NAR Agency Relationships & Fiduciary Duties 2 — Questions and Answers
Question 1: In real estate, what is the key distinction between a 'client' and a 'customer'?
- A client pays a higher commission than a customer
- A client has a signed agency agreement and receives fiduciary duties; a customer does not (Correct answer)
- A customer is always represented by a buyer's agent
- A client is only the seller, while a customer is the buyer
Correct answer: A client has a signed agency agreement and receives fiduciary duties; a customer does not
A client has an agency relationship with the broker and is owed full fiduciary duties, while a customer receives only honest and fair dealing without fiduciary representation.
Question 2: What document typically establishes an exclusive buyer agency relationship?
- A purchase and sale agreement
- A listing agreement
- A buyer representation agreement (Correct answer)
- A cooperating broker agreement
Correct answer: A buyer representation agreement
A buyer representation agreement (also called a buyer agency agreement) formally establishes the broker as the buyer's exclusive agent, creating fiduciary duties to the buyer.
Question 3: Designated agency occurs when:
- A broker assigns specific agents to represent each party in a transaction within the same brokerage (Correct answer)
- A state licensing board designates a broker as the official agent for a region
- An agent is designated as a dual agent by the MLS
- The court appoints an agent to handle a property in dispute
Correct answer: A broker assigns specific agents to represent each party in a transaction within the same brokerage
Designated agency allows a broker to assign one agent to represent the buyer and a different agent to represent the seller within the same brokerage, preserving individual fiduciary duties.
Question 4: Under the fiduciary duty of obedience, an agent must follow client instructions EXCEPT when those instructions:
- Require the agent to work overtime without extra pay
- Are inconvenient or time-consuming for the agent
- Violate the law or the agent's ethical obligations (Correct answer)
- Conflict with the agent's personal real estate strategy
Correct answer: Violate the law or the agent's ethical obligations
While agents must follow lawful client instructions, they are not obligated — and in fact are prohibited — from following instructions that require illegal actions or ethical violations.
Question 5: When does an agency relationship most commonly terminate?
- When the agent takes a vacation
- Upon expiration of the agreement, completion of the transaction, or mutual agreement to terminate (Correct answer)
- When the client contacts another agent for information
- After 90 days from the listing date, regardless of contract terms
Correct answer: Upon expiration of the agreement, completion of the transaction, or mutual agreement to terminate
Agency relationships typically end upon contract expiration, successful completion of the transaction, mutual rescission, or other legally recognized events such as death or incapacity.
Question 6: Which scenario BEST illustrates a breach of the fiduciary duty of confidentiality?
- An agent tells the buyer that the seller just completed a home inspection
- An agent discloses to a buyer that the seller is going through a divorce and must sell quickly (Correct answer)
- An agent informs the seller of the buyer's offer amount
- An agent shares the listing price with other agents on MLS
Correct answer: An agent discloses to a buyer that the seller is going through a divorce and must sell quickly
Revealing that a seller is in a distressed personal situation (divorce, foreclosure, financial need) to the opposing party is a breach of confidentiality that could weaken the seller's negotiating position.
Question 7: In a transaction brokerage (non-agency) arrangement, the broker owes the parties:
- Full fiduciary duties identical to traditional agency
- Limited duties including honesty, fair dealing, and disclosure of material facts, but not full fiduciary duties (Correct answer)
- No duties whatsoever since no agency is created
- Fiduciary duties only to the party who pays the commission
Correct answer: Limited duties including honesty, fair dealing, and disclosure of material facts, but not full fiduciary duties
Transaction brokers provide a limited form of representation that includes honesty, fair dealing, and disclosure of material facts, but does not include the full fiduciary duties of traditional agency.
NAR Agency Relationships & Fiduciary Duties 2
In real estate, what is the key distinction between a 'client' and a 'customer'?