General Principles of Agency
Agency defines the relationship between a licensee and the people they serve, and for a broker it also defines the duty to supervise the licensees who act under the broker's authority. This topic covers how agency is created, fiduciary duties, clients versus customers, the forms agency can take, and the broker's vicarious responsibility for affiliated licensees.
Creating Agency and Fiduciary Duties
An agency relationship makes the licensee a fiduciary of the principal (client). It is usually created by express agreement (a listing or buyer-broker agreement) but can arise by implication or ratification. The agent owes fiduciary duties often remembered as OLD CAR: Obedience to lawful instructions, Loyalty, Disclosure of material facts, Confidentiality, Accounting for money and documents, and Reasonable care and diligence. In law the client contracts with the brokerage; the individual agent acts on the broker's behalf, which is why the broker is ultimately answerable for how those duties are performed.
Clients, Customers, Single and Dual Agency
A client is represented and owed full fiduciary duties; a customer is the other party, owed honesty, fair dealing, and disclosure of known material defects but not loyalty or confidentiality. Single agency means representing only one party. Dual agency means representing both buyer and seller in the same transaction and is permitted only with the informed written consent of both because of the conflict of interest; a dual agent cannot advocate price or terms for either side. Designated (appointed) agency lets different agents in one brokerage each represent one party, while a non-agency transaction broker facilitates without representing either party.
Broker Supervision and Vicarious Liability
A broker is a general agent of the brokerage and is responsible for supervising affiliated licensees, whether they are employees or independent contractors for tax purposes. Under respondeat superior and agency law, a broker can bear vicarious liability for the acts of licensees performed within the scope of their authority, which is why supervision, training, written policies, and file review are core broker competencies. The broker must ensure required agency disclosures are delivered at the proper time and that no licensee undertakes an undisclosed dual agency or misrepresents the firm's role.