22.3 Primary Areas of Risk

Chapter 22: Risk Management

Topic 22.3 — Agency Risk

Agency risk usually shows up in two places:

Failing to inform and disclose what must be disclosed
Failing to carry out an agency duty (or required duties under state law)

Even in states that don’t use “agency” the same way, licensees still have a duty to explain the relationship and follow disclosure rules.

Disclosure Requirements (Common Pattern)

States often require licensees to disclose agency status and confirm it in writing. Typical requirements include:

Disclose status verbally to other licensees on initial contact
Disclose status verbally to buyer and seller before providing real estate services
Confirm the disclosure in writing (timing depends on the situation and state rules)
Get a signed receipt showing the written disclosure was provided

Also disclose: personal interest in the transaction, personal benefit from referrals, and other required property/market information
(plus information a client is entitled to have about customers).

Duties: To All Parties vs. To Clients

Whether a state applies fiduciary duties or lists duties in license law, the basics are similar.

Duties to ALL parties

Honesty
Fairness
Reasonable care and skill
Required disclosures

Additional duties to CLIENTS

Skill
Care
Diligence
Loyalty
Obedience (as long as it’s legal)
Confidentiality
Accounting
Full disclosure

Important: Obedience never overrides the legal duty to deal fairly and honestly with all parties.

Conflicts of Interest & Confidentiality

Conflicts of interest happen when an agent forgets to put the client’s best interests first. Risky situations can include:
undisclosed dual agency, broker-owned listings, licensees buying for themselves, vendor referrals, and subcontracted property management services.

Remember: a licensee usually gets paid only if the deal closes. That can create pressure to “push” a transaction even when it may not be in the client’s best interest.
Any self-interest must be disclosed.

Confidentiality: Confidential information can include motivations, financial/personal details, and anything the client designates as confidential.
Public record info (or info that becomes public without the licensee’s involvement) is generally not confidential.

Many laws also require businesses to protect consumer personal information from unauthorized access, use, modification, destruction, or disclosure—and to dispose of it securely.

The duty of confidentiality generally survives termination of the listing/agency relationship.

Possible Penalties for Agency Breaches

Rescission of the transaction
Loss of compensation
Fees and costs
Punitive damages
Ethics discipline
License discipline

Topic 22.3 Check-In

Where Trouble Starts

Choose the best answer for each question, then select Check Answers.

Which duty is owed to all parties in a transaction (not just the client)?

Honesty Licensees owe honesty (and fairness, reasonable care/skill, and required disclosures) to all parties. Loyalty and confidentiality are client-level duties.

A conflict of interest is most likely when a licensee:

Pushes a transaction to close mainly because they only get paid if it closes That pressure can tempt an agent to prioritize their own interest over the client’s—one of the most common roots of conflicts of interest.

🔒 Mark Complete unlocks when every answer is correct.