Arkansas Real Estate License Agency and Fiduciary Duties Questions and Answers — Questions and Answers
Question 1: An Arkansas real estate agent representing a seller learns from the seller that the roof, which appears new, has a significant, actively leaking defect that they have tried to patch unsuccessfully. A potential buyer, who is a customer and not represented by an agent, does not ask about the roof. What is the agent's duty in this situation?
- To disclose the known material defect to the potential buyer, as it impacts the property's value and desirability. (Correct answer)
- To maintain confidentiality and not disclose the leak unless directly asked by the buyer.
- To tell the buyer that the roof is new and therefore has no issues.
- To advise the seller to lower the price to account for the leak without disclosing the specific reason.
Correct answer: To disclose the known material defect to the potential buyer, as it impacts the property's value and desirability.
According to AREC Regulation 10.6, a licensee must "exert reasonable efforts" to learn the material facts about a property and avoid misrepresentation. While an agent's primary fiduciary duty is to their client (the seller), this does not override the obligation of honest dealing with all parties. A known, significant latent defect such as an active leak is a material fact that must be disclosed to a customer, even if it is not requested.
Question 2: Under Arkansas law, which of the following fiduciary duties owed by a licensee to their client CANNOT be waived, even with the client's written consent?
- The duty to show the client alternative properties listed with other firms.
- The duty to perform a market analysis for the client every month.
- The duty to attend the closing in person.
- The duty of absolute fidelity to protect and promote the client's interests. (Correct answer)
Correct answer: The duty of absolute fidelity to protect and promote the client's interests.
Arkansas Code § 17-42-316 and AREC forms explicitly state that the fundamental fiduciary duties, such as the primary duty of absolute fidelity to protect and promote the client's interests, cannot be waived. While some specific services might be negotiable, the core ethical and legal obligations of agency are statutory and mandatory.
Question 3: A licensee with ABC Realty has a buyer representation agreement. The buyer becomes interested in a property listed by another agent at ABC Realty. To proceed with the transaction, what specific type of agency must be created, and what is required?
- Designated agency, which requires appointing two separate agents within the firm.
- Implied agency, which is created by the actions of the agents and parties.
- Sub-agency, where both agents work for the seller.
- Dual agency, which requires prior written consent from both the buyer and the seller. (Correct answer)
Correct answer: Dual agency, which requires prior written consent from both the buyer and the seller.
When one firm represents both the buyer and the seller in the same transaction, it creates a dual agency. According to AREC Regulation 8.3, this is only permissible if all parties give their written consent to the dual representation prior to or at the time of executing any contract, such as the offer and acceptance.
Question 4: Which of the following events would automatically terminate an agency relationship by operation of law in Arkansas?
- The agent renounces the relationship because the client is difficult to work with.
- The client revokes the agency because they are unhappy with the marketing efforts.
- The property is destroyed by a tornado. (Correct answer)
- The listing agreement's expiration date passes without a sale.
Correct answer: The property is destroyed by a tornado.
Termination of agency by operation of law occurs due to events beyond the control of the parties. The destruction of the subject matter (the property) makes the fulfillment of the contract impossible, thus automatically terminating the agency relationship. The other options describe termination by acts of the parties (renunciation, revocation) or fulfillment/expiration of the contract terms.
Question 5: A buyer's agent in Arkansas owes the full range of fiduciary duties to their client. To a third-party seller (a customer), the buyer's agent owes a primary duty of:
- Loyalty and confidentiality.
- Obedience to their instructions.
- Honesty and fair dealing. (Correct answer)
- Advising on the best negotiation strategy.
Correct answer: Honesty and fair dealing.
While a licensee owes fiduciary duties (loyalty, obedience, confidentiality, etc.) to their client, they owe a duty of honesty and fair dealing to all parties in the transaction, including customers. This includes disclosing material facts but does not extend to providing confidential advice or acting in the customer's best interest over their own client's.
Question 6: A seller's agent is holding an open house. A prospective buyer attends without an agent and begins to share confidential financial information and their high motivation to buy quickly. The seller's agent should:
- Use this information to the seller's advantage in negotiations.
- Immediately stop the buyer and disclose that the agent represents the seller and must convey this information to them. (Correct answer)
- Agree to keep the buyer's information confidential to build rapport.
- Advise the buyer to get their own representation without explaining why.
Correct answer: Immediately stop the buyer and disclose that the agent represents the seller and must convey this information to them.
The agent's primary duty is to the seller. Allowing the unrepresented buyer to share confidential information without understanding the agent's role creates a potential undisclosed dual agency situation and is unfair to the buyer. The agent must immediately clarify their agency relationship and explain that their duty of loyalty and disclosure is to the seller, meaning any confidential information shared will be passed on to the seller.
