Question

Under the law of Agency, a fiduciary relationship is created between the broker and the seller upon execution of the listing agreement. As far as the broker’s responsibility to third parties, the broker:

Selections

A. Must be fair and honest

B. Has no obligation

C. Need only disclose material facts when asked about them

D. Should disclose the lowest price the seller is willing to accept

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Answer: A

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5 Keys Summary

1. Although a broker owes the highest fiduciary duties (Loyalty, Obedience, Care, Accounting, and Disclosure – COALD) only to their principal (the seller), they must still treat all third parties with fairness, honesty, truthfulness, and good faith.

2. A broker has a legal obligation to act with reasonable care and skill toward third parties, meaning they should act professionally and competently, and are not exempt from liability for harm caused by carelessness or incompetence.

3. The broker cannot disclose confidential information, such as the seller’s lowest acceptable price, as this would be a severe violation of the fiduciary duty of loyalty and confidentiality owed to the principal.

4. The broker must proactively disclose all known material facts—defined as facts important enough to affect a party’s decision—to all principals and third parties, regardless of whether they are specifically asked about them.

5. A broker who makes intentionally false statements (actual fraud) or even slight misrepresentations to third parties that cause harm would be in breach of their duty of good faith and fair dealing.

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