Agency Relationships and Disclosure Obligations

What Is Agency?

In real estate, agency is the legal relationship in which a licensee (the agent) is authorized to act on behalf of another person (the principal) in a real estate transaction. Agency creates powerful legal obligations. Understanding those obligations — and disclosing them correctly — is not optional: most states require written agency disclosure at or before the first substantive contact with a prospective buyer or seller. Failing to disclose on time is a violation of state license law and can expose you to disciplinary action, civil liability, and loss of commission.

Types of Agency Relationships

Seller Agency (Listing Agency)

The licensee represents the seller. The seller is the principal. All fiduciary duties run to the seller. A buyer dealing with a seller's agent is a customer, not a client, and receives honest, fair dealing but not the full slate of fiduciary duties.

Buyer Agency

The licensee represents the buyer under a written buyer-agency agreement. The buyer is the principal. Fiduciary duties run to the buyer. The seller is the customer.

Disclosed Dual Agency

One licensee (or one brokerage) represents both the buyer and the seller in the same transaction. This is a conflict of interest by nature. It is legal only when both parties give their informed written consent before the agency relationship is formed. In dual agency, certain fiduciary duties — especially loyalty and full disclosure — are necessarily limited because the agent cannot fully advocate for both sides at once. The licensee must remain neutral and may not disclose one party's confidential motivations or negotiating position to the other.

Designated Agency

Some states permit a broker to designate one affiliated licensee to represent the seller and a different affiliated licensee to represent the buyer within the same transaction, reducing but not eliminating dual-agency concerns. Check your state's license law summary for whether designated agency is available in your jurisdiction.

Transaction Broker / Facilitator

Some states allow a non-agency, facilitated relationship in which the licensee assists both parties without representing either. Fiduciary duties do not apply, but duties of honesty and fair dealing still do.

The Six Fiduciary Duties

The acronym COALDL (or OLD CAR in some textbooks) covers the core duties a licensee owes to a principal:

1. Loyalty — Put the principal's interests above all others, including your own. In dual agency, loyalty becomes neutrality.

2. Confidentiality — Never disclose information that could harm the principal's bargaining position (e.g., the seller's minimum acceptable price, the buyer's maximum budget) — even after the relationship ends.

3. Disclosure — Proactively share all material facts the principal would want to know. This is distinct from confidentiality: you must disclose material facts about the transaction or property but protect the other party's confidential motivations.

4. Obedience — Follow the principal's lawful instructions. You are not obligated to follow illegal or unethical instructions.

5. Reasonable Care (Competence) — Apply professional skill, care, and diligence. Ignorance of basic real estate principles is not a defense.

6. Accounting — Safeguard all funds and documents entrusted to you. Commingling client funds with your own is a serious license-law violation in every state.

Mandatory Agency Disclosure

State laws differ in exact wording, but most require that the licensee:

• Present the agency disclosure form before any substantive discussion of a specific property or the client's financial situation.
• Obtain a signed acknowledgment from the prospective buyer or seller.
• Retain a copy of the signed disclosure in the transaction file.

The NAR Code of Ethics (Article 11) reinforces the duty of competence, and Standard of Practice 1-11 addresses the duty to disclose agency relationships. Always use the current version of your state's prescribed form; outdated forms can invalidate your disclosure.

Completing the Agency Disclosure Form

Every mandatory field matters. Common required fields include:

• Brokerage name and license number
• Licensee name and license number
• Date of disclosure
• Type of agency being offered or established
• Party receiving the disclosure (buyer or seller)
• Signature and date line for the recipient

Leave no mandatory field blank. A form missing the date or a signature is treated as no disclosure at all in most jurisdictions.

Safety and Professional Risk Points

Agency disclosure is a compliance and consumer-protection matter, but it also protects you:

• Document everything. A verbal explanation of agency is not enough; the signed form is your evidence.
• Never assume agency. Acting as if you represent someone without a proper agreement — and without disclosure — can create implied agency, exposing you to fiduciary liability you did not intend.
• Dual agency without written consent from both parties is illegal in every state that permits dual agency at all. Proceeding without consent is grounds for license revocation.
• Confidentiality survives the transaction. You cannot disclose a former client's confidential information even after the deal closes.