Agency Relationships
Who an agent actually works for, the duties that relationship creates, and how it can change mid-transaction.
Every real estate transaction runs through an agency relationship — a legal relationship where one person (the agent) acts on behalf of another (the principal) in dealings with third parties. Get this wrong on the exam and you'll get every downstream question about duties, disclosure, and liability wrong too.
How agency is created
Agency is generally created by mutual consent between principal and agent — most often through a written listing agreement or buyer representation agreement, though agency can also arise by implication from the parties' conduct. What agency is not: something that happens automatically just because an agent shows a buyer a house or answers a seller's questions at an open house. Without an actual agency agreement, that visitor is generally a customer, not a client.
- Client
- A party the agent represents, owed the full set of fiduciary duties.
- Customer
- A party the agent is working with but not representing — owed honesty and fair dealing, not fiduciary duties.
The fiduciary duties
Once agency exists, the agent owes the client a set of fiduciary duties, commonly remembered by the mnemonic OLD CAR:
Loyalty is the one worth sitting with: it means the agent puts the client's interests ahead of everyone else's — including the agent's own commission. An agent who steers a buyer toward a listing that pays a bigger split, instead of the listing that actually fits the buyer's needs, has a loyalty problem regardless of what gets disclosed afterward.
When one brokerage represents both the buyer and the seller in the same deal, full loyalty to both is generally impossible — which is exactly why dual agency generally requires informed, written consent from both parties, and remains prohibited outright in some states regardless of consent.
Agency can change mid-transaction
A relationship that starts as customer-level service can become full agency the moment representation is actually established — and a relationship can also shift from single agency into dual agency if the same brokerage ends up representing the other side too. The exam likes to test this: a fact pattern where an agent's role changes partway through, and the question asks what duties now apply.
"Undisclosed dual agency" — representing both sides without both parties knowing — is a serious violation precisely because it makes full loyalty structurally impossible while the client believes they have an advocate. Watch for scenario questions where consent was never actually obtained, not just where a form was in the file.
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