Explanations

The correct answer is A. Must be fair and honest. While an agent owes the highest fiduciary duties to their principal (the seller in a listing agreement), they also owe specific duties to third parties, which include acting with fairness, honesty, integrity, and professionalism.

Let’s break down each option:

• A. Must be fair and honest: This is correct. Agents are required to treat third parties with honesty, truthfulness, and fairness. They must also act with reasonable care and skill towards third parties. Making intentionally false statements or misrepresentations to third parties that cause harm would be a breach of this duty. The law of agency mandates that all parties, including agents, principals, and third parties, treat each other in a fair and honest manner.
• B. Has no obligation: This is incorrect. Although the primary fiduciary duty is to the principal, agents do have legal duties to third parties, which include reasonable care and skill, good faith, fair dealing, and disclosure of material facts. An agent who harms a third party through incompetence or carelessness can be held liable.
• C. Need only disclose material facts when asked about them: This is incorrect. Agents are generally required to proactively disclose all known material facts to the principal, other agents, and other clients involved in real estate transactions. Even if the seller does not fully disclose property defects they are aware of, the listing broker must disclose any known material facts to the buyer and the buyer’s agent, or risk license suspension, revocation, and financial liability. For properties sold “as is,” the agent is still required by state law to disclose any known defects.
• D. Should disclose the lowest price the seller is willing to accept: This is incorrect and a severe violation of the agent’s fiduciary duty of loyalty and confidentiality to the principal. An agent must place the client’s needs and interests above anyone else’s in the deal. Specifically, in a dual agency relationship, the agent cannot disclose the bottom lines (lowest price a seller will accept or highest a buyer will pay) to the opposing party without the express consent of their principal. Disclosing such confidential information would be a serious breach and could lead to penalties, including loss of commission.

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