Question

A client hires a broker to buy a parcel of land for a specified sum on his behalf. The broker however purchases it for himself at a lower price and then sells it to his client at a higher price without revealing his costs. This is an example of:

Selections

A. Secret profit

B. Divided agency

C. Smart dealing

D. False promise 

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Answer: A

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5 Keys Summary

• The broker’s action of purchasing the land for themselves at a lower price and then selling it to their client at a higher, undisclosed price is an example of a Secret profit.

• A Secret profit is an unauthorized and undisclosed financial gain made by an agent in a transaction on behalf of a principal.

• This action violates the broker’s fiduciary duties to the client, specifically the duty of loyalty (placing the client’s interests first) and the duty of full disclosure of material facts (including any hidden profit or ownership interest).

• The legal consequence of a secret profit is that the broker may be required to relinquish that undisclosed gain to the principal, and such acts can lead to penalties including loss of commission and disciplinary action against the license.

• Divided agency (or dual agency) is a separate violation concerning the representation of multiple parties without full disclosure and consent, which is distinct from an agent making an undisclosed personal profit in the transaction.

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