single licensee or brokerage represents both the buyer and the seller in the same transaction. At common law, dual agency was prohibited as an inherent conflict of interest. Modern state statutes permit dual agency only when both parties provide informed written consent after full disclosure.

The legal standard for dual agency consent is high. In Hubbard v. Fidelity Federal Bank, 91 F.3d 75 (9th Cir. 1996), the Ninth Circuit held that a dual agent's disclosure must be specific and clear, and that a vague or boilerplate disclosure buried in a representation agreement does not satisfy the informed consent requirement.

Most states require that dual agency disclosure occur at the first substantive contact with a party, and many require a separate written acknowledgment at the time an offer is presented. The disclosure must explain that the agent will not advocate for either party's interests and that confidential information will not be shared without permission.

The fiduciary duties owed in dual agency are diminished. The dual agent owes duties of honesty, fairness, and disclosure of material facts, but does not owe the duties of loyalty or undivided advocacy. The dual agent may not disclose that the seller will accept less than the asking price, or that the buyer is willing to pay more than the offered price, without express permission.

Undisclosed dual agency is a per se violation of real estate licensing laws in every jurisdiction. In Haymes v. Rogers, 70 Ariz. 257, 219 P.2d 339 (1950), the Arizona Supreme Court held that a broker who acted as a dual agent without disclosure forfeited the right to any commission and was liable for damages. Most state real estate commissions have taken the position that undisclosed dual agency warrants license suspension or revocation.

Transaction Brokerage: The Non-Agency Alternative

In response to consumer confusion and liability concerns surrounding dual agency, some states have adopted transaction brokerage statutes. Florida, Colorado, and Oklahoma are among the states that recognize this model. A transaction broker does not represent either party, but instead facilitates the transaction by assisting both parties in reaching an agreement.

The transaction broker owes limited statutory duties, which typically include honest dealing, presenting all offers, accounting for funds, and disclosing known material defects. The transaction broker does not owe fiduciary duties of loyalty or confidentiality, and may not provide advice or advocate for either party's position.

Florida Statutes § 475.278 establishes transaction brokerage as the default relationship unless a single agent or no brokerage relationship is chosen. The statute provides transaction brokers with immunity from vicarious liability for the acts of the other party, a significant protection not available in dual agency.

Transaction brokerage is not without controversy. Critics argue that it leaves consumers without true representation and that many consumers do not understand the difference between a transaction broker and an agent. Some state commissions have declined to adopt transaction brokerage, preferring to require designated agency within a brokerage to avoid dual agency.

Designated Agency and In-House Transactions

Designated agency (also called appointed agency) allows a brokerage to appoint separate agents within the same firm to represent the buyer and seller in a transaction, avoiding dual agency at the agent level. The designated agents owe full fiduciary duties to their respective clients, but the brokerage itself is technically a dual agent.

State laws vary on whether designated agency is permitted and what disclosures are required. In states that allow it, the brokerage must typically appoint the designated agents in writing, disclose the arrangement to both parties, and maintain confidentiality between the designated agents.

Conflicts can arise when the designated agents share office space, participate in team meetings where transaction details are discussed, or have access to the same client files. Brokerages must implement information barriers to protect confidential information and prevent one designated agent from using information obtained from the other party to gain an advantage.

Agency Disclosure and Timing Requirements

State laws require written agency disclosure, typically on a standardized form, at or before the first substantive contact with a prospective client. Substantive contact generally means any communication beyond preliminary greetings or providing general market information. Showing a property, discussing financing options, or drafting an offer all constitute substantive contact.

Failure to provide timely agency disclosure is a violation of state licensing law and may be used as evidence in a civil suit. In Coldwell Banker v. Caplan, 710 So. 2d 793 (Fla. 5th DCA 1998), the Florida appellate court held that a broker's failure to provide the required disclosure form could support a finding that the broker breached fiduciary duties and denied the broker recovery of commission.

Many states require updated disclosure when the relationship changes — for example, when a single agent becomes a dual agent or transaction broker. Failure to provide updated disclosure when the relationship changes has been the basis for disciplinary actions and commission forfeitures.

Enforcement Actions and Case Studies

State real estate commissions routinely discipline licensees for agency violations. Common violations include:

• Representing both parties without written consent (undisclosed dual agency)
• Failing to disclose agency relationships to all parties
• Disclosing confidential information to the opposing party
• Acting in a licensee's own interest at the expense of the client
• Accepting compensation from both parties without disclosure

In a 2019 case, the Texas Real Estate Commission revoked the license of a broker who purchased a listing from a client without disclosing the broker's intent to resell the property for a profit. The commission found that the broker breached the duties of loyalty and disclosure, engaged in dishonest dealing, and violated the prohibition on undisclosed dual agency.

In a 2021 case, the California Bureau of Real Estate Enforcement suspended a salesperson who disclosed a buyer's maximum purchase price to the listing agent without the buyer's consent. The bureau found that the salesperson breached the duty of confidentiality and acted in the broker's financial interest (higher sale price, higher commission) rather than the buyer's interest.

Practical Guidance for Agency Compliance

Licensees must establish agency relationships deliberately and document them in writing. Use the state-mandated disclosure forms, provide them at first substantive contact, and retain signed copies in the transaction file. When agency relationships change, provide updated written disclosure immediately.

Never act as a dual agent without informed written consent from both parties. If dual agency is permitted in your state and you choose to practice it, ensure that your disclosure is clear, prominent, and provided separately from other transaction documents.

Protect confidential information rigorously. Do not disclose your client's motivation, financial limits, or negotiating position to the other party or their agent. If you receive confidential information about the opposing party, do not use it to your client's advantage if doing so would breach a duty owed to that party in a prior or concurrent relationship.

When in doubt about which duties you owe, consult your broker, legal counsel, or state real estate commission. Misunderstanding your agency role is not a defense to a disciplinary action or civil liability claim.